Calculating and Reducing the Cost of Services Sold in Healthcare and Dental Practices

Admin
Jun 4
2 min read

Understand how to identify the direct costs of your procedures, optimize profit margins, and eliminate waste without compromising the quality of care.

The financial sustainability of medical and dental clinics is closely linked to how the Cost of Services Sold (COSS) is calculated and managed. Many managers make the mistake of overlooking the direct costs of each procedure. As a result, they misprice services, accumulate hidden losses, and undermine the long-term financial health of the business.

What is COSS?

The Cost of Services Sold refers to all expenses directly associated with the delivery of a service. This includes disposable materials, instruments used, provider time, equipment usage, medications, anesthetics, and even a proportional share of electricity during the appointment.

Practical example: In a dental consultation involving fluoride application, the COSS might include the hourly cost of the dental chair, a pair of gloves, mask, fluoride used, professional's time, and other disposable materials. All of these, when added up, reflect the actual cost of performing that procedure.

How to accurately calculate COSS

To calculate COSS effectively, follow these steps:

List all materials and supplies used for each procedure
Calculate the proportional cost of equipment (depreciation and maintenance)
Estimate the hourly clinical cost of the professional involved
Include indirect expenses such as sterilization, energy, and room usage
Divide by the number of monthly services to get a realistic per-service cost

Reducing COSS without compromising quality

Once the real COSS of each procedure is known, intelligent measures can be adopted to reduce it:

Standardize clinical and administrative protocols: This prevents variation in material usage and improves inventory control
Train the staff: Well-trained professionals avoid rework, waste, and overuse of supplies
Negotiate with suppliers: Centralized purchases, consumption analysis, and volume-based negotiations can significantly lower unit costs
Implement automated inventory control: Prevents loss from expired or misused items

Profit margin and smart pricing

With a clear understanding of your COSS, the next step is to apply a healthy profit margin that considers fixed costs (rent, payroll, taxes) and the desired profitability. This enables the creation of a realistic, sustainable, and competitive pricing model.

Example: If the COSS of a botulinum toxin application is US$280, and the clinic aims for a 100% profit margin, the minimum selling price should be US$560. Adjustments can be made based on market positioning and the perceived value for patients.

Direct benefits of managing COSS

Financial clarity for decision-making
Waste reduction and increased profitability
Accurate and confident service pricing
Identification of underperforming services
Sustainable growth without relying on price increases

Practical tip: Implement a COSS tracking spreadsheet per procedure and review costs quarterly. This allows rapid response to price fluctuations, supply shortages, or operational changes.

Conclusion

Learning to identify the direct costs of each procedure, calculate actual profit margins, and implement cost-reduction strategies without sacrificing care quality is key to optimizing your clinic's profitability. This comprehensive guide helps clinic owners and managers adopt smarter, more strategic financial practices to ensure sustainable growth.

For more information on how we can support your clinic or practice, feel free to contact us.