While most pharmacies will carry on operating ‘business as usual’ come the 1 October cuts, more strategic ones will look for ways to offset the impacts, writes Trent Ruprecht
The pharmacy industry is set for yet another round of price cuts coming into effect from 1 October 2018, resulting in an estimated $0.05 per script decrease to the gross profit of the average pharmacy.
This latest reduction further compounds the impacts of the preceding four reductions associated with the removal of originator brands from the calculation model.
While most pharmacies will carry on operating ‘business as usual’ come 1 October 2018, the more strategic pharmacy businesses will look for ways to offset the impacts and continue to grow their business by implementing a range of growth strategies.
Now ask yourself, what is the plan for your business?
Whether you’ve operated a business for 30 years or just starting out, it’s never too late to start focusing on improving the performance of your business.
As an advisor to business owners for more than a decade, I can say with certainty that successful businesses don’t just arise from chance or good fortune.
Success comes from having a clearly defined strategy, a thorough understanding of your chosen market segment, a clear understanding of your customer’s needs, a structured reporting framework for measuring performance and management of cashflow, and an ability to adapt over time as required.
In the case of pharmacy, this is no different. Whether your strategy is to discount, provide a high level of service, or supply a unique product whatever it might be, you need to be clear on your market strategy and understand the key drivers of your business.
The following are just a few simple steps for any pharmacy owner looking to improve the financial performance of their pharmacy:
- Take time to understand your business model and the offering you are providing to your customers. If your offering is that of a low cost, high turnover pharmacy, consider how discounting is being applied within your pharmacy. For example, did you know that discounting the sale price by 10% at a gross profit margin of 30% means that you need to sell 50% more to achieve the same result! Don’t fall into the trap of following suit of those around you without considering the impact of such a decision.
- Prepare an operating budget for the coming 12 months and assess actual performance against budget each month. Budget variances should then be investigated as part of continually improving your pharmacy.
- Train your staff to be better retailers. All staff should be aware of complementary products and services so that they can assist customers with. Increasing the average basket size per transaction will result in considerable increases to the operating results of the pharmacy.
- Consistently track and measure key business metrics. As the old saying goes, you can’t manage what you don’t measure. Having a consistent system for tracking the performance of the pharmacy is key to ensuring your time is spent improving the right areas.
There is no better time than now to take control of your pharmacy’s performance.
Are you ready to take the wheel?
Trent Ruprecht is a Principal within the PKF Newcastle Business Advisory Services team, and has over 10 years of experience.