A Penny Saved is….?

Ben Franklin is to blame.  His motto, “a penny saved is a penny earned” is likely the root cause behind the fact that so many optometrists fail to meet their potential.  I know this well, as way back in 1979 I and a partner founded the father of all national buying groups, Co-Optics of America.  Back then, it was crystal clear that the emerging commercial chains had a significant purchasing advantage over the independent.  Our invention of the national buying group was intended to resolve that disparity.  It didn’t.

What’s most interesting, some 33 years later, is that the same phenomena prevails…the chains have significant purchasing power over the independent; in spite of the fact that virtually every optometrist in America belongs to some form of buying group.   So what happened?

The reason is rather simple.   Nothing in this world is free.  Suppliers have to make a profit.  So to accommodate this force called “buying groups,” they simply adjusted their margins over time.  You want a 30% discount…no problem…we’ll just raise our prices.  And that’s what they did.  And today, the cold reality is that NO ONE gets a discount that isn’t earned.  Much of what we see in the form of groups that claim significant savings is accomplished with “voodoo” savings mechanisms like private label and second-tier product; or through discount mechanisms that an astute retailer could readily achieve on their own.  Because buying groups don’t really aggregate purchasing or drive efficiencies, their effectiveness in changing behavior is minimal.

Yes, these plans may deliver some savings; but the reality is that they more likely make their promoters rich; with monies that are available directly to the ECP.  Way back in 1985, as the buying group industry was just hitting its stride, I stood before our industry’s leaders and called buying groups “parasitical.”  And today, our studies clearly indicate that participation in a buying group of any sort has little impact on a practice’ bottom line performance.   The numbers are clear.

Now don’t get me wrong, it is the primary responsibility of any business team to monitor and shave costs wherever possible.  And there are dozens of ways to accomplish truly lowered costs.  But, simply stated, you can’t save your way to success.  Certainly, every business owner should seek the lowest possible price from vendors.  But that savings occurs once.  It then becomes part of your new cost structure.  Responsibility for monitoring and managing costs is not something that a business owner should abdicate to an outside resource.  When that happens, the result is a separation, whether overt or covert, from your vendors.  And your vendors, as your partners, can be very instrumental in assisting you on both the cost and the revenue side of your business.

While ECPs and their teams must certainly monitor costs, most ECPs would be better rewarded through greater focus on raising revenue.    The next time you’re approached by an enterprise offering you savings, read the fine-print carefully.  Are you willing to change your relationships to save a dollar?  Are you negatively impacting your brand with the adoption of the group’s policy or their brand?  Would you not be better off working personally with your vendors to develop your business and a fruitful partnership?

Yes, a penny saved is a penny earned.  But investing time and energy to save a penny at the expense of a revenue dollar is a foolish investment.

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