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"Unlocking the Key to Cost of Goods Sold (COGS) Management in Veterinary Practices"

Writer's picture: Duffy Jones DVMDuffy Jones DVM

Updated: Jan 24



Cost of Goods Sold (COGS) is a crucial metric in any business, including veterinary hospitals. It represents the direct costs attributable to the production of the goods sold in a company. In the context of a veterinary hospital, COGS includes the costs of pharmaceuticals, medical supplies, and pet food sold to customers.


Monitoring COGS is vital for several reasons. First, it directly impacts the hospital's profitability. A lower COGS means a higher gross profit margin, which can lead to increased earnings before interest, taxes, depreciation, and amortization (EBITDA).

Maintaining a healthy EBITDA is essential as it's a key indicator of a hospital's operating performance and financial health. A high EBITDA reflects a hospital's ability to generate sufficient income to cover its operating expenses, which is attractive to investors and lenders.


Moreover, controlling COGS allows a veterinary hospital to keep its prices competitive without sacrificing profit margins. This balance is crucial for client retention and business growth. On the other hand, a hospital with uncontrolled COGS may face low EBITDA, indicating that it is less profitable or even financially unsustainable.


To manage COGS effectively, veterinary hospitals should consider the following strategies:


  1. Accurate Inventory Management: Ensuring the inventory management software records the correct cost of items can prevent undercharging or overcharging for products and services.

  2. Automated Markup Settings: Implementing automatic markups based on the cost of goods can help maintain consistent profit margins across all products and services.

  3. Inventory Control: Limiting redundant products in inventory can reduce holding costs and prevent waste due to expired products.

  4. Sales Monitoring: Ensuring that inventory items are sold within a reasonable timeframe reduces the likelihood of stock obsolescence.

  5. Reorder Points: Establishing and adhering to reorder points for inventory can prevent stockouts and overstocking, optimizing inventory levels.

Effectively managing the pricing of your products and services is crucial for controlling your COGS and maintaining a healthy EBITDA. When costs increase without corresponding price adjustments, your COGS rises, leading to a potential decrease in EBITDA. Utilizing tools like Profit Defender by dvmSuccess lets you analyze how price changes for specific products or services can impact your EBITDA. Profit Defender assists in quickly identifying which products or services significantly affect your EBITDA. Profit Defender is aiming for a 20% increase in your current EBITDA. By leveraging such tools, you can make informed pricing decisions that help keep your COGS under control.


Understanding EBITDA's importance is also crucial for veterinary hospital owners and managers. EBITDA provides a clear picture of the hospital's operational profitability and cash flow, excluding non-operating expenses like taxes and interest. It's a key metric for assessing a hospital's financial health and its ability to invest in growth opportunities.


Without profit, a veterinary hospital cannot afford essential expenditures like purchasing new equipment, repairing existing infrastructure, investing in new technology, or giving employee raises. These investments are crucial for maintaining high-quality care and staying competitive in the veterinary industry.


In summary, managing COGS effectively is vital for maintaining a healthy EBITDA, which in turn is crucial for a veterinary hospital's financial sustainability and growth. By implementing sound inventory and financial management practices, veterinary hospitals can control COGS, boost profitability, and ensure long-term success.

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