Frame Profit Tips for Third Party

I cannot stress enough in today's optical landscape, to purchase the right price points at the right discounts for your office.

First, your buyer must understand the difference between profit on wholesale-based plans and retail-based plans.

Wholesale-based Plans

These are plans which have a wholesale allowance on frames for the patient. This is designed to keep the patient's experience and coverage relatively similar from provider to provider. All frames under the wholesale allowance must be "covered" for that patient. There are several companies with plans like this in the market.

This means that if the plan has a $50 wholesale frame allowance, a frame with a list price of $49 would be covered. Now if that frame was not purchased at a substantial discount, your margin would be next to nothing regardless of your retail markup strategy. Frames with a list price that are under the most common wholesale allowances on plans in your area, need to be purchased at a high discount from a value vendor to have a margin.

Retail-based Plans

These plans have a retail allowance only for the patient. In this case, your markup strategy is key (unlike with wholesale plans). For this type of plan, I recommend that you examine which plans are most common in your area again. Once you know the average retail allowance, you can create your strategy. If the average plan in your area has a retail allowance of $130, then I recommend a particular strategy for all frames that you price with a retail of $150 and under to be safe. Since a typical plan with a retail allowance of $130 may only reimburse between $45-50, I recommend that all frames priced under this amount have a final acquisition price of under $25.

Keep it Simple

This can feel like a lot to absorb for a new buyer. My suggestion is that you create a hardline for purchasing. Assuming most retail plans and wholesale plans in your area look like the two above, Create a hard line that the buyer is not allowed to go below. If the average plan has a wholesale allowance of $50, then set a rule that no frame under a list price of $50 can be purchased without a high discount from a value frame provider. Then create a special board or cabinet for these frames. When a patient insists on a "covered" frame option, they can be directed to these.