Key Pharmacy Performance Measures – and which ones to focus on

Natalie Sirianni

As a ‘numbers’ person, I always love this time of year for reviewing the past year results and setting my budgets and goals for the next year. I do this both in January (based on the previous calendar year) and in July (based on the financial year). Now, I know that some of you may not be as enthusiastic as I am about this, but it is important that you spend some time doing it to ensure that you are on track and there have not been any unexpected surprises from the year.

Here are a few notes to look out for, both while reviewing your previous year results and setting budgets or goals for next year.

• Sales – obviously a key measure to see how you are tracking in terms of overall sales and trends. A few questions to consider are:
  o Are you getting growth or decline?
  o What are the reasons behind the trend at your pharmacy?
  o What can you do to improve this?
  Note, it is important to consider the impact of high cost medicines on sales level at your pharmacy. We ideally like to separate these out when reviewing pharmacy figures so that they can be easily identified and do not skew the figures.
  
  
• Gross Profit & Margin – while the sales level is important, what’s more important is the Gross Profit level. That is the money that you are actually getting, from which you can pay for your expenses. Generally, we look at Gross Profit in dollar terms as well as the margin (in percentage terms). Key questions to consider are:
  o How has your Gross Profit and Margin performed compared to last year? What are the reasons for this?
  o How does your level compare to overall benchmarks for pharmacy? And for pharmacies similar to yours?
  o How are key category and departments performing in this regard?
  o What can be done to improve your overall Gross Profit dollars?
  Again, it is important to consider the impact of high cost medicines when reviewing your gross margin. We ideally like to separate out the revenue and costs of these when reviewing the gross margin so that they do not skew the figures.
  
  
• Wages – for pharmacies, wages are generally the largest expense (after cost of goods sold). Therefore, it is important to consider your wages expense level and make sure that this investment in staffing is getting you a good level of return. A few things to consider for wages are:
  o What are your wages and overall payroll spend? It is good to look at this as a dollar figure, but also as a percentage of turnover and as a percentage of gross profit dollars.
  o How do your wages levels compare to pharmacy benchmarks? (Both overall benchmarks and for pharmacies with similar operations to yours).
  o How have your staffing expenses changed over recent years?
  o How productive are the staff members at your pharmacy? Do they need any further training this year?
  o It is also worthwhile to complete an individual review of each staff member to assess how they are performing and what areas they can improve on. Then identify what you can do to assist with this.
  
  
• Rent – after wages, the next largest expense for most pharmacies is rent. As rent is generally a fixed cost, it often does not get considered as part of an annual pharmacy review. However, it is important to annually review your rental level, as well as the space that you occupy and whether the location is right for you. Key factors to consider include:
  o Current rent levels and occupancy costs – both on a dollar, per square metre and percentage basis.
  o How many years are left on your lease?
  o What is the rental review that will be completed in the upcoming year?
  o How does your rent compare to pharmacy benchmarks? And pharmacies in similar locations?
  o Is a rent negotiation required or possible to complete in the upcoming year?
  o Is your current location best for you, you business and your customers?
  o Is there anything you would change about your current tenancy?
  
  
• Net Profit – at the end of the day, the overall profit is the most important factor for your pharmacy. Your profit allows you to continue to operate in your business, invest in your business moving forward, implement new ideas and services for customers, and not to mention, is what you make a living from. It also allows you to create value and build wealth. Therefore, net profit is critical to ensuring the return and ongoing viability of your business. When completing your review, consider:
  o Your overall Net Profit level – review profit both before and after interest. It is good to review in dollar terms, as well as percentage terms and compare to your previous years’ performance.
  o How does your net profit level compare to pharmacy benchmarks?
  o What can be done to improve this?

When reviewing financial statements, it is important to remember that while they can be reviewed line by line for each item, you must focus your attention to the largest and most important items. For example, Cost of Goods Sold, Wages and Rent, generally make up over 90% of the expenses for most pharmacies. Therefore, it is critical to focus your attention to these three expenses.

While there are many factors that can be reviewed, it is important to remember that the most important part about the review is to just do it! This will allow you to review your performance, assess where you are now and plan for the future. This will be critical to your overall business performance.

If you have any questions about reviewing your pharmacy’s performance or benchmark levels, please feel free to contact me to discuss on 1300 ATTAIN (288 246). I wish you all of the best for a successful 2019 for your business!