NCPA has done the research and it’s true – the independent pharmacy industry has experienced an average annual loss in gross profit year over year.
What’s an owner to do in an industry that’s rigged from the start? GER contracts and DIR fees are causing owners all over the nation to spin their wheels to pay their bills on time.
And yet, in the face of the industry’s overall declining revenue and profit, there is a growing group of independent pharmacy owners who are experiencing impressive growth in both top-line revenueand gross profit per prescription (GP/Rx). These owners are enjoying a work-life balance that suits their needs; giving them the freedom to focus on the things that matter, like spending time with family and taking the time to grow their business instead of working 70+ hours a week behind the bench.
The best part? They’re elevating their care while growing their business and making more money along the way.
Read on to find out who this group of owners are and what they all have in common.
Why are they so successful? Well, we’ve spent the last 21 years obsessively researching and testing the reasons for independent pharmacy success. Every pharmacy we’ve seen transform under expert guidance, cutting-edge innovations, and proven strategies brought us one step closer to identifying the one “thing” that contributes to rapid and sustained growth.
What Influences Independent Pharmacy Success?
Turns out, it’s not one thing. It’s four.
In our research, we’ve discovered that there are four key areas of an independent pharmacy business that must all be engaged in order to generate sustained pharmacy growth.
These areas are Finances, Team, Operations and Growth.
When you focus on these areas, your business will be insulated from PBMs and other outside circumstances. Focusing on these four areas has guided 1,200+ pharmacies to grow in the current landscape.
There’s no magic pill for success, but there is a map, and we’re here to show you the way.
The Four Areas of Independent Pharmacy Growth and Their Key Performance Indicators (KPIs)
Your independent pharmacy is an ecosystem that requires balance. Neglecting one area of your ecosystem produces a domino effect that will leave you with symptoms such as cash flow issues, chaotic infrastructure, or a toxic culture.
Every aspect of pharmacy ownership lands in one of the four areas. Viewing your business this way gives you the opportunity to take a 360-degree view to assess, track, and prioritize so that you have the clarity to pivot when and where you need.
Each area of your business is influenced by KPIs that will diagnose the health of this area. While there are many KPIs you should pay attention to, we’ve identified the most critical for you to track in order to see results across your business.Watch the webinar below to view the eight most critical KPIs and how tracking and managing them will improve your business.
Let’s unpack the four quadrants and eight of their most critical KPIs.
This area of your business represents all the money coming in and through your pharmacy, from cash flow to cash balance and everything in between. In order to truly impact this quadrant, you must have clarity on your financials and understand your statements. Understanding these will let you know if you’re on the right track and help you detect symptoms that your business is in trouble. Tracking the KPIs in this quadrant will help you pinpoint exactly what the issue is that is causing the symptoms.
Business KPI: Payroll Ratio
The payroll ratio is a spending ratio, but it’s also an efficiency measurement. The goal ratio for pharmacies is less than 13.6%. A higher ratio could be a symptom of a number of issues and does not necessarily mean that you have too many people on your team. The solution lies in evaluating each employee and determining how to increase their efficiency in producing more revenue.
Business KPI: Net Dollars/Prescription
Often a metric most owners aren’t tracking, your net dollars per prescription measures your bottom line. This number will reveal any significant gaps you had between your gross margin per prescription on the top and how much you have left to your bottom line. If you have a healthy gross margin per prescription, but a lower net dollar per prescription, that tells you that you need to dig deeper in your data to understand what is happening. The best way to understand is to review your financial statements regularly, at least monthly.
Often-times, the Team quadrant is the toughest to improve because it requires a level of self-awareness and vulnerability to affect real change within your organization. This quadrant is not a soft measurement and isn’t just influenced by how well you manage your team. Many KPIs come into play to help you quantify the impact of this quadrant, such as retention and turnover. Your team’s performance is tied directly to how you lead, your employee positioning, effective communication, and empowering your employees to peak performance by cultivating a culture of accountability and excellence.
Business KPI 5: Rxs/Employee hour
Your prescriptions per employee hour lets you know what your employees produce and measures their true output. Begin by tracking this metric over a month to get an understanding of your benchmark and then begin to put a plan in effect to make improvements. The first step in an improvement plan is to work on your team culture and training so that you know if you have the right employees in the right seat on the bus. The right employees mean filling your team with high-performers so that you’re increasing the amount of prescriptions you fill without increasing payroll hours, therefore increasing your efficiency.
Business KPI 6: OTC $/Employee Hour
Increasing over-the-counter (OTC) sales increases your bottom line and therefore important to measure your OTC dollars per employee hour. A n effective way to improve upon this number is to create an incentive program for your employees to track who sold the most OTC dollars per hour. There are many creative ideas you can use that will empower your employees and allow them the flexibility to succeed.
This area of your business looks behind the curtain and measures the inner workings and processes of your independent pharmacy. By building rock-solid procedures and systems within your business, you’ll be able to increase your pharmacy’s efficiencies, optimize inventory, and provide better patient care through adherence and therapeutic optimization. You’ll also avoid any issues such as audits, errors, and loss of profitability by identifying early red flags and creating a stronger, leaner business.
Business KPI 7: Return to Stock %
As an efficiency metric, this business KPI measures the percentage of prescriptions you fill and then get returned to stock (RTS). RTSs are extremely wasteful in an already tight workflow system. There are a number of reasons why you’re filling prescriptions that are not being picked up. Measuring this KPI will allow you to root out the problem, whether the patient is unaware they have a prescription to be picked up, a high copay, or something that indicates a workflow issue in your pharmacy.
Business KPI 8: Inventory turns
If you want to run a leaner, more profitable pharmacy, you must start with your inventory. Most pharmacies have far too much inventory on their shelves and this is one of the biggest causes of cash flow issues. At a minimum, you should review your inventory turns annually, with your goal being a ratio greater than 16. PDS members have access to an inventory optimization program that they are guided through with their PDS team. If you’re not a PDS member and want to improve this ratio, you’ll learn ways in the webinar to find the right balance of inventory for your pharmacy.
The time is now to ditch the traditional dispensing model. The most successful owners know that in order to achieve independent pharmacy growth, they must look beyond just filling prescriptions and work smarter, not harder. Measuring the KPIs in this quadrant will help you identify what kind of volume is the most impactful to your business, diversify your service mix so you aren’t relying on one traffic source, and ultimately track how effective you are at dispensing. PDS has tools that will allow you to leverage previously unseen opportunities that will launch your profitability and elevate your patient care.
Business KPI 1: Volume
A mistake many owners make is assuming volume equals profit and equate increasing dispensing activity with increased profits. The key is targeting your approach to acquire the right volume. Whether it is a prescriber who gives you more profitable prescriptions or a local employer who has a good insurance plan, seek on improving the volume that is more profitable for your business.
Business KPI 2: GM/Rx
When you track your gross margin per prescription, you’re measuring how effective you are at dispensing. You must keep tracking this measurement to spot the trends in your pharmacy so you know where to focus your efforts. Increasing your GM/Rx has a direct impact on your ability to pay expenses, the profitability of your pharmacy and, of course, your bottom line. One way to increase your GM/Rx is to diversify your business, such as the prescriptions you’re dispensing, your prescribers, or your insurance groups.
What Do These Critical KPIs Mean For Your Independent Pharmacy?
While the four areas and the eight most critical KPIs may seem like a roadmap to independent pharmacy success, the key to grow your business without burning out is a team of experts to guide you and help you create a plan of attack specifically for your pharmacy.
Yes, you can focus on one or two KPIs that will provide short-term relief, but unless you understand where they fit in and how they affect your independent pharmacy ecosystem as a whole, you can’t tell if you’re focusing on the wrong area, just to be leaving another under water. These KPIs are what will ultimately assess the health of your pharmacy and drive every business decision you make.
Who is the Growing Group of Independent Pharmacy Owners Gaining in this Industry?
The growing group of independent pharmacy owners we mention are all PDS members. They lead busy lives and face the same industry barriers that affect the 16,000+ independent pharmacies in America. The only difference is that they have discovered a better way to influence what is in their control instead of focusing on the outside circumstances that would leave them as just another statistic.
The common thread of all our members is that they are passionate about the independent pharmacy community, they have a strong desire to make their business better, become stronger leaders and are willing to do what it takes to achieve their goals.
Let’s Build Your Growth Plan Together
PDS will guide you to build a stronger, more valuable business by being even better operators and leaders, and ultimately to make more money. We’re a team of experts who have your back so you’re free to have your patients’ back. As a pharmacy owner, you’re not alone in your journey to grow your business. Let us help you build your plan of attack.
Call us at (800) 987-7386 or click the button to take the first steps to a better pharmacy.