Practice owners are getting used to the new reality of “sticky” inflation—where costs, especially in the service sector, don’t snap back to old lows.
There’s no sudden pop in prices; it’s more of a slow leak in your profitability. While the general U.S. consumer price index (CPI) has moderated, data shows costs for services remain elevated. For example, recent economic summaries from mid-2025 noted that while the general CPI rose 2.7% year-over-year, the index for veterinary services jumped 5.7%—more than double the headline rate.
This inflation doesn’t just hit your consumables. It’s a ripple effect that quietly soaks into the three biggest line items of your P&L: labor, supplies, and operational overhead.
The Hidden Ripple Effect
The first step to managing the pressure effectively is to understand where the pressure’s coming from in the first place.
- Labor Costs. Competition for talent has reset salary expectations across the board. Recent data from the American Veterinary Medical Association (AVMA) is stark. The mean starting salary for a new graduate in companion animal practice is higher today than it was a few years ago. That creates a compression effect where owners must adjust pay for existing associates to maintain team harmony—all while payroll climbs.
- Supplies (COGS). The next leak? Cost of Goods Sold. Beyond gloves and gauze, it’s the imported pharmaceuticals, specialty lab consumables, and surgical packs—all subject to lingering supply chain issues, transport costs, and new supplier contracts. Best practice is to keep COGS under 25% of revenue, but it’s increasingly common to see this number balloon to 30% or 35%. It’s quietly eating 5–10 points of pure profit.
- Utilities & Real Estate. These are the quietest drains. Have you taken a look at your property insurance renewal lately? What about your equipment lease terms? Commercial rents, property taxes, and utility bills rarely go down. While these occupancy costs should ideally hover around 5-6% of revenue, many owners are seeing them creep up, putting another point or two of pressure on the bottom line.
Why This Matters for Your Valuation
Here’s the critical link: inflation’s primary target is your EBITDA margin. And your EBITDA margin is the single most important driver of your practice’s valuation.
A potential buyer, whether a corporate group or a private individual, isn’t just looking at your gross revenue. In fact, recent data shows that while practice revenue is up slightly, patient visits are down. This means revenues may be holding steady because of price increases—not a great trend.
A savvy buyer will see this instantly. They’ll scrutinize your year-over-year and 3-year margin trends. If they see your revenue grew 5% but your labor and supply costs grew 8%, they’re looking at a practice with compressed margins and declining operational health.
Unmanaged inflation erodes your deal multiple. A practice that protects its EBITDA margin will command a significantly higher valuation than a practice with the same revenue that’s seeing its margin slipping.
Owner Levers That Matter
You can’t control macroeconomics, but you can control your practice. Protecting your valuation means shifting from a clinical-only mindset to an operational one.
- Audit COGS Quarterly. Don’t wait for the end of the year. Pull your P&L every 90 days and ask: “What is my COGS as a percentage of revenue?” If it’s over 25%, dig in a little bit. Where are drug costs rising fastest? Can you consolidate suppliers? Is your inventory system optimized to prevent waste?
- Revisit Pricing Annually. Many owners hate raising prices, so they absorb inflation until they can’t anymore, hitting clients with those jumps. A better strategy may be smaller, transparent, incremental increases each year. This allows you to stay ahead of the curve and communicate your value, not just your cost.
- Invest in Tech That Offsets Staffing Strain. If payroll’s your biggest expense, make it more efficient. Automated appointment reminders, integrated inventory systems, and virtual check-ins don’t replace your team; it optimizes them.
The Takeaway
Inflation trends come and go, but operational discipline is what builds a lasting legacy. Practices that consistently maintain strong margins are the ones that command premium valuations, regardless of the economic climate. They’re proving they can thrive, not just survive.
When you reflect on your long-term goals and practice values, which lever feels most important to you today? At MVG, we’re ready to help get you thinking operationally—offering a strategic partnership every veterinarian deserves. Let’s explore this together.
