DX / Differentials / EYE CARE GROUPS

D-05 — PREPARING FOR SALE · EYE CARE GROUPS

Growth has to read as a system — eye care

The earnings are real. The system that produces them is not visible.

DIFFERENTIAL — LIKELY CAUSES, MOST LIKELY FIRST

1. 01

   The revenue depends on re-acquisition each year rather than on recurrence

   A buyer prices repeatability. If the majority of the active patient file does not transact in a given year, then most of next year's revenue has to be re-won — and the practice is selling a brand and a location rather than a book of business.

   Median 43 complete exams per 100 active patients — an average interval of 2.3 years, or 28 months, against an annual clinical standard. Annual gross revenue per active patient: median $133, top decile $270, bottom decile $60. The publisher explains the low level directly: it "reflect[s] the fact that a majority of active patients do not visit the office in a given year."

   MBA "Key Metrics," pp.11–12 — n>1,900 US private optometric practices. 2015 edition; data largely 2010–2012, so the dollar levels are dated and the distribution shape and the 28-month interval are the durable findings. Note: $133 per active patient per year and $306 per complete exam are DIFFERENT denominators and must never be blended. The "revenue per patient" benchmarks in wide circulation sit between the two and carry neither denominator; several trace to aggregators with no stated method.

   NOT THIS IF — You are above 50 complete exams per 100 active patients — the publisher's own high-recall line. Then the book does recur and the diligence story is easier to tell.

2. 02

   The metric that defines the business is not measured, so diligence cannot verify the story

   A seller who cannot produce a dated capture-rate series is asking a buyer to take the operating story on trust. Buyers do not; they discount. And the absence is not unusual — it is the norm, which is exactly why producing it is a differentiator at the table.

   Just 23% of practices ever track their eyewear sales capture rate — measured inside a sample the publisher describes as running about 50% above the median US independent OD in revenue. Nationally, independent ODs hold a 53% share of primary eyecare patients against a 42% share of revenue, attributed by the source directly to capture rate.

   MBA "Key Metrics," pp.4 and 21 (n>1,900, 2015 edition); the patient-share-versus-revenue-share figure is Jobson Medical Information, quoted verbatim therein.

   NOT THIS IF — You already hold 24 months of capture, revenue per exam, exams per OD hour and recall with stated denominators. Then the operating story is evidenced and the work is presentation, not measurement.

3. 03

   Margin sits inside a wide distribution that scale barely explains

   Owners often assume a strong margin will carry the valuation. In this vertical margin is driven by operating quality, not size — so a buyer reads a high margin as a question ('does it survive the owner leaving?') rather than as an answer, unless the operating metrics underneath it are documented.

   Net income as a percentage of gross revenue: median 30%, 75th percentile 42%, 85th 47%, 95th 50%, 5th percentile 8%. Across a 4× revenue range the median moves only from 26.6% (under $493K) to 35.0% ($2,133K+). Corroborating expense structure from a separate, more recent lineage: COGS 26–32% of gross revenue, staff 18–24%, OD compensation 14–20%, occupancy 5–8%, net income 27–35% of net collections.

   MBA "Key Metrics," pp.44–45 (n>1,900; note this 'net income' is pre-owner-compensation and SDE-like, which is why it reads high against a corporate P&L). Expense structure: Nathan Hayes / IDOC Books & Benchmarks and Review of Optometric Business, 2022–2024, compiled with per-figure citations at ODs on Finance — the marketing-expense line on that page carries no citation and is not used here.

   NOT THIS IF — You are already above the 75th percentile at 42% net income AND can show the operating metrics that produce it. Then margin is an asset in the conversation rather than a question.

4. 04

   The one genuinely recurring line — contact lens supply — is leaking

   Contact lens materials are the closest thing to an annuity in an optometric practice, and annuities carry valuation weight. But the annual supply converts at the chair or not at all, and the modality mix is moving against conversion.

   Contact lens materials are 16% of gross revenue at the median against 32% in the top decile and 6% in the bottom. A median of 30% of active patients wear contact lenses (95th percentile 60%). Median annual contact lens sales per contact lens exam: $152, against an average box retail of $42 — 3.6 boxes, well under an annual supply. Annual-supply conversion: 25% of two-week wearers, 60% of monthly wearers, and "few daily disposable wearers purchase an annual supply" — while daily disposables lead prescribing at 43%–59% across three independent datasets.

   MBA "Key Metrics," pp.30–31, 35, citing its own Contact Lens Management Survey (December 2011); the publisher flags a contact lens sales ratio below 12% of gross revenue as symptomatic, including of a contact lens purchase capture rate under 80%. Modality mix: Contact Lens Spectrum, "Contact Lenses 2025," triangulating its Reader Profile Survey, ABB Optical Group and NIQ — the 16-point spread is unresolved by the publisher, so report the range.

   NOT THIS IF — Contact lens materials already exceed 19% of gross revenue (70th–79th percentile) with documented annual-supply conversion. Then the recurring line is an asset and should lead the story.

5. 05

   Payer and clinical mix is where the market is moving, and the practice's position in it is undocumented

   Routine refraction is a flat market; medical optometry is not. A buyer underwriting the next five years is underwriting mix, and a practice that cannot evidence its medical share and its payer concentration is asking to be valued on the flat half.

   Sources of gross billings for owner ODs (2021): direct patient payment 31%, self-directed vision plans 30%, private medical insurance 23%, government programs 16%, other 3% — with private medical insurance up from 17% a decade earlier. Collections were 84% of billings. On the demand side: routine eye exams 111 million (2020) forecast to exceed 113 million by 2030 (+1.8% over a decade), while medical eye exams grow from 60 million to over 76 million (+26.5%).

   Payer mix and collections: AOA Research & Information Center, 2022 Survey of Optometric Practice: Income from Optometry (2021 data) — read at source; the AOA discloses in writing that respondents were self-selected and may skew toward practices doing exceptionally well. Exam forecasts: VisionWatch, quoted in Review of Optometric Business — medium confidence, a named primary quoted in credible trade press.

   NOT THIS IF — Your medical share is already documented by CPT and tracking at or above the national 23% private-medical-insurance line, with a payer concentration report you could hand to a buyer today.

HOW TO TELL THEM APART

How to tell these apart in your own numbers

Each of these is a measurement you can run yourself, without us.

WHAT RESOLVES EACH

What resolves this, and how you will know it resolved

The revenue depends on re-acquisition each year rather than on recurrence	Rx 03 · patient conversion →	Recall built as a system with an owner, a cadence and a dated record — because what a buyer is buying is the system, not the month it produced. Two to three years of a rising recall ratio is worth more in the room than one good quarter.
The metric that defines the business is not measured, so diligence cannot verify the story	Rx 04 · marketing attribution →	The six-number monthly series, started now, becomes a 24-month exhibit by the time the process opens. Start it whether or not anyone is engaged to build it — the series is worth more than who built it. What does not work: reconstructing the history during diligence.
Margin sits inside a wide distribution that scale barely explains	Rx 05 · preparing for sale →	The narrative has to connect margin to the operating metrics beneath it — capture, revenue per exam, OD-hour utilisation — rather than presenting the margin as its own argument. Note that the published net income figures are pre-owner-compensation and SDE-like; expect them to be normalised, and normalise them yourself first.
The one genuinely recurring line — contact lens supply — is leaking	Rx 03 · patient conversion →	Annual supply is converted in the exam room, before the patient stands up, and box count is the friction. This is the only line in the practice a buyer can underwrite as recurring — it deserves to be the most instrumented one.
Payer and clinical mix is where the market is moving, and the practice's position in it is undocumented	Rx 05 · preparing for sale →	Medical optometry is the growth line in every forecast located, and a documented medical share changes which half of the market the practice is valued against. What does not work: asserting a medical shift without the CPT-level evidence, in a diligence process that will pull the claims data anyway.

HOW THIS DIFFERS BY SCALE

How this differs by scale

Single site	A single-OD practice sells on seller's discretionary earnings, and the buyer is often an individual or a small group. The realistic multiple band in circulation for sub-$500K SDE single-OD practices is roughly 2.5×–4.5× SDE — from a compilation of broker and advisory sources rather than a measured distribution, so treat it as a directional ladder. The exhibit that moves it is a documented recall and capture series, because it is the evidence that the practice is not the owner.
Group	A multi-OD group in the $1M–$3M adjusted EBITDA range sits in a materially higher band — roughly 6×–8.5× adjusted EBITDA on the same compiled ladder. Here the diligence question shifts from 'does it survive the owner' to 'is the playbook real,' which is answered by cross-site consistency in capture, recall and revenue per exam rather than by the group average.
Platform	At platform scale — roughly $10M+ adjusted EBITDA, with a compiled range of about 10×–14× since 2024 against 12×–15× at the 2020–2022 peak — the story is same-store growth and integration. Buyer supply is real: 7% of optometrists responding to the AOA's 2022 survey were already in private-equity-owned or affiliated practices, and precedent platform transactions include MyEyeDr at roughly $2.7 billion enterprise value and EyeCare Partners at more than $2 billion. Seller supply is real too: 16% of ODs are aged 60 or over and owner income peaks between 60 and 65.

OTHER PRESENTATIONS — EYE CARE GROUPS

• Exam volume is flat — and the unserved demand is already in the recall file
• Cost per exam is climbing — and the exam is worth less than it was
• The exams happen. The purchase happens somewhere else.
• Same brand, same frame boards — and three times the revenue per exam between offices