Key Takeaway
COGS is your second-largest expense after payroll, and it’s often the least actively managed. A healthy target for a Canadian general practice is 20–25% of revenue. If you’re above that, the problem usually isn’t what you’re buying, it’s how you’re buying it, how you’re pricing it, or what’s going to waste. This article covers how to calculate your COGS, what healthy looks like by practice type, and the five most common COGS inflators we see during practice assessments.
The Number Most Practice Owners Don’t Watch Closely Enough
Most practice owners can tell you roughly what their clinic brought in last month. Ask them what their cost of goods sold was, and you’ll usually get a pause.
That’s not a criticism, it’s just what we see. COGS shows up on the P&L, someone glances at it at year-end, and it doesn’t get much attention beyond that. But it’s your practice’s second-largest expense after payroll. If payroll is the one you worry about, COGS should be the one you’re actively managing.
Through our Practice Health Assessments at over 200 independently owned Canadian practices, our operations team has consistently found that COGS is one of the areas with the most room for improvement. Not because owners are careless with spending, but because nobody ever showed them how to break this number down and actually work with it.
What COGS Actually Means in a Veterinary Practice
COGS stands for Cost of Goods Sold. In a vet clinic, it’s the total direct cost of the products and materials you used to generate revenue during a specific period. Not your rent, not your payroll, just the physical products that went out the door or were used on patients. That includes pharmaceuticals, vaccines, parasiticides, treatment and surgical supplies, anaesthetic agents, diagnostic supplies, reference lab service fees, teleradiology services, end of life care products, diets, and injectables.
The formula:
Beginning Inventory + Purchases – Ending Inventory = COGS
To get your percentage: COGS ÷ Total Revenue × 100.
Quick example. Your practice starts a quarter with $45,000 in inventory. Over the quarter you purchase $62,000 in product. At quarter-end, you count $38,000 remaining. Your COGS is $69,000. If revenue for the same quarter was $310,000, your COGS percentage is 22.3%, within a healthy range for a Canadian GP.
What Healthy COGS Looks Like for Canadian Practices
We covered this in our veterinary practice benchmarking guide, but it’s worth repeating here because context matters.
| Practice Type | COGS Target | Why It Differs |
|---|---|---|
| General Practice | 20–25% | Balanced product and service mix; most inventory goes through standard distributors |
| Emergency / Specialty | 10-12% | Higher service-to-product ratio; fewer retail products dispensed |
| Mixed / Large Animal | 25–30% | Higher volume of dispensed product; lower markup percentages on some categories |
Be careful with U.S. benchmarks. In Canada, we purchase through a smaller pool of distributors (CDMV, VPCL, WDDC, AVP), which means less room to price-shop and often higher per-unit costs. That’s a structural reality of the Canadian market, not a failing on your part. If your COGS is sitting consistently above 27–28%, there’s almost certainly room to improve.
The Five Biggest COGS Inflators We See During Practice Assessments
1. Pricing that hasn’t been reviewed in years
This is the most common issue we see. A practice sets its markups in their PIMS when they first open, and rarely revisits them, assuming the pricing is being adjusted as inventory is received. In reality, some PIMS platforms do not automatically update selling prices when product costs change. As a result, even if the intended markup is 40%, it gradually declines over time as the cost of the product goes up. Eventually, this can lead to situations where products are being sold at or even below their cost.
Run a report from your PIMS showing cost vs. selling price for your top 50 products. If any of them have a margin below 40%, flag it, and adjust pricing accordingly to reflect supplier cost increases VetCircle’s Treatment Pricing Review benchmarks your pricing against local competitors and your provincial fee guide.
2. Too many brands on the shelf
Carrying three brands of the same antibiotic doesn’t give your clients better care. It gives you more SKUs to manage, more expiry dates to track, and weaker buying power because your volume is split across suppliers.
Consolidating to one or two preferred brands per category is one of the simplest ways to reduce COGS. Your team learns fewer products, ordering gets simpler, and your per-unit cost drops. Most supplier rebate programs reward higher spend with higher rebate percentages, so consolidating brands for the same medication is a quick way to significantly reduce COGS. This is also where a buying group like VetCircle helps. Working with a group like VetCircle gives you access to significantly higher tier-based rebates that individual practices cannot access on their own.
3. Missed charges and undocumented usage
Every time a product is used on a patient but not charged, the clinic absorbs the cost without generating the appropriate revenue. This can include things like a dose of prevention given in clinic but missed on the invoice, a dose of sedation used during treatment, medications drawn up but never billed, or even selecting the wrong product type, size, or dose in the system. In all of these cases, you’ve paid for the item, but earned nothing from it.
During our in-hospital assessments, we compare what is physically on the shelf to what the PIMS says should be there. When those numbers don’t align, missed charges are almost always a key factor. The other common contributors could be unlogged samples, expired products, or wasted products that were never recorded.
4. No system for managing expiry
Expired product is money you’ve already spent that you can never get back. In practices without FIFO (First In, First Out) rotation or regular expiry checks, we routinely find product past its date sitting at the back of the shelf.
The fix: When receiving inventory, place new products behind the existing stock on the shelf so the team uses older items first. This helps ensure proper rotation and reduces the risk of expired or wasted product. You should also assign someone to do a monthly expiry check on your highest-cost products and a quarterly check on everything else.
5. Buying independently when group pricing is available
If you’re placing orders on your own without any group purchasing arrangement, you’re almost certainly paying more per unit than you need to. Through VetCircle’s Rewards Program, members access negotiated deals from 85+ vetted vendor partners. Most practices that join earn 2–3X more in savings on supplier products (ex. Vaccines, parasiticides, medications, diets etc.) compared to what they were receiving independently.
Here’s what the difference looks like from a single supplier:
| Without Group | With VetCircle | |
|---|---|---|
| Annual Spend | $200,000 | $200,000 |
| Rebate Earned | $5,000 | $13,500 |
| Effective Net Cost | $195,000 | $186,500 |
| Additional Savings through VetCircle | – | $8,500 |
And that’s one supplier. In our revenue growth guide, we noted that established practices that join VetCircle typically reduce COGS by 2–4% in their first year. For a practice doing $2M in revenue, that’s $40,000–$80,000 back in your pocket.
Track Quarterly, Not Annually
If you’re only looking at COGS once a year, you’re managing with a 12-month delay. Calculate your COGS percentage quarterly at minimum. Watch for: COGS creeping up 1–2% over consecutive quarters (usually supplier cost increases not matched with pricing adjustments), seasonal spikes that don’t normalize (overstocking or under-pricing), and COGS dropping while revenue is flat (this can indicate improved markups or fewer missed charges, but it may also signal underpurchasing inventory, which could point to workflow or recommendation issues)). End of each quarter, run your purchases report through your distributor (VPCL, CDMV, AVP, WDDC), count your on-hand inventory and make sure you reconcile any discrepancies to stay on top of your COGS.
Your Next Steps
Three things you can do this week:
1. Calculate your current COGS percentage. Use the formula above. Make sure to include any rebates back into COGS so your percentage accurately reflects true costs relative to revenue.
2. Compare it to the 20–25% benchmark. If you’re above 27%, there’s work to do. If you’re within range, check whether specific categories are pulling you higher than they should be.
3. Review your rebate eligibility. Are you part of a buying group? If not, what are you leaving on the table?
VetCircle’s Community Membership gives you access to our Rewards Program (85+ vendor partners), discounted service for your Treatment Pricing Review and a complimentary in-hospital Practice Health Assessment valued at $1,800. If you’re not sure where your COGS stands, that assessment is a great place to start. It allows us to visit your practice and identify gaps and opportunities, with a clear focus on helping you reduce your COGS.
Book a free consultation with our team.
Frequently Asked Questions
How do I calculate COGS for my veterinary practice?
Take your inventory value at the start of the period, add all purchases made during the period, and subtract your inventory value at the end. Divide by your total revenue for the same period and multiply by 100 to get your COGS percentage.
What is a good COGS percentage for a general practice veterinary clinic in Canada?
For a Canadian GP, 20–25% of revenue is a healthy target. If you’re consistently above 27%, there’s likely room to improve. Emergency/specialty practices typically run 10-12%, and mixed/large animal practices may run 25–30%.
What’s the difference between COGS and total operating expenses?
COGS only includes the direct cost of products, services and materials used to generate revenue (ex. Pharmaceuticals, reference lab fees, teleradiology services, food, supplies used during treatments/procedures, cremation products etc.). Operating expenses include everything else: payroll, rent, utilities, insurance, marketing, and all the other costs of running the business.
How often should I review my veterinary practice’s COGS?
Quarterly at minimum. Annual reviews are too slow to catch problems before they eat into your margins. Monthly is even better if you have the bandwidth.
Can a buying group really reduce my COGS?
Yes. Through VetCircle’s Rewards Program, most members earn 2–3X more in rebates than they were getting independently. Established practices that join, typically see a 2–4% reduction in COGS within the first year without changing anything.
