When categorizing expenses, there are always some “gray areas,” like whether a patient communication platform counts as a marketing cost or a software/technology expense. (We classify it as marketing, but that’s just our choice.)
Even internally, we debate how to handle things like Cost of Goods Sold (COGS) vs. consumables. Generally, COGS refers to the direct wholesale costs of creating or distributing a product. Consumables, on the other hand, need regular replacement (think tools in a machine shop), but aren’t part of the end product.
What is Included in Cost of Goods Sold?
When our team talks about Cost of Goods Sold, some items are obvious:
- Contact lenses
- Frames
- Plano sunglasses
- Spectacle lenses (when the practice pays directly for them)
The Gray Areas: Are These COGS Too?
But what about other things that are involved with delivering care or products? Things like:
- Cases
- Lens cloths
- Repair parts, like nose pads
- Dilation drops
- Punctal plugs
- Amniotic membranes
Drawing the Line: COGS vs. Consumables
Drawing firm lines between COGS and consumables isn’t always straightforward. But let’s walk through some guidelines that can help clarify where those lines might fall:
If it gets marked up and resold, it’s COGS.
A good rule of thumb: if you purchase an item and sell it with a markup, it’s considered Cost of Goods Sold. It’s a physical good with a cost that you sold.
Accessories that go with products sold are also COGS.
More broadly, we include items that are packaged with other products (e.g., cases, lens cloths, etc.)
Products that are part of medical procedures are consumables, not COGS.
Items like dilation drops and punctal plugs don’t get resold but are used in the delivery of care. These are categorized as medical supplies, not COGS.
But some high-dollar “consumables” do count as COGS.
There are exceptions. Take amniotic membranes, for example. Even though they’re not sold on their own, they’re a critical component of a high-revenue procedure. In these cases, they may be treated as COGS.
Consistency Matters
Categorizing expenses in a way that makes sense for your practice is valuable, especially when benchmarking overhead against other practices. But even more important than comparing your results to others is tracking your results over time. For instance, however you categorize items like medical supplies, apply the same approach year after year to maintain meaningful insights.
If you need help keeping your financials up-to-date, consistently categorized, and meaningfully organized, consider letting Books & Benchmarks take over your reporting. We’ve already helped over 175 practices save time with optometry bookkeeping while gaining clearer insight into their finances.
Are you ready to take financial reporting off your plate? Contact us today to get started.
