Shiny Objects (GLP-1s) are Killing Your Pharmacy's Profitability

In order to achieve optimized profitability, you must stick closely to this specified business stra-SQIURREL! 

Relate? 

While a squirrel or a shiny object may look more like compounded GLP-1s in this case, it's all the same thing – a distraction. It detracts from the main goal of running a stable successful pharmacy. These distractions may appear to improve your business at first glance, but their short-lived gratification can actually hinder sustainable long-term profitability, if you aren't careful.

If these quick solutions aren’t the answer, then what is? Is it even possible to have a profitable retail pharmacy today? These questions persist constantly when I meet with a pharmacy owner for the first time. 

A resounding “YES!” is my answer, but before I can begin explaining how it is possible, the next question always veers us off course with: “What do you think about {insert shiny object here}?” 

What are the shiny objects, and are they really so bad?

The current shiny object that is coming up time and time again in discussions is compounded GLP-1s from 503b pharmacies. Previously, it was Point of Care Testing. COVID opportunities (testing, vaccines, monoclonal antibodies) are another example. What do all of these things have in common? They are fleeting. They don’t last. They aren’t sustainable. 

Don’t get me wrong, I’m not saying that you shouldn’t take advantage of these opportunities when they present themselves. I just don’t want you to rely on them to keep your business profitable. They should be the icing on the cake, or if you are from the south… the gravy on the biscuit. 

Maintaining a Solid Core Business

Before we put effort and energy into new initiatives, we must ensure that our core business is managed properly. Without this, there is nothing for the shiny objects to accessorize. Once the fleeting profit opportunities disappear, your business will be left naked. You don’t want that.  

To avoid this from happening, I first evaluate a pharmacy’s income statement. Financials reveal so much more than just numbers. Here you will find the GROSS PROFIT and/or EXPENSES. 

It’s simple math. Earn more revenue than you spend on expenses. 

Easy right? Simply control your profitability and you’re good.  

Unfortunately, many pharmacy owners have lost faith in the ability to do so in today’s tough landscape. To those who find themselves in a difficult situation right now I say to you, don't fret. It may be difficult right now to take control of your business and come out on top, but it’s not impossible. 

How to Evaluate Where Your Business is at Now

Let's explore some of the key pieces of data that can explain this concept further. 

GROSS PROFIT 

Gross Profit comes first. It is the basic equation to see how much money is flowing in and out of your pharmacy based on what you purchase and sell. 

Gross Profit = REVENUE – COGS  

*It’s important to include rebates in your COGS and any lingering DIR Fees in Revenue 

Now we take Gross Profit to find the Net Profit. 

NET PROFIT 

Net profit is the reality of how much money is flowing in and out of your business. 

Net Profit = Gross Profit – EXPENSES  

It can be easy to look at Gross Profit and think you’re doing fine until you take a crack at the Net Profit and realize you have a lot of unnecessary expenses that aren’t being taken care of by the inventory that you’re moving out the door each month. 

Expenses can creep up on you if you’re in the dark on your finances. If you’re not careful, they’ll eat through any profitability you may have acquired with your exceptional sales practices.   

Improving Your Business Model

When was the last time you shined a bright light on the expense report and carefully examined what was there? Are you overstaffed for the amount of business your pharmacy is getting? Do you know how many hours weekly need to be scheduled for techs and pharmacists? Are your advertising hours coming back to you with an ample return on investment? Do you remember the organizations that count you as a member? How much do you spend on meals at the pharmacy every month?  

You get the point. 

Even if your expenses are under control, what about Gross Profit? Have you given up on that? Do you think it’s pointless because you can’t control reimbursements or the cost of goods? 

Think again. 

When was the last time you really evaluated your prime vendor agreement? Is your pharmacy involved in sustainable alternative revenue opportunities like vaccines, 340b and Long-Term Care at Home? There are so many ways to improve the Gross Profit, so you shouldn’t give up on it just yet.  

The Top Priorities to Focus On

What I want for your pharmacy is to be a lasting, successful business that can continue to provide personalized care to its community for generations to come. To inch towards this achievable goal and avoid the fate of many pharmacies now (shutting down, or worse – selling to CVS), you must make showing a net profit your main priority.

In short, cut expenses and expand sustainable revenue opportunities for your business. Once these bases are covered and your business is clothed with the necessities, then, and only then, may you move onto the shiny accessories that catch your eye. Showing a net profit comes before adding on short-term revenue generators.  You don’t have to rely on the next trend to stay in business. The basics will get you where you need to be. 

If you need help figuring out just how to get on top of the basics reach out to our Guides who want to get you on the route to success, or join our new and growing community of independent pharmacy owners just like you. Together we can make the changes necessary to keep healthcare accessible to all Americans, while running profitable businesses.