It’s said in many a business course that it’s not possible to manage what you’re not measuring. When my team at Sigma Financial Services conducts comprehensive Finance Health Checks with our customers, there are specific sets of figures that we examine in order to diagnose underlying problems in a pharmacy.
In a previous article I said that there are five fundamentals that can go wrong in a pharmacy business, one of which was sales and gross profit management. Tracking certain vital statistics of your business and monitoring them over time can give you important indicators of both success and opportunities for improvement and where trouble may lay in the future.
Here are seven things to measure which provide decision making support for managing your pharmacy:
- Know your customer demographics
From your retail traders association, shopping centre landlord or even your local council, try to better understand your customer demographics and stock products that will appeal to your existing and potential customers. Stay informed about new funding packages offered by Federal and State governments which can provide new revenue streams for services provided to support the customers frequenting your pharmacy. Separately measure the income and expenses you derive from offering those services.
- Have a sales budget
Break it down into a daily target for each area of your business and share with staff to help them focus on retail sales. A daily benchmark makes it ‘real’ and achievable, but also adds to staff accountability.
- Split your sales into appropriate categories
Recording and keeping track of your sales by category, for example: Dispensary, Front of Shop, High Cost Drugs, Export Sales, Compounding and Aged Care. This will give you valuable insights into true gross profit margins, stock management and where sales are trending over time – helping to explain changing customer demographics or where additional effort needs to be put in. Also record professional services income (and itemise it) separately from inventory sales for professional and technical staff accountability.
- Split cost of goods and stock
Similarly, split COGS and stock between the same categories so you can monitor the profitability of each. The more accurate your management of inventory, the better your ability to fund your business from business cash flow will be, rather than external borrowings from wholesalers, banks and family members.
- Measure your market share of scripts
How many scripts does the pharmacy average per day? What is your realistic ‘catchment’ area of prescribing doctors? Monitor trends over time and season. You should also critically assess Aged Care Community revenue and costs including staff time, rent, freight, vehicle maintenance, packing, supplies and administration to ensure it remains profitable for your business. Script revenue may increase, but it might be eating into your profit and cash flow.
- Know your best-selling lines
Measure stock turns by category to ensure you hold the right levels of fast-moving items – to reduce the costs of unnecessary ordering, staff time stocking shelves and customer perceptions you don’t stock what they need.
- Quantify trends
Use door counters, lease information and heatmap data to identify selling trends and times, so you can make the right staffing decisions. If external change is affecting customer levels, you might be able to use this data to negotiate a reduction in rent from your landlord. This is particularly relevant for shopping centre pharmacies; information is power and too much resides with the landlord because pharmacists don’t use available technology to gather information and data for their own benefit.
Sigma Financial Services is here to help you with methods of collecting and tracking the vital statistics of profitability and maximising your market share. We can also assist with their interpretation, as well as ideas for improving on them.
Among the many services we offer – which include benchmark data and access to industry experts – we offer actionable advice on making changes in your business for better financial outcomes.
As a first step, consider our complimentary confidential Financial Health Check – which has provided valuable insights and a profitable way forward for hundreds of Australian pharmacists over the past couple of years.
You can book a Finance Health Check or any other assistance through your Sigma Account Manager – or by contacting Sigma Financial Services via firstname.lastname@example.org. Your privacy is of paramount importance and any discussion is highly confidential.Back