Increasing Your Pharmacy's Profits

Pharmacy profits have been dwindling drastically. Rx Advisor brings together some simple and effective tips to help you improve your pharmacy profits.

The Basics of Pharmacy Profits

Profitability is frequently confused with cash flow. You can have low cash flow (aka no money in the bank) and have great profits. The opposite can be true too. We are focusing solely on the profitability of your pharmacy in this article.

Pharmacy profits are essentially a math equation. Your total revenues "R" minus all of your expenses "E" equals your pharmacy profits "P." Here is a visualization of this simplified take to calculating profits R - E = P. If you want a bigger "P," there are only 2 ways to get there. Make your "R" bigger or your "E" smaller.

Increasing Pharmacy Revenue

If you start with a bigger revenue, you will likely have more left over after your expenses are paid. While you can increase your revenue by filling more prescriptions, adding new services, or selling laundry soap, Rx Advisors thinks the best revenue a pharmacy can earn is the non-PBM type. Pharmacy profits from dispensing are already your primary source of revenue, and the profitability of each prescription seems to worsen every year. So, instead of doing more of the same, let's look into sources of revenue outside of dispensing and therefore outside of the control of the PBMs.

Clinical Services

Providing professional cognitive services to your patients can be a great source of additional revenue. Many pharmacy owners get hung up on trying to do collaborative practice-based services. Those can be great, and they can be very complicated. You can start small by charging cash for extended consultations. These consultations might be for hormones if you are a compounder or for athletic supplements in a college town. Pharmacists typically charge between $50-$250 an hour, billed in 15-minute increments for these types of appointments. If you want something a little more structured, you may consider remote patient monitoring services or weight-loss coaching.

Over The Counter Items (OTCs)

An area where you can sell directly to your patients without any prescriber or third-party payer interference is your OTCs. You can set your own price, do your own education and demand generation and make the sale, all on your own! It may seem a bit silly, but that is a stark contrast to most of your revenue through a PBM. Professional-grade supplements such as Ortho Molecular, Energy First, or Future Formulations are great choices for your pharmacy. You can even get cough, cold, and pain items white-labeled for your pharmacy through Weeks & Leo. Another option is point-of-care testing kits that patients can purchase to control their own health.

If you aren't sure what to carry, there are 3 choices you can make.

  1. Guess - we don't recommend this, but even a blind squirrel finds a nut sometimes.

  2. Ask - talk to your patients, prescribers, schools, employers and find out what they are buying elsewhere.

  3. Research - see what the top sellers are on Amazon for a category or what are other stores in your area are carrying.

Decreasing Expenses

Let's look at the other side of the pharmacy profits equation, expenses. Too frequently, after Rx Advisors onboards a customer, we see their expenses are much too high. As pharmacy profits have been shrinking, many pharmacy owners have not done a corresponding shrinking of their expenses. There are 2 buckets of expenses you should look at; your cost of goods and your operational expenses.

Cost of Goods

One way to make more pharmacy profits is to pay less for the items you are dispensing. Primary wholesaler contracts are shrouded in smoke, mirrors, and invisible cloaks. It is excruciatingly difficult to know if you are getting the best deal out there. Also, a buying contract that is best for one pharmacy isn't necessarily the best for other pharmacies. This is because each pharmacy has its own fingerprint of the products they are purchasing. Here are some points to consider when talking to a wholesaler or group purchasing organization (GPO).

  • Percentage of generics

  • Quantity of controlled products

  • Top 50 dispensed products (perhaps top 100)

  • High invoice cost products >$500 a unit

For most pharmacies, being part of a GPO will save them money. A good way to see the differences in costs is to list a sample of purchases over a 60-day period. Give this list to different GPOs or wholesalers and have them calculate what your cost would have been if you were their customer. This helps give an accurate comparison. Rx Advisors recommends shopping out your cost of goods at least annually.

Operational Expenses

A large impact on pharmacy profits is bloated operational costs. These are things like the cost of your vials or toner cartridges to services that are bundled in your PSAO fee that perhaps you may not be using anymore. Rx Advisors recommends looking at every line item in your profit and loss statement (P&L) twice a year to do an expense spring cleaning. Bring out your inner Marie Kondo and only keep expenses that spark joy! Here are some questions to ask yourself about each expense:

Does this expense bring extra revenue?

  • Is this expense necessary for the operations of my pharmacy?

  • Can I get this expense cheaper from another vendor without sacrificing critical quality?

An area that is often overlooked by pharmacy owners is your consumables. These are items such as vials, labels, ink, toner, and paper. Their individual prices are small and so their impact on your pharmacy profits is minimalized. However, if you aggressively price shop, it could mean thousands of extra dollars in your bank account.

Get Your Payroll Under Control

Since payroll is one of your largest expenses, it is important to evaluate regularly. To get this to a percentage, take all payroll expenses and divide them by the revenues for the same time period. Once you multiply by 100, you will have your payroll ratio. High-performing pharmacies keep this number below 11%. If you need help calculating this number, give Rx Advisors a call at 855-877-9807.

Gain Critical Clarity

As a pharmacy owner, you need to make critical decisions about your pharmacy every day. Do you have accurate information to make these decisions? Rx Advisors is committed to creating clarity where there is often confusion. Our simple to read quarterly performance report (see below) puts the critical information in your hands in easy-to-understand formatting. Rx Advisors will make sure you are focusing on the areas that need it the most and will help you improve your pharmacy's overall performance. If you are looking to increase your pharmacy profits, manage your taxes, gain clarity in your pharmacy's financial health, then visit our website, or call us at 855-877-9807.

Quarterly Performance Report Sample
Download PDF • 1.11MB

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