Ask Katie: Is inventory eating too much of my revenue pie?
Q: I’m trying to manage my inventory costs, but I see different benchmarks. What do you recommend?
It’s true: There are many ways to slice the pie. Because each set of benchmarks will define things differently, the key is to pick a set and stick with it. That way, you can compare your practice—not just to benchmarks, but to itself month over month.
I like to look at inventory as part of a bigger expense category: costs of goods sold (COGS). Your COGS should be less than 20 percent of gross revenue. In the COGS category, I include inventory (the largest piece of the COGS pie), medical waste disposal, specialists’ fees (if you pay someone to read your radiographs, for example), final-arrangements and outside lab services.
If you find that your COGS are higher than 20 percent, you’re not alone! You need to explore a few areas. First, make sure that your inventory and outside lab fees are marked up appropriately. Second, make sure that you aren’t experiencing loss via waste, carelessness or theft of products. Finally, examine whether you need to raise the fees for your services to keep costs in line.