News, Information and Ideas on how to deal with hearing loss in a hearing world. Plus a few other topics!
Thanks to Ed Belcher for sharing this with me. He has given me permission to publish his business plan which could, in fact, be the starting point for reducing the cost of hearing aids! If you have any questions or comments for him, his email is on the plan.
For the 1st part of this article, please go to this link: www.livinglakecountry.com/blogs/communityblogs/149995835.html
Here's the 2nd part with the actual Business Plan. I've sent it to the National HLAA office for their consideration. It will be interesting to see if something is done with it.
Description of NEWCO, a Hearing Aid Dispenser
Ed Belcher (firstname.lastname@example.org)
Can a hearing aid dispenser provide excellent service and quality aids for 25% of prices currently charged hearing-impaired customers? This paper hypothesizes such a distributor. The answer is “can be yes” with a win for well-paid company personnel, manufacturers with an increasing volume of sales, and customers obtaining excellent aids and service at a fraction of the current cost. The General Description gives a brief explanation of the company, with financial details given in Corporate Analysis and the Financial Spreadsheet.
I. General Description
NEWCO distributes hearing aids through 600 franchises spread over the 50
states. Each franchise has a lead audiologist, two hearing-technicians, a
receptionist, and a part-time bookkeeper. The franchises have the expertise
found in a typical Audiology practice and a large selection of high-end hearing
Assume NEWCO’s corporate facility negotiates directly with manufacturers and
purchases per year at least 560,000 hearing aids, the same number purchased
by the VA. The VA contracted with 5-6 manufacturers and obtained rights to
purchase quality aids averaging $340/aid over the 2010-2014 timeframe.
NEWCO obtains similar prices from the best manufacturers averaging $350/aid.
The VA currently purchases 20% of the hearing aids purchased in the USA.
NEWCO commands 25% of the non-VA market of hearing aid purchasers.
Considering the statistic that only 25% of those needing hearing aids currently
purchase them, NEWCO’s 560,000 aids represent only 1/16th or 6.25% of the
potential non-VA hearing aid market.
In addition to having low hearing aid acquisition costs, the franchises reduce
expenses by sharing advertising expenses with Corporate and sharing net-based
customer relationship software, bookkeeping software, and business
management practices/software. The franchises participate in initial and on-going
training for employees in regional workshops held in mutually convenient
A multi-outlet dispenser is not a new concept. HearUSA, Miracle-Ear, Costco,
and Walmart are just four examples of multi-outlet businesses today. NEWCO
differs from the above four companies in that each service and product is
separately priced and the total price of services and products are 25% of its
II. NEWCO ANALYSIS
This section follows the order of the Business Finances Spreadsheet at the end
of the paper and explains the numbers and the organization behind the numbers.
II. A Corporate Analysis
Corporate negotiates an average price of $350 per hearing aid. Similar to the
price negotiated by the VA for a similar volume of 560,000 aids fitted in one year.
Corporate marks up the aids not by a percentage but flat rate or $35 per aid. The sale price to the franchises is an average of $385 per aid.
The net revenue is $35 times the number of aids sold.
Administrative and Executive Branch
There are 35 members of the administrative staff ranging from assistants to
President. The average salary is $140,000 ranging from $40,000 for assistants
to hundreds of thousands of dollars for top management. Corporate does the
1. Negotiates prices and services with manufacturers.
2. Handles national advertising/branding campaigns for all of the franchises.
3. Provides at cost all franchises with bookkeeping software, customer-relations
software, and franchise-management software. These packages are all internet-
based with data stored redundantly at two separate off-site locations for safety.
4. Trains and monitors franchises in business management, operation of
software packages, and customer services. If a customer moves, s/he knows that records, warrantees, and the same expert treatment are available in any other NEWCO franchise.
Administrative space will be 10,000 square feet at $20 per square foot per year. The facility is situated in a location requiring modest rent and centrally located for travel considerations.
Corporate spends $9.65 on advertising for each hearing aid purchased or 27.6%
of markup. The resulting $5 Million will be used annually for national campaigns
that brand the franchises, their services, and features of the aids currently sold.
NEWCO expects word-of-mouth from satisfied customers to be their best
FICA and Benefits
Social Security and Medicare insurance born by the employer and employee will be 15.3% of wages. Benefits including healthcare insurance and 401(k)
contributions will be 12% of wages.
Rather than try to make this budget delineate every tax, fee and expense at this stage, a large category of Unallocated Expenses covers those expenses. Part of this amount may be corporate distributions to shareholders and bonuses.
The markup of $35 on each of the 561,508 aids sold in one year provides $19,652,780 for the corporate facility and its staff.
II.B Franchise Assumptions
Each franchise obtains a license to operate as a franchise of NEWCO and has the following benefits and obligations:
1. Top-of-the-line hearing aids cost an average of $385 each.
2. Training for staff will be available periodically each year at various locations convenient to groups of franchises featuring manufacturers under contract, and experts in business management and the field of Audiology.
3. Advertising/branding the franchise, its services and products
3. Quality software for bookkeeping, customer relations, and management.
1. Pricing for services and products is standardized
2. Quality of service and equipment exceeds standards
3. Quality of the facility exceeds standards
3. Salaries have local control with ranges related to job function.
4. The more aids and services sold, the more profit for the franchise. Profits are dispersed within the franchise for facility and equipment upgrades along with bonuses, and increased salaries.
5. Each franchise will spend approximately 2% of its revenues to augment corporate advertising.
An audiologist leads the staff. Two hearing-technicians help in areas such as
tests, fittings, adjustments, and ordering aids products. The receptionist greets
the customers, notifies the technical staff of arrivals, maintains the appointment
calendar and updates the customer relations software. A bookkeeper (or
bookkeeping firm) works approximately 16 hours/week and handles Payables,
Receivables, Payroll, Tax computations, and maintaining on-line bookkeeping
In this hypothetical company, the minimum desired salaries for the staff are:
Lead Tech $50,000
40%-time Bookkeeper $20,000
With the assumed cost/revenue structure, the franchise numbers are: Number of Aids sold per year: 916
For corporate to sell over 560,000 aids/year it needs 613 franchises
The franchise buys aids from Corporate for an average of $385/aid
The franchise sells the aids to customers for an average price of $565 each To sell 916 aids the franchise needs 458 paying customers
To get this final result the following are performed:
641 hearing tests
305 additional 30 minute visits
25 2-hour support groups
NEWCO is a fee-for-service organization. For most hearing aid sales, the following services will be needed:
1 hearing test
1 Year Support Group Membership
required part of the purchase package)
$100 (1 hour)
$150 (2 hours)
$50 each (1/2 hour each)
$50 (optional - a suggested but not a
For the activities listed above, the actual salaries are:
Lead Tech 50,088
Part-time Bookkeeper 20,235
Increased salaries or bonuses can be obtained with an increase in activity.
Rent: Assume a 2000 square-foot office at $20/square-foot-year
Equipment: Cost of Maintenance, Repair, and Replacement
Advertising: 2% of total revenue for local campaigns. Corporate supplements
advertising with a $5,400,000 national campaign to brand the business, its
service, its products and costs.
Unallocated Expenses: Expenses not covered in the allocations above, profit for shareholders and/or extra bonuses
FICA (Federal Insurance Contributions Act)
15.3% Social Security and Medicare Insurance Payments
12% 401(k) retirement account and health insurance
Work Hours (Possible and Actual)
Assume practice hours consist of five 7-hr days per week for 48 weeks per year. That would be 1680 hours/year per person. The billable hours are performed by three staff members to provide a possible total per year of 5,040 billable hours. The calculated workload (including two staff members at 25 support group
meetings) to achieve the franchise activities in the spreadsheet is 3025 hours. A 3-person staff would average 4.2 hours each per day. This leaves nearly 3 hours per day for seeing customers for other issues related to hearing and balance,
studying the current literature, and going to workshops and other outside tasks while not infringing on the 4 weeks of vacation leave.
Three major differences between NEWCO and its competition are:
1) The total package for a pair of hearing aids will average $1,530 approximately 25% of obtaining similar hearing aids from the competition.
2) Services rendered are charged whether aids are purchased or not. Assume a
customer had her hearing tested, hearing aids fitted, and three adjustments with
the purchased aids. If the customer decides not to keep the aids, she will get all
her money back except for services rendered. In the above case the services
were: test ($100), fitting ($150), and three adjustments ($ 50 each) for a total of
$400. If fewer services were rendered before the aids were returned, the cost to
the customer would be less. Charging fees for services rendered is expected in
laws affecting hearing aid distribution. It is VERY IMPORTANT that the customer
is told and agrees that charges for services rendered will be withheld from money
refunded if hearing aids are returned during the trial period.
3) A support group is available. It is two hours long and held 25 times a year.
Each meeting will be facilitated by two members of the staff (audiologist and one
of the two hearing-technicians) It is open to anyone who has paid a $50 annual
fee. This includes prospective customers and purchasers of hearing aids from
other dispensers. The two hours will have guest speakers discussing equipment
and programs available to the hearing impaired. There will be time for general
discussion of member experiences and ways to cope. Also there will be time at
each meeting where one can talk one-on-one to a staff member about a
particular issue. If more time is needed, an office visit can be scheduled.
NEWCO Business Finances Draft Rev: 17 June 2012 Ed Belcher email@example.com
Manufacturer Price 350
Number Aids Purchased 561508
Markup ($) 35
Sell Price 385
Net Revenue Central Facility 19,652,780.00
Administration 4,900,000.00 35 140000 Ave Salary See Com. 1
Rent 200,000.00 $20/sqft/year 10000 sqft
Advertising 5,418,552.20 $9.65 * number aids sold
FICA and Benefits 1,337,700.00
UnAllocated Expenses 7,796,527.80 Com. 1 Executive, contracts with manufactures,
Total 19,652,780.00 Advertising Liason, Central support, Franchise suport
Number of Franchises 613
HA purchase price 385
Sell Price 565
Number aids sold 916
Cost Hearing Exam 100
Number hearing exams 641 1 hour
Cost Fitting 150
Number of Fittings 609 2 hours
Cost Adjustment 50
Number of adjustments 1827 0.5 Assume 3 adjustments/fitting
Cost Additional Visits 50
Number of Additional Visits 305 0.5 Assume 1 visit
Cost Support Group Entry 50
Support Group Members 485 1 2-hour sessions 25 weeks/year)
Audiologist1 165,353 120,212 120000 0.44 14425.43
Audiologist2 0 0 0 0.00 0
Tech1 68,897 50,088 50000 0.19 6010.597
Tech2 57,874 42,074 42000 0.16 5048.901
Receptionist 52,362 38,067 38000 0.14 4568.054
Bookkeeper 40% 27,559 20,035 20000 0.07 2404.239
Total $ 372,045 270,477 270000 1.00
Rent 40,000.00 2000 sqft Occ Tax 0.153
Equipment 15,000.00 Benefits 0.120
Advertising 9,023.60 Total 0.273
UnAllocated Expenses 15,111.20
FICA and Benefits 101,568.34
Total Expenses 180,703.14
Total Salaries & Expenses 451,180.00 (Equals Revenue/Franchise)
Work Hours (Possible/Year) 5040 hours (3 people) 5 7-hr days/week 48 weeks/year 4 weeks vacation
Actual Contact Hours 3025 hours 60.0 % of a 7-hour day or 4.2 contact hours/day
Final Price to Customer 1530 % of 6300 = 24.3
2 aids, test, fitting, and 3 adjustments
If a one-year membership in the support group is desired, add $50 to the above price.
Table 1. Financial Spreadsheet of a hypothetical, multi-outlet dispenser of
hearing aids. See Section II. for detailed explanation of data entries.
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