Don’t buy your friends

May 10, 2017 by Edward L. Blach, DVM, MS, MBA

The cost of inventory and related services consumes between 15% and 35% of revenue in most practices.  That is a lot of money.  The most profitable practices keep this cost below 20% of revenue.  Do you know this number for your practice?

Even with the magnitude of this cost category and the impact it has on profitability and the lives of everybody affiliated with the practice, the primary supplier relationship is often seen as the 'best friend' of the practice.  Many practice owners will relentlessly defend their distributor representative as one of their best friends who 'always takes care of them'.  It is a different story when the practice owner finds out that when properly negotiated, they can save as much as 10% revenue on supplier relationships, if only they insist on getting best pricing.  When they find that it has been costing them more than 10% of revenue ($200,000 on a $2 millon per year practice) to maintain their 'friendship' with their distributor rep who has 'always taken care of them', it is not a good day.

The primary learning here is that you shouldn't purchase your friends.  You should treat business relationships as business relationships.  Don't use them to buy your friends, because those relationships are very costly.

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