6 Tips to Being a Profitable Retail Pharmacy

March 14, 2014 • Pharmacy Operations • Views: 68059

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. 

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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

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