How to Make Your Lab Budget Stretch Further
Last updated: November 8, 2021
As healthcare costs continue to rise, it's never been more important for lab managers and lab directors to thoroughly understand their laboratory's budget and all other material and financial considerations.
These laboratory costs can include all aspects of lab management, such as:
- Startup costs
- Day-to-day general operational costs
- Procuring laboratory equipment
- Purchasing lab supplies
- And more
As a lab director or manager, you may find yourself responsible for both the material aspects of lab budgeting and many of the interpersonal dynamics, such as representing the laboratory to:
- Hospital or healthcare executives
- Lab suppliers
- Government representatives
In today’s healthcare environment, many executives and C-level personnel will judge the viability of a lab based on productivity, net revenues and — above all — profitability.
As lab director, it's in the best interests of your work and your lab's work to do everything you can to minimize costs and optimize your lab's budget. In this guide, you'll learn how much it costs to run a laboratory budget and how to optimize your lab budget so you can maximize the performance of your lab.
When starting up a laboratory, there are many different considerations to keep in mind.
First and foremost, as lab director or manager, you will need to ensure that you purchase all necessary laboratory materials. In most cases, laboratory setup costs concentrate around basic lab supply procurement.
Depending on the specific nature of your exact laboratory, your lab startup equipment costs and supply needs may vary.
However, there are some standard pieces that nearly all labs will need to procure.
At least one computer, administrative software, such as QuickBooks, Microsoft Office or LIMS, and a functional, reliable printer are must-haves for any lab. These products can run between about $500 and $2,000 each.
Keep in mind that some software requires monthly payments, which you should consider as part of a budget.
Other common laboratory needs include a waiting room and lab furniture, which average at $5,000-$10,000, and a freezer or refrigerator, which can range between $5,000 and $15,000.
You will also need an initial inventory of basic lab supplies, such as needles, syringes, cotton, gauze, disposable gloves, and an initial stock of chemicals and buffers. Stocking up on these items may cost anywhere from $2,000-$4,000 to start. Of course, these items will run out, and the cost of res-stocking should factor into the budgeting process.
Microscopes, pipettes, centrifuges, hematology analyzers or electrophoresis equipment are other common pieces you’ll need in most labs. Each will typically run about $1,000-$10,000 depending on quality, quantity and procurement method. Once your laboratory has been operational for some time, you can better assess the monthly costs for your specific lab.
Once you feel confident about accurately estimating the productivity rates of your lab, you will be able to more accurately budget from month to month, as well as annually.
Before shopping for any lab equipment, your lab must meet all regulations and legal requirements for your area to operate. This step includes considerations, such as any:
- Necessary medical licenses
- Liability insurance
- Local zoning ordinances
- Lab permits
- Blood bank permits
These legal elements are crucial to running a reputable laboratory and can come with additional fees and costs.
Most costs associated with running a lab get categorized as fixed or variable, direct or indirect. Each one of these categorizations will affect your lab’s budget and budget planning process in different ways.
Fixed direct costs typically refer to more substantial expenditures, such as:
- License fees
- Lab employees’ salaries
Examples of variable direct costs include:
- Disposable medical supplies
- Other test supplies
These direct costs tend to affect the laboratory’s day-to-day function. In general, managing these costs will not pose much of a burden to you as lab director or manager.
Indirect costs tend to include more external type spending, like:
- Utility bills
- Administrative support costs
Because indirect costs aren't always predictable, they're among the most unwieldy to manage.
Indirect costs often encompass ongoing relationships with external actors, such as:
- IT professionals
- Repair companies
- Other administrative services
As such, indirect costs often require a time commitment and level of management that is unfeasible for many lab directors on a day-to-day basis.
Most researchers and scientific professionals trained for laboratory work naturally prefer to focus their energy on their research.
For this reason, many lab directors or managers choose to trust procurement and management professionals to handle indirect costs.
Dryden Group has over 20 years of experience in procurement management, as well as other services. Dryden’s expertise with indirect cost containment has saved our clients over $1.5 billion. Allowing Dryden to manage your lab’s indirect costs will save you time, stress and money while helping you ensure high revenue and profitability for your lab.
So how much does it cost to run a laboratory? There is no cut-and-dry answer, as the expenses for each lab will vary depending on size and complexity.
You will first need to establish a comprehensive and realistic budget to figure out your laboratory setup costs. You will want to consider:
- Equipment costs
- Personnel costs
- Consumable costs
- Rent and utility costs
- Service and maintenance costs
- Transportation costs
- Research publication costs
There are a few different techniques for approaching the laboratory budgeting process.
The four most popular of these techniques are:
- Bottom-up budgeting
Which budgeting style works best for you and your laboratory will vary depending on the exact needs of your lab. Learn more about these lab budget styles now:
- Incremental budgeting: This type of budgeting is typically understood to be the most straightforward budgeting process. Essentially, incremental budgeting requires you to deduct the previous year’s expenses from the budget for the upcoming year. Because incremental budgeting requires data from prior fiscal years, it is not a realistic model for a new lab to use.
- Zero-based budgeting: This budgeting style offers an accurate and comprehensive style of budgeting. It requires you to start from zero and intensely scrutinize and justify every expenditure.
- Top-down budgeting: This budgeting type is likely the situation for most labs located within hospitals and other larger scientific facilities. With this type of budget, the executives of your facility determine the lab’s yearly allotment of money at the beginning of the year. It is up to the lab director to ensure that lab spending does not exceed this allotment.
- Bottom-up budgeting: This budgeting style is a blend of incremental and zero-based budgeting, in which previous years’ financials inform the bottom-up construction of the budget.
Procuring the right pieces of equipment for your lab is naturally an important task for any lab director or lab manager.
Due to the complex nature of lab equipment, you should take procurement of these pieces seriously. It will require some research and evaluation of cost-effectiveness, functionality, frequency of use and overall return on investment.
Procurement professionals like Dryden Group can advise your laboratory on the best course of equipment acquisition. Dryden has over two decades of experience with procurement consulting and management. It is prudent for your lab to consider working with Dryden Group, given our proven record of reducing costs and ensuring profitability for clients.
There are three basic models for lab equipment procurement:
There are a few notable elements to consider when contemplating these three different models:
- Renting: In general, renting equipment is a model best applied to equipment that a lab will only need for a short time, for infrequent use or ad-hoc requests.
- Leasing: Leasing is a good option for equipment you'll use frequently, but for less than three years. Leasing is also advised for equipment styles that require frequent upgrades to avoid owning obsolete equipment.
- Buying: Buying can offer the best option for regularly used equipment and will not require regular upgrades. For example, freezers and refrigerators may fall in this category. Buying is generally advised for equipment that requires routine maintenance, as maintenance and repairs can get customized to suit the needs of its owners.
In addition to complex equipment, labs will need to consider the procurement of supplies and consumables as part of their budget. Often, it’s only possible to reduce the cost of these consumables at the purchasing level.
Supply procurement is another aspect of cost-reduction and cost-management with which Dryden Group has expertise and years of experience.
The lab supply procurement process depends on several factors, which means the process varies between labs.
For perspective, though, this is how the lab procurement process works at Dryden Group. As a reference, Dryden Group offers a comprehensive supply procurement process uniquely tailored to meet the needs of each of our clients.
This process includes, but is not limited to:
Our process begins with planning and strategy development, in which Dryden consultants will assess your needs and help you establish your goals.
In the benchmarking process, our consultants will utilize Dryden’s comprehensive database and current market data to compare and analyze your costs against industry standards.
We will conduct an extensive, precise audit for every line item, expense, service and invoice to ensure vendor compliance with your laboratory’s budget and needs.
Data gathering is another important component of the supply procurement process. Dryden’s extensive, up-to-date databases allow you to identify the most effective suppliers and most cost-effective equipment and supplies to meet your lab’s needs.
Our procurement specialists will help you navigate every aspect of the supply procurement process, including submitting requests for proposals (RFPs). This stage includes interacting with vendors and building vendor relationships. It also extends to form contracts and renegotiating said contracts as needed.
Dryden’s relationships with, and knowledge of, industry vendors can result in lower purchasing prices and an overall tighter budget strategy for your lab.
Dryden’s consultants and procurement professionals offer a streamlined approach to the entirety of the supply and equipment procurement process. It’s an all-service, comprehensive approach to stretching a lab’s budget and ensuring cost-effectiveness across all lab functions.
There are numerous advantages to outsourcing lab supply procurement.
First and foremost, outsourcing lab procurement will nearly always result in lower costs and savings for your lab. Most other aspects of budgeting, procurement, vendor relationship management, contract negotiation and auditing are also made simpler by outsourcing procurement.
The concrete benefits of outsourcing include:
By outsourcing supply procurement to a company like Dryden, you essentially offload the additional stress and workload of procurement onto professionals who specialize in that exact work.
Procurement is a business in itself, and professionals will be able to leverage their knowledge and experience to find the best solutions for your lab.
Economies of scale have a direct impact on cost when it comes to supply procurement. Procurement professionals often have long-standing relationships with suppliers. As a result, they are better suited to negotiating low rates and profitable outcomes than lab managers who choose to go it alone.
Professional procurement specialists come with the training and experience to build and maintain vendor relationships. As such, they can often leverage their communication skills and prior relationships to negotiate costs and establish contract terms.
Outsourcing procurement often comes with the additional benefit of purchasing analysis, which ensures scalability, compliance and liability reporting, all of which can play a crucial role in ensuring that your lab protects its budget.
Outsourcing procurement is a proven way to reduce costs and protect your lab’s budget.
Lab directors and lab managers can employ a few other strategies to stretch lab budgets even further:
While time-consuming, applying for additional funding, such as grant money, can yield additional financial support and cushion money to supplement your pre-existing budget.
Buying consumables in bulk is another clever technique to lower costs. You can purchase products, such as disposable gloves, gauze, needles and syringes in large quantities and stored for long periods before use without losing any efficacy.
Bulk purchasing laboratory materials is nearly always the most cost-effective purchasing strategy.
Regularly re-evaluating existing vendor relationships through audits and contract renegotiation offers additional opportunities to lower costs and save money. Make a habit of this practice to make purchasing laboratory materials more cost-effective for your organization.
Dryden Group is a proven leader in lab supply procurement services.
With over 20 years of experience and significant specialized expertise in procurement and cost containment, we work with a variety of industries and clients. At Dryden, we pride ourselves on providing the best possible results and highest quality customer service for our clients. We root our consulting services in transparency and great respect for our clients.
We are uniquely well-suited to meet our clients’ needs and concerns. From supply and equipment procurement to budget advising and cost-containment, we've designed our service offerings to make our clients’ businesses vibrant and profitable.
Don’t hesitate to contact Dryden Group today to bring the same cost benefits to your lab.