Setting a COGS target
Castner (2025) says COGS should sit in its own subtotaled section just below revenue on the profit and loss statement, with a column showing each account as a share of revenue [1]. He calls a single preconceived percentage for all practices a rule that "does not make sense" and proposes what he calls "COGS Theory," which weights a practice's mix of services and products to reach a blended goal [1].
His method sets an expected cost share for each revenue segment. He then multiplies that share by the segment's percentage of total revenue and adds the results [1]. For food, he cites a common markup of 35% to 45%. At the 40% midpoint, $1 of cost sells for $1.40, so cost is 71% of food revenue [1]. His segment goals:
| Revenue segment | COGS goal per Castner (2025) [1] |
|---|
| Treatments (professional fees, dentistry, surgery, imaging, discounts) | 5% |
| Food | 71% |
| Pharmacy | 40% |
| Vaccines | 20% |
| Lab | 20% to 33% |
| Boarding, grooming and day care | 1% |
| Online store recorded at net deposit | 0% |
| Online store recorded at gross | 85% |
He ties the lab range to where testing happens. In his framework, 20% suits practices running fecal and basic heartworm tests in-house, and 33% suits those sending everything but urgent bloodwork to a reference lab [1].
Castner's two illustrations are hypothetical practices with equal revenue. Practice A earns 15% of revenue from boarding, day care and grooming, sells little food and records its online pharmacy at net, and its goal is 20% [1]. Practice B has no boarding, sends intestinal parasite screens out, earns 9% of revenue from food and records the online pharmacy at gross, and its goal is 28% [1]. Castner writes that the way the online store is recorded "can have a tremendous impact on the overall goal" [1].
When COGS runs above goal, Castner points first to pricing. He asks whether prices have kept pace with inflation and risen at least by the change in the Consumer Price Index each year, and whether competitors' prices on commonly shopped services have been checked [1]. He also lists missed charges, discounts that do not match practice goals, purchasing (price comparison, vendor rebates and aggressive negotiation of long-term contracts) and inventory management [1].
Nantz (2023) describes a budget approach some hospitals use, capping COGS at a set share of the prior week's revenue, with 18% as his example [4]. He writes that this approach "most often forces stockouts and frustration," with critical items then ordered as exceptions [4].
Item list cleanup, counts and reorder points
Walsh (2021) starts with a full inventory printout from the PIMS. Her cleanup steps are to inactivate obsolete items, confirm classifications, correct typing errors and identify duplicates. She notes that product descriptions carry into the medical record [2]. Her physical count steps are to pull expired items for return or disposal, flag short-dated stock for return or prompt use, and update the software's on-hand totals [2]. With that baseline entered, she recommends setting minimum quantities and reorder points so that items dispensed, sold or used in-house are tracked in the software [2].
In Felsted's case study, the practice counted everything and corrected product names, quantities, prices and units of measurement in its PIMS [3]. It then wrote step-by-step protocols for ordering, receiving, dispensing, handling backorders and errors, recording product in both the PIMS and accounting system, monitoring and paying invoices [3]. The receiving protocol, per Felsted, compares delivered items with the purchase order and the packing list or invoice. Staff initial each item and record any discrepancies [3]. The practice also began using automatic reorder points and reviewing a reorder point report before each order. It assigned the work to specific trained staff rather than whoever had spare time [3].
Nantz (2023) writes that many hospitals run full manual counts anywhere from monthly to yearly to keep balance sheets accurate. He argues that infrequent adjustments produce sharp swings in reported asset value [4]. He also argues that preset reorder quantities fall short of replenishment tied to changing demand [4].
Turnover and formulary size
Walsh (2021) writes that ordering the most-used items once a week should be possible with good management. She says ordering more often than that is not cost-effective because of the staff time involved [2]. In her view, a well-run inventory sells or uses items before the invoice is paid [2].
Both Walsh and Nantz recommend fewer overlapping products. Walsh (2021) suggests that doctors decide which overlapping items to keep. Her examples include similar heartworm medications, flea and tick products, antibiotics, NSAIDs and shampoos. She would weigh new launches as replacements for existing items rather than additions [2]. She points to the online pharmacy as a way to offer products, including food, that the practice does not stock [2]. Nantz (2023) lists faster turnover, product margin management, removal of slow-moving stock, elimination of redundant formulary items, a sales mix weighted toward services, and shrink control as the real levers of efficient inventory management. He writes that these directly affect COGS [4].
Shrinkage and theft controls
Walsh (2021) defines shrinkage as "the loss of damaged, outdated, misplaced or stolen items" and notes it arises whenever stock is kept in-house [2]. She recommends first-in, first-out rotation. She also recommends locking up expensive items such as heartworm and flea preventives and limiting who can reach them [2]. Nantz's estimate of 2 to 4 percentage points of profitability lost to shrink is stated without a source dataset [4].
In the Felsted case, ongoing controls included regular counts, reviews of employee purchases, medical record audits, PIMS report reviews, and comparing inventory costs with published benchmarks and the practice's own history [3]. Felsted reports that the practice probably had an employee stealing flea/tick and heartworm preventives but could not prove who. The suspected employee left while the new controls were being introduced [3].
For controlled drugs, Felsted writes that the electronic logbook cut the time spent entering and reconciling usage and improved compliance with DEA and other controlled drug regulations [3]. The cited sources do not set out what those regulations require, and none is a regulator's page.
The Felsted case study in detail
Felsted's 2022 case describes one small animal hospital in the southwestern U.S. with three full-time-equivalent doctors and about $2.5 million in 2021 revenue [3]. Its PIMS showed $142,000 of inventory on hand. Of that, $31,000 was "levothyroxine 0.8mg" and $32,000 was "furosemide 50mg," and the same report showed ample stock of items the practice kept running out of [3]. The practice was also seeing gaps between controlled drugs physically on hand and the logged amounts [3].
Felsted reports that discrepancies disappeared and stockouts stopped after the changes [3]. This is one practice described by a consultant, and the column gives no before-and-after inventory or cost figures.
Limits of PIMS data
Nantz (2023) argues that PIMS data alone cannot run inventory. Readers should weigh that argument knowing he co-founded Inventory Ally, a cloud inventory software company [4]. He writes that up to 50% of inventory never passes through a transaction because it is consumed in-hospital, citing soft goods such as gauze, syringes and catheters [4]. He also says predefined service packages, such as a large dog spay, assume each procedure uses the same supplies when real use varies [4]. He describes inconsistent product names from manual entry and links between products and inventory items that are too loose. In his account, these can trigger false reorders, miss needed ones, or leave negative on-hand balances [4]. He states that 65% of veterinary hospitals still use server-based PIMS, which in his view limits integration with procurement and analytics tools. He does not cite a source for that figure [4].
Limits of these benchmarks
All four sources are trade-press columns from one publisher. None reports a survey, a sample size or peer review behind its benchmarks [1][2][3][4]. Castner's practices are illustrations, not measured clinics, and his segment percentages derive from assumed markups [1]. Walsh herself cautions that every practice differs and that what works elsewhere may not suit a given clinic [2]. The cited sources do not address days-on-hand calculations or inventory carrying cost in dollar terms.
