COGS Are Too High

"Cogs are too high"! This is a common statement made by practice owners, managers, and consultants, often without context or a complete understanding of how COGS could be managed better.

COGS – or costs of goods sold represent the monies spent by a practice to acquire items, or services from others that in turn go towards delivering products (inventory) and services to clients. The math equation is simple:

Cost is the numerator – the source is QuickBooks (accounting software).

Revenue is the denominator – the source is either your PIMS or QuickBooks (accounting software).

The challenge many practices face is that they allocate all items / services purchased into one account typically names “Drugs & Medical Supplies” in QuickBooks or their accounting software.

A well-managed practice identifies revenue sources coming out of the PIMS (practice information management system) while also allocating the costs associated with those revenue sources.

There are eleven primary accounts revenue can easily be tracked to in the PIMS as identified in the image above. Not all practices generate revenue in each category, for example, not every practice provides boarding and grooming services. Taking COGS to the next level, there are up to twenty-six

subaccounts a PIMS can track revenue sources in. The revenue is the denominator of the COGS equation.

Imagine assessing your COGS by cost center tied to national averages provided by a leading veterinary accounting firm.

Practices that use VizVet and allocate revenue and expenses according to the AAHA/VMG Chart of Accounts for veterinary business can assess cost centers and find opportunities to either raise fees appropriately or work on reducing costs, or both! These practices manage fees increases on a more granular basis instead of raising fees “across the board” which has been the typical approach for decades.