Gross Margin vs. Net Margin in the Sale of Procedures and Surgeries: What Truly Remains in the Clinic’s Cash Flow?
- Admin
- Jun 12
- 2 min read
Learn how to identify the true profits of each surgery and procedure, avoid financial illusions, and make strategic decisions based on real numbers.
In many medical and dental clinics, procedures and surgeries represent the main source of revenue. However, many managers still misinterpret the financial results of these sales by relying solely on gross margin and neglecting the impact of net margin. The result? A false sense of profitability that can threaten the clinic's financial sustainability.
This article will explain, using accessible language and practical examples, the difference between gross and net margins—and why this distinction is critical to understanding what truly remains in the clinic’s cash flow at the end of each month.
What Is Gross Margin?
Gross margin represents the initial profit from the sale of a procedure after deducting variable costs—that is, those costs that increase with the number of procedures performed.
Basic formula:Gross Margin = Revenue - Variable Costs
Practical example:
A surgery that generates US$5,000 in revenue and incurs US$1,500 in costs for materials, physician fees, and supplies yields a gross margin of US$3,500 (70%).
Practical tip:
Calculate the individual gross margin of each procedure to identify which services offer the best immediate return.
What Is Net Margin?
Net margin considers all operating costs: both variable and fixed. These include payroll, rent, taxes, marketing, administrative expenses, and depreciation.
Basic formula:Net Margin = Revenue - (Variable Costs + Fixed Costs + Taxes)
Practical example:
Using the same US$5,000 surgery, in addition to the US$1,500 in direct costs, the clinic also incurs monthly expenses such as US$2,000 for rent, US$5,000 for payroll, and US$1,200 for marketing. When these fixed costs are proportionally allocated per procedure, the net margin may drop to US$800 (16%).
Practical tip:
Track your clinic’s net margin monthly to assess financial sustainability and identify deviations early.
Why Does This Difference Matter?
Making decisions based solely on gross margin can lead to dangerous assumptions—like focusing on procedures with high revenue but poor real profitability.
Common example:
Offering aggressive discounts on surgeries based on their high ticket value without realizing that the net margin turns negative.
Practical tip:
Never approve a promotional package without simulating its impact on the clinic’s net margin.
How to Use Margins to Improve Management?
Strategic planning: Prioritize selling procedures with strong net margins, even if their ticket values are lower.
Supplier negotiations: Reduce variable costs to improve gross margin.
Operational efficiency: Optimize the use of materials, appointment scheduling, and team time to dilute fixed costs.
Conclusion
Understanding the difference between gross and net margin is essential for any clinic aiming to grow safely. The real profitability of a procedure isn’t defined by how much it bills, but by how much it actually leaves in the clinic’s cash register after all costs are paid. Relying on gross margin alone may create the illusion of success, but it’s the net margin that tells the truth about your business's financial health.
