Inventory management will improve profitability

Mar 16, 2016 by Edward L. Blach, DVM, MS, MBA

Inventory management represents one of your biggest opportunities to improve profitability.  Inventory and the services required to run a practice (Cost of Professional Services - COPS) represent the second highest cost area of most practices.  Many practices have inventory costs that range from 25% to 35% as a percent of revenue.  Healthy practices typically have inventory and related costs that represent 15% to 20% of revenue or less.

Calculate your Cost of Professional Services (Inventory, lab expenses, imaging expenses, food, bedding, and other related costs) for the past year and divide that number into your total revenue for the same period to know your practice's COPS as a percent of revenue.  For every $1 million in practice revenue that your practice generates, if you successfully reduce your COPS by 10% as a percent of revenue, you will increase your profitability by $100,000.  And since most practices are valued at a multiple of profit, typically 5 or more, your practice will also increase in value by at least $500,000.  

Enter your data for inventory and related costs (COPS) and total revenue into the data dashboard at IsMyPracticeHealthy.com to view your inventory trends. This will help you learn more about your inventory managment needs and opportunities.

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