# 5 Critical Numbers That Can Skyrocket Your Pharmacy's Success

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There are many things you need to know about your pharmacy as a business, but understanding the following 5 numbers is particularly critical.

There are many things you need to know about your pharmacy as a business, but understanding the following 5 numbers is particularly critical.

1. The lifetime value of the average patient.

The lifetime value of each patient is far too often unknown and underappreciated. Being in business 10 years or more helps. Whether or not you are, follow these steps:

• Randomly choose 100 names from your patient database.
• Determine how long each person has been a patient of yours.
• Find out how much money each person spent in the time that he or she has been a patient.

When you add up these numbers and divide the aggregate by the number of names, you’ll arrive at the amount spent by the average patient. However, that’s not the final result you want. You must then multiply it by the average profit margin that each has achieved in order to arrive at the true value of the average patient.

2. The average cost of acquiring a patient.

This cost will dictate how much you want to spend to acquire more patients. The process of determining the average cost of a patient is as follows:

• Identify the number of new patients obtained in the course of the year by the amount of dollars spent on advertising both offline and online.
• Identify the amount of money you spent on marketing, then divide it by the number of new patients.

You should now have the cost of acquiring a new patient. Hence, if you spent \$12,000 and gathered in 120 patients, your cost of acquisition is \$120 per patient.

3. The marketing budget needed to accomplish the above.

The answer to this question depends on 2 things:

• How many new patients do you want to acquire? Once you determine the cost of that acquisition and the lifetime value of the average patient, you know how profitable your marketing can become. Now, it’s simply a matter of determining how many patients you want to acquire and how much money you want to spend on acquiring them.
• How much more effective can you make your marketing so you acquire more patients at a lower cost? It may behoove you to spend some money on a professional marketer/advertising copy writer who can upgrade all of your advertising, as well as other marketing so that you increase the pulling power of each and every ad, thereby decreasing the cost of acquisition. In my estimation, this is money exceedingly well spent, and I have proved it over and over again for many pharmacy owners.

Set your goals first, then set your budgets to support them. By doing so, you can determine not only how much marketing you want to do, but also what sort of marketing its going to be.

This is the natural follow up to the cost of acquiring your average patient. When the 2 are compared, you have the answer to how much you should spend on marketing.

This requires some real analysis that can be done by your bookkeeper, but what you do with the final data makes the real difference.

You’ll want to know where your profits come from, where they aren’t coming from, and even what’s destroying them. Unfortunately, pharmacies have profit destroyers in the form of transactions that create negative profits. What percentage of the scripts you fill fall into that category? You’ll want to identify them and then really take action.

What should you do with this information? Gradually squeeze out insurance companies that give you no return or even cause you to lose money. You don’t want to create any cash flow that doesn’t add to your profits, and you also don’t want to tie up valuable assets that don’t contribute to your financial aims and goals.

5. The top 20% of anything (products, services, and patients) that delivers 80% of the results.

An 18th-century Italian economist discovered that 80% of all wealth is created by 20% of what we do. A very keen business analyst named Richard Koch determined that this principle applied very well to business, and so he wrote a book called The 80/20 Principle.

An interesting example of this is IBM, which had an annual practice of automatically discharging the bottom 10% of its staff after analyzing performance. IBM was of the opinion that the bottom 10% actually pulled the company’s profitability down and could be replaced by better individuals. It generally proved correct and succeeded for many years with that application.

In my work with independent pharmacies, I have found approximately 24 applications of this principle as it relates to products, services, and even those who staff your business.

Make the system work for you

You must know the above numbers in order to skyrocket your pharmacy to greater levels of success. Use them, prioritize them, and you’ll reach heights you’ve never seen before.

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

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