6 Tips to Being a Profitable Retail Pharmacy

March 14, 2014 • Pharmacy Operations • Views: 34960

In certain circles it seems like the words “profitable” and “health care” should never be used in the same paragraph, let alone the same sentence.   It is the old “either/or” fallacy rearing its head.  Either you are concerned about making money, or you are concerned about people’s health.  You can’t be both. 

That’s fine if you live in wonderland where medicine is dispensed by fairies to unicorns who never get sick.  But in the real world, money matters.

We dispense medications in the real world, where goods and services have value, people need paychecks to live and bills don’t pay themselves.  That’s why, as a pharmacy manager, I have always tried to take a keen interest in the business side of running a pharmacy as well.  If you aren’t profitable you won’t be around long to help the people you care for

I remember having this conversation with a friend some years ago.  He was a good-hearted soul, and struggling to get his health care consulting business off the ground.  I said to him at one point “John, you’re doing your patients no favors by charging them so little that you go out of business.  Who will you help then?” 

The retail pharmacy business is under enormous pressure.  Profitability is more challenging today than it has ever been.  Those who don’t work in this field probably don’t realize what has happened, but pharmacies do not control their reimbursement for drugs.  They are sometimes paid less than what it costs them to buy it.  When they are paid above cost, it is often barely enough to cover operating expenses, let alone make a profit.  This article, however, is not about how to fix that fiasco – important as it is.

My question for you is this:  Is your pharmacy profitable?  Whether you work in a large chain, a small chain or an independent – the question of profitability is important.  Do you know if your store breaks even every month?  Are you in the black or red?  What is your average Gross Profit on a prescription?  What is your average OTC margin?  What are you spending in payroll and benefits?  Could you list all the expenses your pharmacy pays every month?  I would bet the list is much longer than you realize. 

 

Becoming a profitable pharmacy is hard work.  That’s why most large retail chains take the most mindless approach and just try to win the game on prescription volume alone.  Just fill more scripts.  And cut staff.  And then fill the scripts faster…with less people.  Then, well, just  fill more.  This approach may lead to profitability, but it will be far less profitable than they could be.  But it’s easy.  Anyone can compare prescription filling rates and payroll expenses.  You don’t need an MBA for that.  You don’t even need a calculator.   

Smart pharmacies, in my opinion, take a different approach.  This is where independent community pharmacies have an opportunity.  This is also where entrepreneurial spirits, even within a chain, could thrive.  But sadly most big boxes just take the path of least resistance, and the fewest required brain cells, and focus on volume and payroll. 

I propose a different approach.  The following are 6 tips that I have found pay big rewards when driving toward becoming a profitable pharmacy. 

1)  Drive sales toward your best margins

Where are your best margins in your business?  It’s not just about revenue, it is about margins.  It is no good to make a $4,000 sale on a specialty drug if it cost you $3,998 dollars to buy it.  Whether OTC or prescription, good business requires us to see where our best margins are and direct sales and marketing down that road. 

2)  Know who your 20% are

You have heard of the Pareto Principle:  20% of any group produce 80% of the results.  And this 80/20 rule is everywhere.  20% of your prescribers might be 80% of your business.  20% of your customers might be 80% of your profits.  20% of your merchandise might be 80% of your sales.  Maximize your efforts toward these 20% areas.  Spend more time drawing water from the ocean than trying to drill wells in the desert. 

3)  Insist on measurable ROI in marketing

There are no shortage of businesses out there who want to “help” you become profitable.  They will sell you marketing material and programs with fancy graphics and turnkey solutions.  But do they work?  My philosophy is this:  if you can’t measure it, don’t buy it.  If you cannot quantify the results of a particular marketing effort, you are throwing your money into the wind hoping it will attract more money and eventually fly back to your bank account.  That’s fine if your accountant is a unicorn.  In the real world that’s just crazy.

4)  Be “expense” vigilant

Know your expenses and keep them down.  The cumulative impact of saving just a few cents on certain supplies can be very significant.  Are you getting your money’s worth from every purchase you make?  Sometimes you have to be a good negotiator.  Shop around.  Keep good records.  Be organized.

5)  Turn your staff into a sales force

Most pharmacies fail to train their staff and optimize their potential.  They simply hire machines on 2 legs.  That is wasted money, and the “self checkout” trend is proof.  Your staff has to engage customers and become real sales professionals.  Do they know where your most profitable items are?  Do they know what they do and who they benefit?  Teach them, help them, train them – then let them loose.  

6)  Keep the big picture in mind

For most pharmacies, the transition to being profitable isn’t overnight.  At your current rate of growth, when will you break even?  Keep your eye on the goal.  What if you are currently profitable, but just barely.  That’s a dangerous place to be.  A small setback could be devastating.  What would it take to double your current profitability?  How could you get there? 

As a pharmacist my first and foremost concern is for the health and safety of my patients.  But ignoring profitability isn’t good medicine for anyone: not for you, not for your business and not for your customers.   

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Author: Jason Poquette
  • HRG Inc.

    Excellent post and points, Jason. My favorite lines: “Spend more time drawing water from the ocean than trying to drill wells in the desert” and ” if you can’t measure it, don’t buy it.” Sage advice all around.

  • jasonpoquette

    Thanks HRG! I’m a fan of your blog and am honored that you stopped by and left a comment. Best wishes!

  • Jim Rawlings

    Jason,
    Good points throughout, makes me want to buy an independent and give the big boys a run for their money.
    Enjoy your blog! Peace out!
    goose

  • jasonpoquette

    Thanks for stopping by Goose! Let me know when you buy that pharmacy. I’d like to make your first sale. Best wishes!

  • JY

    I used to work for an independent as a tech. The pharmacy has been open for ~5 years so far but the rx volume is >300/day on busy days and at least 100 on slower days. Some peak records went over 500 when I recently heard back from them. I think this business knew how to do #2, 4, and 5 for sure. As a pharmacy student, I am really grateful that I got to work in this pharmacy since the pharmacist knew how to balance patient care with profit very well. He inspired me most of the times for how much he cared for patients but looking back, yes, that was possible since this pharmacy was financially successful.

  • jasonpoquette

    Hi JY,
    Thanks for commenting! Glad you had such a great experience!

  • Luong the Viet

    Thanks for article. I would like to see concrete and specific ways how we can increase both our revenues and profit margins as owners of pharmacies.

    • wwfpana

      Hi Luong. Does your pharmacy do compounding? What state are you in?

      • Luong the Viet

        Hi. Yeah, we do compounding and want to increase the volume. We’re in California.

  • jasonpoquette

    Hi Luong. Thanks for reading and commenting. If you are an owner, feel free to shoot me an email and we can discuss in more detail.

  • Jason Carter

    I would like to thank the author for coming up with some common sense approaches on a subject that is seldom addressed. It should be noted that often with large retailers, profitability now hidden from pharmacy managers at the store level. There’s no easy, one-size fits all solution to making a profit in retail pharmacy. It can be very area specific and independents are good at capitalizing on a niche market. Obviously, many independents are carried by their non-insured customers. So, be priced well enough to attract local customers from surrounding chains but not so well that you give product away. There are parts of the retail pharmacy business now that are part of a well-rounded service but don’t necessarily make a profit in and of themselves. Even compounding in small towns where few compounds are desired by the local physicians won’t make any net gain alone but is simply part of a diversified service. I think creative, local, easy-to-understand marketing is underrated.

  • Abhirup Bhadra

    great article ……. Loved it ,, even I am trying to open a retail medicine shop…… your article helped me a lot …. thanks alot again man ……… keep writing on new ways of profitability in retail business …….. THANKS AGAIN…. 🙂

  • Jacob Ray

    Marketing is the most important factor of a successful pharmacy business, thanks for this informative post. pharmacy-marketing.com helps you choose the best pharmacy affiliate marketing. Their professionals will make sure that affiliates create the right type of marketing campaigns and advertisements to match your business requirements.

  • The Independent Pharmacist

    Great topic choice. While I typically lean more towards independent pharmacy vs chain, I think these suggestions, when applied in either setting, is KEY to being profitable. Another suggestion I might add is paying attention to reimbursements. The fact of the matter is that PBM’s do not exist to help pharmacies stay in business. As an independent pharmacist, I know that PBM’s constantly pay below or right at cost and it’s impossible to keep dispensing prescriptions when there’s not a profit margin. So pay attention to those reimbursements and call the PBM for a MAC pricing update if necessary. Again, great topic and great article. I would love to get some of your input over at my site, http://www.theindenpendentpharmacist.net. Thanks!

  • Madhu

    Great article Jason.
    Love to know more about how to target niche and profitable segments in retail and other sectors of pharmacy business. I have been in business for less than a year. Any insights towards this is greatly appreciated
    Madhu

    • jasonpoquette

      Hi Mahdu. Great question. Hard to answer generically. If you shoot me an email with some details about your business, location, etc. I may be able to give you some thoughts.

  • Jumpra Interactiva

    You can learn more about independent pharmacy profitability just by talking with us! http://www.gerimedgso.com/

  • san

    Hi jason i am well educated and doing job in pharmaceutical company. and want to start my own pharmacy store in delhi. but i am confused regarding how i will make profits and run my pharmacy. should i have to do job on pharmacy stores or directly start my own. If my own how will i understand writing of prescriber. how to choose location of store. how i will start making profits to survive and take it to scale up.

  • dr showkat

    i started pharmacy one year ago ,but i am not able to make profits ,its 1km away from a subdistrict hospital near tehsil office,what should i do to make it profitable,i am in deliema rather inferiority complex ,please suggest
    regds

    • jasonpoquette

      Hi Showkat,
      Contact me through the contact page above. Provide some more details. I’ll see if I can help.

      • dr showkat

        sir, it is zainapora shopian in kashmir,about 10 kms beforef the district shopian,now people are suggesting me to bring some good doctors for consultation so that yor phartmacy starts running,

        regds