As a pharmacy owner, you’re most likely always looking for ways to increase profits. While most see growing your customers as the best way, you can actually see much more significant results from improving your independent pharmacy profit margins.
The average independent pharmacy profit margins were 21.3% according to last year’s survey. Do you know what yours is?
As an example, if your annual revenue is $1 million, and your pharmacy profit margin is even 1% lower than the industry average, you could be leaving $10,000 on the table every year!
Let’s change that. Here are three tips to help improve your independent pharmacy profit margins:
Reduce Overhead and Other Costs
While your pharmacy’s profit per prescription is an important metric to track, it won’t tell the whole story of your pharmacy profit margins. Other costs such as overhead can easily rise up and hurt your overall profit margins.
Your first goal should be to get a good handle on exactly what your expenses are. Some of these costs are unavoidable, but can be greatly reduced, and some costs result from inefficiencies and should be eliminated altogether. Here are the two major pharmacy expenses to focus on:
- Overhead: Overhead includes your rent, utilities, insurance and maintenance. Look for small ways to make improvements here that will make a difference. For example, energy efficient light bulbs can drastically reduce your energy costs. Replacing old equipment can also reduce your maintenance.
- Acquisition Costs: The cost of acquiring your inventory can have a significant effect on your retail pharmacy profit margins. It’s also an opportunity for increased efficiency. For example, if you frequently run out of pharmaceuticals, you could be incurring major shipping costs to get a new order rushed out to you. We’ll talk more about managing your inventory later on.
Focus on High-Margin Pharmaceuticals and Services
Once you’ve improved the expenses that affect your margins no matter what you sell, you can begin focusing on your high-margin items. While it’s important to be well stocked with pharmaceuticals for whatever your customer’s needs are, you know that some medications and services make you a lot more money than others. Increasing your independent pharmacy profit margins requires you to focus on those high-margin items.
Figure out which items you make the most profit per prescription on and work to promote those in your store to existing customers. You may be able to position yourself as specializing in that specific medicine so people come to you first. Services like flu shots and immunizations are also a great, high-margin way to increase profits. The important thing is to always look for opportunities to up-sell your existing customers.
Reduce Pharmacy Inventory Costs
The largest expenses your independent pharmacy has are the costs of your pharmacy inventory. Reducing the costs of purchasing pharmaceuticals and managing your pharmacy inventory are the best ways to improve your pharmacy profit margins.
- Improve Inventory Management and Workflow: As we mentioned above, acquisition costs can have a major effect on your profit margins. Strong pharmacy inventory control methods can make sure you never lose sales for lack of a medication, reduce supply chain costs of ordering pharmaceuticals, and are in a position to take advantage of short-dated Rx.
- Buy Overstock and Short-dated Rx: When you know your inventory needs well enough, you can take advantage of overstock and short-dated Rx to drastically reduce your pharmacy profit margins. These medications often sell for a fraction of what your primary wholesaler sells for and can be a great way to improve your profit per prescription.
Want even more tips for boosting your independent pharmacy profit margins? Check out our 2017 Buyer’s Guide for Pharmacy Owners.