Understanding Expenses, Revenue & Profit

Introduction to Managerial Accounting (Optometry Edition)

Managerial accounting helps optometry practice owners see what’s really happening behind the scenes of your monthly numbers. It’s not just “bookkeeping.” It’s a system for answering three questions fast: (1) Where is the money coming from? (2) What is costing you the most? (3) What profit is actually left after you run the practice?

When you run an optometry practice, you don’t just sell “services.” You sell exams, contact lenses, glasses, and treatment plans—often paid in different ways (insurance, patient pay, FSA/HSA, payment plans, lens upgrades). Managerial accounting puts those moving parts into a clear operating picture so you can make better staffing, buying, and pricing decisions.

Concept: Expenses

In an optometry practice, expenses are the costs required to keep the doors open and deliver care. Expenses include your biggest recurring items like:
- Labor: optometrist compensation, assistants, front desk staff, opticians
- Occupancy: rent, utilities
- Clinical supplies: drops, diagnostic consumables, exam-related items
- Optical costs: lens blanks, coatings, frames (or frame purchasing model)
- Billing and software: EHR, billing service, phone system
- Marketing and sales tools: local ads, website, promotions
- Insurance and fees: malpractice, licensing, payment processing

What to look for: Not every expense is “bad.” But managerial accounting helps you spot which expenses are rising faster than your revenue. For example, if your lab/lens-related costs climb while your average ticket is flat, your profit will shrink even if patient volume stays steady.

Real-World Example: Your practice buys frames and lens inventory weekly. After reviewing expenses by category, you notice frame buying has increased because the optician is chasing “new arrivals.” Meanwhile, sales of those frames aren’t keeping up. The result: more tied-up cash and higher monthly optical costs—hurting profit.

Concept: Revenue

Revenue is what your practice brings in from patient care and related sales. Revenue in optometry usually comes from multiple sources:
- Comprehensive eye exams
- Contact lens exams and fits
- Eyeglass sales: frames + lenses + coatings
- Contact lenses: brands, 1-month and 90-day packages
- Medical eye visits: diagnosis-based billing (when applicable)
- Vision plan reimbursements and insurance payments
- Patient pay and payment plans

What to look for: Revenue is not one number. You need to understand which revenue streams are growing and which are lagging. A practice can have more patient visits but still lose money if the pay mix shifts toward lower-margin services.

Real-World Example: A practice adds a post-exam “lens upgrade walkthrough” and trains the optician to discuss coatings (like blue light, anti-reflective) and warranties. The practice doesn’t just sell more glasses—it increases average revenue per eyewear sale, which improves overall profit.

Concept: Profit First (Optometry Version)

Profit First flips the usual thinking. Instead of only looking at Revenue minus Expenses equals Profit, it forces a structure where profit is set aside first.

In practice terms: after you receive collections (from insurance and patient payments), you treat profit like a “must-pay” category before you pay every operating bill.

A common Optometry Profit First habit is splitting collections into buckets:
- Profit (set aside immediately)
- Owner pay
- Operating expenses

Real-World Example: If your monthly collections average $120,000, you decide to set aside 10% as profit right away (or another percentage you choose). Even if expenses feel heavy that month—like a software subscription renewal or a seasonal staffing ramp—you already protected the profit portion.

This matters in optometry because timing can be tricky: insurance reimbursements can lag, and optical purchases may happen before you collect the full amount.

The Importance of Cash Flow Management

Cash flow is about timing: the money coming in versus the money going out—week by week. Optometry cash flow is often affected by:
- Insurance payout delays
- Refunds and remakes (especially early in a workflow change)
- Inventory purchasing cycles (frames and lenses)
- Payroll cadence and benefit costs
- Seasonal changes in appointment volume

Real-World Example: Your team updates the lab workflow and optical ordering process, and that increases eyewear sales—but you also notice you’re placing optical orders faster than you’re collecting payments. Reviewing cash flow weekly helps you adjust reorder timing, negotiate terms with the optical supplier, or use a different ordering schedule to prevent a cash crunch.

Conclusion

For an optometry practice, managerial accounting is your “financial dashboard.” You use it to understand expenses (what costs are driving profit down), revenue (what services and products are truly building your business), and cash flow (whether you can pay bills on time). With Profit First discipline, you protect profit instead of hoping it appears at the end of the month.

Your goal is simple: make decisions based on the operating numbers, not just the balance in one bank account.