Do More Patients Equate to a More Profitable Pharmacy?

FEBRUARY 27, 2019
Aaccording to Richard Koch, in his highly acclaimed book The 80/20 Principle: The Secret to Success by Achieving More with Less, more patients do not equate to more profit. The book is based on Pareto’s Law, which was discovered by Vilfredo Pareto, an 18th century Italian economist.

Through extensive studies, Pareto proved that 80% of wealth is created by 20% of the activities. Pareto’s Law has but 1 theme: to generate the most money and wealth with the least expenditure of time, effort, and resources.

In the independent pharmacy world, The Pharmacy Sage has repeatedly proven that the following is axiomatic:
  • 80% of your net profits come from 20% of your patients
  • 80% of your gross profits comes from 20% of your space
  • 80% of your sales comes from 20% of your assortment. The rest is window dressing.
And therein lie 3 of the biggest secrets to success in independent pharmacies today. 

Now, when it comes to patients, it’s not the quantity that matters, it’s the quality.
 
The Key to Patients and Profits: Differentiate Your Pharmacy

You have choices. Where you position your pharmacy for the future determines the sort of money you will make, what you can do for your family, as well as the brand you build. You have a possibility of 4 outcomes. Here are your choices:

High Margins, High Volume
This is the segment in which to position your pharmacy. It is the most profitable one, giving you the least stress. By deploying strategic marketing, some pharmacies have produced profits that approximate the following:
  • Gross profit in excess of 60%
  • Net profits of about 25% (The Pharmacy Sage has recorded data of pharmacies that have achieve these numbers)
  • The ability to afford more team members to whom delegating managerial responsibilities leads to the owner’s working fewer hours and having more time for family and leisure activities.

High Margins, Low Volume
This is where you could be with few, if any, headaches, and totally devoid of stress. Your profits are significantly high when you embrace the recommended business model, just not as high as with high margins, high volume.

Low Margins, High Volume
This is where most traditional retail independent pharmacies are now, with constantly eroding cash flow and profits, and high stress.

Low Margins, Low Volume
This is a prescription for total disaster. Unfortunately, startup pharmacies, who do not embrace the proper business model, wind up here.

Please note: there is business you should want, and business you should not want. A statement in your Standards of Excellence regarding gross profitability will give you a framework for deciding what you want versus what you do not.

In order to get the profits you want, and avoid the business you do not want, consider this proven business model:
  • Compounding—This is where you provide them with customized medication, which is far better than the one-size-fits-all traditional script. The pharmacies that are successful at the highest level using this method of filling prescriptions do it for cash (85% to 87% margins), which is why they locate near families with high incomes.
  • Nutraceuticals—Choose high-quality ones that retail at sensible prices, ones that cannot be found at chain stores, big box stores, and probably any other independent in your community. Since no 1 vendor covers all the chronic diseases really well, it is recommended that you shop many different vendors and cherry pick the best of the best. This, too, is an all cash business and is done with higher income families who appreciate your higher quality products.
  • Fee for your services—for your expertise—This can be automated based on your enhanced knowledge of chronic diseases and their solutions. Go outside your pharmacy for the training, which should be both auditory and visual, so you can be sure every team member learns. This is where you dispense information, both written and verbal, which is what your patients will value most from you. Becomes the basic wealth attractor that enables you to turn information into money in the bank.
  • Marketing—Select such a compelling nature that people come running to you with ad in hand. They may also seek you out because of information they got online. Since you are addressing higher incomes, they want to purchase your solutions to whatever chronic diseases they have, because you, and only you, have those solutions. If your marketing well differentiates you in the marketplace, then you will propel word-of-mouth marketing in ways that others cannot.
The 4 preceding choices are the ones that each and every independent pharmacy owner face. The Pharmacy Sage has identified the first 2 as being ideal for the most profits and the least stress.

The Pharmacy Sage can be reached at (518) 346-7021 or thepharmacysage@rxresultsnow.com

Lester Nathan, MS
Lester Nathan, MS
A powerhouse in the world of independent pharmacy, Lester offers free business resources for Pharmacy Owners on his website, ThePharmacySage.com. Offering insight, wisdom, and strategy, Lester is an esteemed voice in pharmacy business. Lester helps his clients increase patients and profits in spite of the 3rd party payment fiasco.
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