The following blog is written by Epicur Pharma’s Advisory Council member, Nicole Clausen, CSSGB, CCFP. With over 15 years of experience in the veterinary industry, Nicole understands successful practice’s operations, intricacies, and internal workings, including sustainable inventory management strategies.
Picture this: you’re looking at your practice’s financials, and despite healthy appointment numbers and solid revenue growth, your profit margin keeps shrinking. Sound familiar? You’re not alone. I see this scenario play out time and time again in veterinary practices across the country.
Here’s the thing about inventory costs and cost of goods sold (COGS) – when they’re creeping up, it’s rarely because you’re suddenly spending wildly. More often, it’s like a slow leak in your profit tank. A little extra inventory here, a missed charge there, some expired products pushed to the back of the shelf. Before you know it, your COGS have jumped from 22% to 29%, and you’re left scratching your head, wondering where all that profit went.
The good news? The profit didn’t actually disappear; it’s being eroded by system failures that are possible to fix. And here’s what I love about reducing COGS: when you get it right, you’re not just cutting costs, you’re freeing up cash to do amazing things—for patients, staff, or the practice. I’ve seen practices use their COGS savings to give staff raises, buy that new ultrasound they’ve been eyeing, or finally hire that additional technician.
Here are the five strategies that consistently deliver the biggest impact for the practices I work with.
Strategy #1: Eliminate Formulary Redundancy
This is probably the fastest way to see results, and it’s where I always start with new clients. Walk into your pharmacy right now and count how many different flea and tick preventions you carry. Five? Six? Now think about your smallest size—say, the 4-9 pound option. If each product comes in a sleeve of 60 doses and you stock five different brands, that’s 300 doses of the tiny dog size sitting on your shelf.
Unless you’re seeing 300 tiny dogs a month (and let’s be honest, most of practices aren’t), you’ve got way too much cash tied up in inventory. Every practice has these “doctor preference” situations where one vet loves Brand A, another swears by Brand B, and before you know it, you’re carrying everything under the sun.
Here’s what I recommend: have an honest conversation with your team about consolidating. Pick one or two options per category and stick with them. Yes, there might be some pushback initially, but your bottom line will thank you.
Strategy #2: Optimize Your Inventory Turnover
Think of your inventory like produce at the grocery store: you want everything moving quickly and efficiently. When it comes to turning inventory, the magic number I like to aim for is every 30 days or less, or to match your billing cycle. That means if you buy 10 units of something, you should sell through those 10 units within 30 days.
The key here is setting up reorder points for your inventory; these are especially important for high-volume, high-value items. Your flea and tick products, your commonly used antibiotics, your surgical supplies—these should be on a weekly or bi-weekly replenishment schedule. This might feel scary at first (what if we run out?) and it might be a big change, but it can be invaluable for your practice. You’ll carry less inventory overall and have better cash flow.
I always tell my clients: aim to use or sell everything before you have to pay for it. If you’re on statement billing and purchase something at the beginning of the month, ideally, it should all be gone by the time you have to pay at the month’s end.
Strategy #3: Leverage Your Practice Management System
This one’s huge, and it’s something I see practices miss all the time.
Most modern practice management systems have an auto-markup function that will automatically recalculate your prices when costs go up. But here’s the thing: it only works if you’re actually receiving your purchase orders through the system.
I can’t tell you how many times I’ve done audits and found items priced below cost because nobody updated the prices when the vendor raised their costs. We’re talking about generic medications, supplements, and other basic medications or supplies that quietly go up in price without any fanfare. If you’re not leveraging your PIM’s markup function, you might be leaving money on the table.
Also, take advantage of those associated entries and service packages. If you’re using pre-meds during surgery but not adding them to the medical history or invoice, set up your system so that when someone enters “pre-med administration” (which could even be $0, as the price is included in the surgery procedure), it automatically deducts the appropriate medications from inventory. This gives you accurate usage tracking without having to charge clients separately for every injection that was administered.
Strategy #4: Implement Bulletproof Charge Capture
Let me paint you a picture that might make you a little queasy.
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Imagine you have a product that costs $90 and sells for $121.50. If you miss charging just one a week for a year, you’ve lost about $6,000 in revenue. Miss two per week? Now your costs are actually higher than your sales for that one product.
This is where charge capture becomes absolutely critical. I recommend regular medical record audits, either during appointments or after the fact. Train your team to fully understand how to charge for everything they’re using. Set up your codes in a way that makes it easy to capture charges correctly.
Strategy #5: Plug Your Revenue Leaks
Here’s a reality check that might sting a little: you could have the most efficient inventory system in the world, but if you’re not capturing revenue properly (or generating enough), your COGS will likely be much higher than you’d like. I see this all the time—practices with buttoned-up ordering systems are bleeding money through missed charges, excessive discounts, and inconsistent fee structures.
Let’s start with missed charges, because this one can be absolutely devastating. A solution to start with? Regular medical record audits. As in strategy four above, train your team to understand how to charge for everything they’re using, and set up your treatment codes in a way that makes charge capture foolproof.
Next, take a hard look at your discount practices. If you’re seeing a hefty discount line on your profit and loss statement (P&L), you’re essentially giving away products you’ve already paid for. Every discount that isn’t strategic inflates your COGS percentage.
Finally, and this is essential, audit your fee structure. I’ve worked with countless practices charging less than their cost for certain items, or completely forgetting to add dispensing fees. Every prescription should have an appropriate fee that covers the cost of the veterinarian calculating the dose, determining instructions, and the technician’s time to fill and label it.
Think about creating different fee tiers too. A basic prescription might get a $10 dispensing fee , but if you’re pulling medication up into individual syringes or dealing with a controlled substance, that should command a higher fee. Your pricing should reflect the actual work involved.
Remember: you’re not just managing inventory costs, you’re managing the entire revenue cycle. When you plug these leaks, you’ll see your COGS improve without having to cut a single order.
The Bottom Line
Remember, when your COGS are high the solution isn’t just to spend less, it’s to spend smarter. These five strategies work because they address the root causes, not just the symptoms. The key is to pick one strategy and implement it well before moving to the next. Start with formulary redundancy if you want quick wins, or begin with reorder points if you’re dealing with chaos. Just don’t try to fix everything at once, that’s a recipe for overwhelm and half-implemented solutions.
Thanks for sharing your insights, Nicole! Get more of her expertise from the blogs and webinars below:
On-Demand webinar
Secrets the Best Inventory Managers Know
If you missed Nicole’s recent webinar, watch the recording for her recommendations for building great inventory management in your practice!
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Seven Tips for Choosing the Right Compounding Pharmacy
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Building a Successful Inventory Management System
