Cost of Services Sold: The Starting Point for Fair Pricing and Sustainable Profit in Healthcare
- Admin
- 3 days ago
- 3 min read
Understand how calculating the Cost of Services Sold (COSS) directly impacts pricing strategies and the profitability of clinics and hospitals — and why setting prices without proper cost control can jeopardize the financial sustainability of your healthcare business.
Understanding the Cost of Services Sold (COSS): The Foundation for Strategic Pricing and Sustainable Growth in Healthcare
What is COSS and why should it be your financial priority?The Cost of Services Sold (COSS) represents all direct costs involved in delivering a healthcare service. In clinics and hospitals, this includes everything from the materials used in a procedure to the time of the technical team and any clinical supplies applied. It reflects the real “cost price” of providing quality care.
Yet, many healthcare managers still make the mistake of pricing procedures based on what competitors charge or applying arbitrary markups. This ignores a fundamental reality: every clinic has a unique structure, and the cost to deliver a service can vary significantly from one provider to another. When COSS is not taken into account, the risk of operating with negative margins increases—substantially.
The direct relationship between COSS, pricing, and profit marginThe equation is simple:
Selling price = COSS + fixed costs + desired profit margin
If the manager does not know their COSS, any pricing calculation becomes an imprecise guess. The price may end up below what's needed to cover costs—or too high, compromising competitiveness.
Practical example:
A dental clinic offers teeth whitening at $120. However, after calculating COSS (whitening kits, PPE, dentist’s clinical hour, room cost), the manager finds the direct cost is $64. If this amount isn't used as a pricing base—along with fixed costs and desired margin—the clinic may be earning far less than expected, or even operating at a loss.
When the “wrong” price compromises the business's financial healthNeglecting COSS often leads managers to emotional pricing or pricing wars with competitors. While this might bring short-term volume, it fails to deliver sustainable profit.
Over time, this undermines the ability to pay salaries, taxes, replace supplies, or reinvest in the business.
Moreover, when net margin isn’t monitored, it becomes harder to make critical decisions—like hiring new staff, purchasing equipment, or opening a new location. Accurate COSS control becomes a compass for structured growth.
How to implement COSS control in practice
To turn COSS into a real management tool, it’s essential to adopt a technical and ongoing routine:
Map the procedures offered: List all services by type and complexity.
Identify direct costs: Include professional time, materials, equipment, PPE, and other consumables.
Use spreadsheets or healthcare-specific systems: ERPs help integrate costs, billing, and margins in real time.
Review prices periodically: Material and labor costs fluctuate. Regular reviews ensure healthy margins.
Train your financial and support teams: Everyone must understand the importance of cost control and its impact on results.
COSS as a base for strategic decisionsKnowing the COSS for each procedure allows managers to:
Develop service packages with optimized margins
Negotiate with health insurers based on real data
Identify low-margin services to restructure or discontinue
Evaluate whether to outsource or internalize certain procedures
Strategic example:
A hospital discovered that orthopedic surgeries had a high COSS due to imported materials. By partnering with local suppliers, it reduced procedure costs by 18%, improved competitiveness, and increased margins by 12%.
Practical tipReview the five most frequently performed procedures at your clinic or hospital every month. Recalculate their current COSS and check if pricing still aligns with your desired margin. Small ongoing adjustments help prevent large future losses.
Conclusion
Managing COSS is not just an accounting exercise—it’s a strategic decision that impacts your entire pricing structure, profitability, and growth trajectory. Ignoring it means relinquishing financial control. Embracing a data-driven management model with regular COSS reviews is the smartest path to pricing with precision and scaling your healthcare business securely.
For more information on how we can support your clinic or medical office, get in touch with our team!