Pharmacy owners everywhere wonder the best ways to measure pharmacy performance and which pharmacy performance metrics are the best.
Rx Advisors has been diving into pharmacy performance metrics for many years. We know the key performance indicators (KPIs) that have the most significant impact on your pharmacy performance. Whether you are embarking on a complete pharmacy performance improvement plan or just looking to squeak out a few more profit percentage points, this knowledge will help you get results faster.
Pharmacy Performance Dashboard
The number one question pharmacy owners ask us about pharmacy performance is which pharmacy performance metrics are the most important to track? Typically, the one that pharmacy owners are most concerned with is Net Profit. While that is a vital metric, knowing that KPI doesn't help you make better decisions to improve it. You must look deeper and broader into your pharmacy performance metrics to get a more comprehensive view of your pharmacy. We created our own pharmacy performance dashboard called the Rx Advisors Quarterly Performance Report. Download a free sample of one HERE.
In our Quarterly Performance Report, we not only give you the basic pharmacy financial reports, but we also include tables and graphs of the main KPIs. We examine in detail these KPIs:
● Current Ratio
● EBITDA Dollars
● EBITDA Percentage
● Gross Profit Margin
● Labor Percentage
● Quick Ratio
● Total Revenue
There is also a detailed section on your pharmacy's profitability performance. This way, you can easily see if your efforts to increase pharmacy profits are going in the right direction. Let's dive deeper into each of these critical pharmacy performance metrics.
A measure of liquidity. This measure compares the totals of the current assets and current liabilities. The higher the current ratio, the greater the 'cushion' between current obligations and the business's ability to pay them. Generally, a current ratio of 2 or more is an indicator of good short-term financial strength. In other words, the current assets of the business should be at least double the current liabilities.
Current Ratio = Total Current Assets / Total Current Liabilities
EBITDA is a common financial acronym and stands for earnings before interest taxes, depreciation, and amortization.
EBITDA = Net Income + Depreciation & Amortization + Interest Expenses
This number reflects EBITDA as a percentage of sales and is the gold standard for comparing and evaluating a pharmacy's health.
EBITDA % = EBITDA / Revenue
Gross Profit Margin
Gross profit margin is a measure of the proportion of revenue left after deducting all costs directly related to the sales. The gross profit serves as the source for paying operating expenses. The critical factor in improving your gross profit margin pharmacy KPI is actively managing your cost of goods sold. Your goal is to keep this pharmacy performance metric above 21.8%.
Gross Profit Margin = Gross Profit / Revenue
Labor costs as a percentage of total revenue. The most common question pharmacy owners have about this pharmacy performance metric is whether they should include any owner's salary. The answer is yes if the owner's work is critical to the prescription filling process. Another way of looking at it is if the owner stopped doing their work for the pharmacy, would you have to hire someone else to fill that gap? If that answer is yes, then include your salary. However, if no, then you can deduct that amount.
Labor Percentage = (Salaries & Wages + Payroll Taxes + Benefits) / (Revenue) * 100
The Quick Ratio measures the availability of assets that can quickly convert into cash to cover current liabilities. Inventory and other less liquid current assets are excluded from this calculation. The Quick Ratio is a measure of the ability to pay short-term creditors immediately from liquid assets. A quick ratio of 1:1 or more is considered 'safe.'
Quick Ratio = (Cash & Equivalents + Accounts Receivable) / Total Current Liabilities
Your total revenue is a measure of the total amount of money received by your pharmacy for all products or services provided. Strategies to improve revenue may include increasing prices, increasing sales volume through marketing initiatives, or launching new revenue sources. You may want to look at categories of revenue if your pharmacy offers widely varied services. A total revenue metric is always essential, and understanding your total revenues from clinical services, or OTCs, or other business lines can also be insightful for you.
Total Revenue = Revenue from all sources
Pharmacy and Performance Management
Knowing without implementation is the same as not knowing at all. This information on the critical pharmacy performance metrics doesn't help you unless you use it to impart change in your pharmacy. Here are some quick tips on how you can integrate this knowledge to help your pharmacy.
Involve Your Team
While you may not want to share all pharmacy performance measures with your entire staff, you should have a shortlist that you do share. Once you have this list, set each item's goals and then commit to reporting on your progress monthly to your team. Ask for a volunteer that can make a visual poster so everyone can see the progress you are making for improving these pharmacy performance metrics. Read our article on Employee Incentives here.
Get An Accountability Partner
If you rely on yourself and your own internal will, chances are you won't stick to your goals. The odds of your success significantly improve if you involve at least one accountability partner. This partner doesn't even have to know what these numbers mean. They could be a friend, another pharmacy owner, or even your spouse. You will want to tell your partner which pharmacy performance metrics you are focusing on, your goal, and then update them on a regular schedule.
Leverage Professional Help
Pharmacy owners are busy—crazy busy. If numbers aren't your passion and your groaning just thinking about all the calculations, then getting professional accounting help will probably be your best choice. A great accountant will not only calculate and track these numbers but also help you strategize on how to improve them in your specific situation. At Rx Advisors, this is our favorite part of working with pharmacy owners. Each pharmacy is unique, and suggestions for strengthening pharmacy performance aren't one-size-fits-all. If you need a more substantial financial partner in your pharmacy, we would love to chat with you. Give us a call at 855-877-9807. Don't forget to download a copy of our Quarterly Performance Report.