January 2, 2007

Mystery of the Missing Profits

A while back I spoke to a client whose office I designed some months ago. When he told me that he hadn't met all of the financial objectives we set at the beginning of the design process, I was surprised and puzzled. The average revenue per exam had only increased 11%.

This troubled me greatly as I am used to glowing reports from clients that their average revenue jumped up 25%, 35%, sometimes more. I racked my brain thinking back over the dispensary design and couldn't find a reason why people weren't spending more. He was offering a bigger selection in a beautiful new dispensary with state of the art lighting. Something was not right.

I decided to call and talk to the head optician to see if there was something I could suggest that would boost the dispensary sales to the level where I knew they should be. Just a few minutes into the conversation, he gave me the key to solving the problem.

Turns out the doc wouldn't let him order the more expensive designer lines and in-demand brands! The doctor was afraid no one would buy them. He had a great new dispensary with a special area designed to sell high-end frames, but no high-end frames to sell!

It took another call and some convincing from me to get the doctor to remove the price-point handcuffs he had put on his optician. I had to remind him that optical retailing is the ONLY retail industry that has incredibly liberal return policies. If it doesn't sell, the sales rep will take it back. His risk was very low, and the upside potential very high.

With a little more coaxing he agreed to try just two or three high-end lines. "Work with the sales reps," I said. "They know what's selling in this area and will get you started with a good selection of their most popular styles." I promised to call back in two months and see what progress they had made.

When I called my client back I could tell from the happy tone of his voice that there was a big smile on his face. They had experienced the thrill of their first $1,000. sale and the higher ticket frames were practically flying out the door. What really shocked the doctor was that some of the patients he had pre-judged as tightwads actually wanted those high fashion frames and spent more with no arm-twisting.

Sure the moderate priced frames still make up the majority of the sales. But between the new higher income patients that he was now attracting and the existing patients who stepped up their style, his average revenue per exam had leapt up from $265 to $393. That's a 67% increase...and $25,600. more revenue in one month if you figure an average rate of 200 exams per month. He’s probably doing many more exams by now.

With this kind of result the entire cost of the new office would be recouped in less than a year. I suggested that he send a postcard to all the people he had examined in the new office before the new merchandise arrived. Offer them a little discount and invite them back to see the new styles.

I don't know if he followed up on it, but I bet that if he did, he is probably buying tickets for that Hawaiian golf tour vacation he's always dreamed of.

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