If your cost of goods sold (COGS) or inventory expenses exceed 22% of your gross revenue, you can improve cash flow and increase your “bottom line” by better managing this all important variable expense. Don’t forget to include drugs, medical supplies, pet diets, preventive care products, over the counter items, laboratory expenses, radiology costs, cremation costs and medical waste disposal fees when calculating your COGS. To better manage inventory, consider the following tips. If your practice software has an inventory management tool, use it and be sure it accurately reflects what is on your shelves.
Next, set re-order points so that you stock only what you can use or sell within 15-30 days. Make sure one responsible employee is handling your inventory—placing and receiving orders, checking packing slips against orders and invoices and, most importantly, keeping your costs for products current in the inventory management system. Remember, you cannot recover your cost with an appropriate profit margin if you do not keep ever changing product costs current. Finally, if you really are struggling with keeping COGS at an acceptable percentage of gross revenue set a budget and make sure your inventory manager sticks with it. If you confine the dollar amount of your weekly order to no more than 12-14% of your gross revenue from the preceding week, you should have no trouble keeping COGS within the desired percentage.
A terrific tool for keeping COGS down is linking your own on-line pharmacy to your practice website. There are a number of providers out there, so do your homework and find one that best meets your needs. Ideally, your on-line pharmacy will permit you to stock in “virtual” inventory a wide range of products, will be easy for your clients to use and will allow you to see some profit. As a general rule, you will not make as much on product sales through your on-line pharmacy, but you should see benefits that make up the difference. Carrying costs are nearly absent and your staff will spend less time managing your inventory and taking and filling prescriptions. In addition, with an on-line pharmacy you can stock only those items you sell most in your practice and keep everything else off your shelves. Make sure your on-line pharmacy works for you by gaining acceptance from your staff and your clients. Train clients to use the on-line pharmacy by assisting with placing initial orders and stressing the convenience of home delivery.
If you can rein in inventory expenses with better management and the use of an on-line pharmacy, you should be happier with your “bottom line”.