Controlling Costs
Veterinarians have a limited ability to control drug costs. Selling drugs to veterinarians is —well, it is a seller's market. Although it is true that there are many vendors to buy supplies from, many of the big-ticket drugs from big-name companies that veterinarians deem to be more profitable are under patent. This means that when buying certain items, veterinarians are "price-takers" much like farmers are price-takers when it comes to selling their crops or livestock.
Veterinarians have a limited ability to control drug costs. Selling drugs to veterinarians is —well, it is a seller's market. Although it is true that there are many vendors to buy supplies from, many of the big-ticket drugs from big-name companies that veterinarians deem to be more profitable are under patent. This means that when buying certain items, veterinarians are "price-takers" much like farmers are price-takers when it comes to selling their crops or livestock.
On the other hand, distribution companies usually must offer these items at competitive prices in order to be in the game. Offers are made on items in order to move items off the shelves and to increase market share. These companies are not offering Cialis or some other wonder drug with high margins — they are operating in the trenches just like we are.
It is difficult for veterinarians to time these offers to match their own cash-flow issues. Therefore, veterinarians buy a lot of "onesey, twosey" items — naturally at the highest retail cost. Is this good? Not necessarily, but it may be better than sitting on a lot of outdated dog toothpaste. Is it possible to time your inventory to make the best use of available cash? Certainly, many of the software vendors have programs to help with turnover and the like. It is just that whenever I examine inventories, the chaos is so enormous that change is a major undertaking. Converting to computer systems usually must wait until a reasonable approach to inventory can be put in place initially.
What you can do to control prices in a small way is to shop prices for the things you use the most, and let the others fall in line as best they can.
Regardless of the price you pay — to increase net profit you must increase gross margin (raise the price).
Bottom line
Buy low (when you can) and sell high (increase the gross margin). Sell high enough to make a net profit, not just a marginal profit.
Dr. Lane is a graduate of the University of Illinois. He owns and manages two practices in southern Illinois. Dr. Lane completed a master's degree in agricultural economics in 1996. He is a speaker and author of numerous practice management articles. Dr. Lane also offers a broad range of consulting services and can be reached at david.lane@mchsi.com.
