The fundamental KPIs every pharmacy owner needs to measure


KPI reporting is a tool that allows pharmacy owners to gain deeper insights into their business performance, write Lachlan Ballinger and Morgan Whiting

In today’s highly competitive environment, effectively using data has never been more crucial. Key Performance Indicator (KPI) reporting allows pharmacy owners to gain deeper insights into their business performance, and ultimately gain a competitive advantage.

What is KPI Reporting?

KPI reporting is a business performance tool that effectively summarises and visualises KPIs. By having a solid understanding of these performance indicators, you are in a stronger position to make better, more informed decisions and act quickly on potential opportunities or challenges within the pharmacy.

The value of KPI reporting really comes into effect when it is implemented and linked to all personnel within the pharmacy. By breaking down the Profit and Loss Statement and Balance sheet into KPIs that key personnel such as Store Manager, Pharmacy Manager, Retail Manager and Stock Controller etc have direct impact on, it will ensure there is increased awareness of their requirements and link to business goals and objectives.

KPI Format

When undertaking KPI reporting, we work with pharmacy owners to identify the relevant KPIs for their pharmacy, extract the data, and then report the data in an easy-to-read dashboard format. This data can be viewed, weekly, monthly, or quarterly.

KPIs

To ensure successful implementation of KPI reporting, all team members need to understand the impact KPIs have on the financial performance of the pharmacy. The top three areas of the pharmacy which are important to wrap KPIs around are sales, wages and stock as per following:

Sales

Sales are the key metric that pharmacy performance is derived. Most of the performance metrics of the pharmacy hinge off of the sales performance i.e. wages% and rent%.

The basic formula for revenue is consistent amongst all customer centric businesses and can be simplified with the below principles.

Revenue Formula = No. of Customers X Average Sale X Transaction Frequency

  • No. of Customers – In a retail setting, gaining new customers comes as a result of marketing and branding. KPIs can include Customers per day, Scripts per day etc.
  • Average Sale – Customer education around products is vital to ensure the customers are appropriately serviced and so having a team that is highly knowledgeable has never been more important. Product pricing is also critical to ensure that you are competitive. KPIs can include; average basket size, scripts per customer, Medschecks, gross profit% etc.
  • Transaction Frequency – Customer loyalty and creating a following from your customers is important to monitor. KPIs can include Scripts on File, DAA’s, etc.

Wages

Wages are the most important expense in the pharmacy and needs to be monitored carefully. Wages that are run too low will result in poor service and losing customers whereas wages that are too high will deteriorate profitability. Consider running wages as a percentage of retail sales and dispensary sales separately to give a better understanding of how well these areas of the pharmacy are performing. KPIs include wages%, wages to retail, wages to dispensary.

Stock on hand

Stock on hand is often a major opportunity for a pharmacy to increase sales and improve cash flow. Measuring Stock on Hand in terms of Stock Turnover Days is much more meaningful than Stock Turn as the ability to have your Stock Turnover Days as close to your supplier terms will have a considerable impact on improving cash flow.

The right layout and stock mix of the pharmacy is another area which can improve sales and stock turnover days. By holding stock that is in line with your customer’s needs, this will assist in reducing your stock turnover days. KPIs can include: stock wastage, stock turnover days.

Get a better view of your Pharmacy

As we have outlined above, KPIs are useful at providing a more detailed insight into business performance. However, it is important to use them in the correct manner and link to your annual financial projections. Once set, these KPIs should be managed as part of continual improvement through the senior pharmacy team on a regular basis. If you are looking to build on the success of your pharmacy, the value of KPI reporting should not be overlooked.

Written by Lachlan Ballinger, Managing Director, and Morgan Whiting, Head of Advisory, Yield Advisory.

Yield advisory is an Accounting and Advisory firm that specialises in the pharmacy industry with a nationwide client base.

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3 Comments

  1. Ian Magill
    22/03/2021

    Gross profit, net profit and cashflow are by far the most important KPIs for any business, yet these are not mentioned?
    Total revenue is an ego based number whereas GP, NP and cashflow is where the guts is!
    You can dispense a tonne of very high priced items with little GP, still look great on the revenue side but quickly going backwards in terms of the the essential KPIs (GP, NP and cashflow). The rest are just feel good (or bad) metrics which may or maynot actually mean much for your underlying business and its success!

    • PharmOwner
      23/03/2021

      Gross profit is mentioned, under the “Average sale” section. It’s great to monitor the KPI’s mentioned above, but as they say, you bank dollars, not percentages. Wages are relatively fixed, they’re not something that changes significantly and most owners should have a grip on what adequate staffing looks like. I tend to look at script numbers, customer numbers, GP, NP and total sales for this month vs same month last year. I’m always watching the bottom line. I’ve tried different forms of marketing with varying success. Letterbox drops didn’t make much difference. Same with catalogues. You can spend a lot of money on marketing for little or no return. And not many owners can afford the same kind of marketing budget that CWH can.

  2. Russell Smith
    24/03/2021

    Couldnt agree more. Personal experience with let us say “area managers” with a number of “pharmacy brand groups” – call them all what you will – is that they are all slaves to feel-good KPI’s simply in order to justify their own jobs. Then we have the “group support office” – thats the office the pharmacy supports with extortionate membership fees. Employees, and local communities all suffer the inevitable budget cuts – and commonly the owners see no benefit at all – been there, seen that

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