At the heart of every optometric dispensary lies the important job of managing the frame board inventory. This task can appear to be challenging at times, but by following some simple strategies, it will lead to success. As with any investment, your view should be from the perspective of keeping a balanced budget with growth and profit in mind.
Most practices start out with a goal of how many frames they plan to display and make an initial investment. After the initial investment, it becomes relatively easy to produce reports to track patterns that will show you exactly what your needs are in specific areas. A smaller dispensary may carry only 500 to 600 frames, while others, particularly if in a higher income demographic, may need as many as 1,000 frames in order to offer a great selection. To determine the ideal number of frames your dispensary should carry, you must understand that setting this number is directly related to your sales volume and your inventory turn ratio.
Crunching the numbers
Profit for your practice is maximized when you can turn the inventory quickly. If you have more frames than you need in inventory, you have tied up working capital dollars that could be best served elsewhere in your practice. The average practice turns inventory 2 to 3 times a year, but a goal of at least 4 times would be more profitable. There is a simple formula to determine your turn ratio: take the annual cost of frame goods sold, divide it by the average monthly inventory, and you will get the number of inventory turns or your turn ratio. Here are some examples to simplify understanding:
• Example 1: Annual frame cost of goods $50,000/Average monthly frame inventory $30,000 =turn ratio of 1.6 turns. (Not ideal)
• Example 2: Annual frame cost of goods $100,000/ Average monthly frame inventory $40,000 = turn ratio of 2.5 turns. (Average)
• Example 3: Annual frame cost of good $80,000/ Average monthly frame inventory $20,000 = turn ratio of 4 turns. (Excellent)
Although turning your inventory 4 times is a noble goal, in these competitive times, you still have to offer an adequate selection of inventory. By understanding sales volume and turns, you can better decide your inventory needs. Budget wise, one could look at the previous year and see the total monthly dollars spent on frame inventory in each particular month or calculate how many frames were sold that month to set a monthly budget allowance. If you go over that budget, offset it the next month. By adding the total dollar amount of your frame vendor statements each month and comparing it to the report of the wholesale dollar amount of frames sold for that month, you can easily identify whether you maintained the desired budget or were under or over budget.
Examples of tracking your monthly budget:
• Frames sold in January: $10,000; purchases made in January $12,000; over budget $2,000.
• Frames sold in February: $8,000; purchases $6,000; under budget $2,000.