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The Profit Vault April 2024
Chart a Profitable Course
How to Propel Your Pharmacy Toward Profitability
might. I know that 99% of people think diving into data is their idea of a terrible time. But as someone who’s spent years deeply embedded in the intricacies of pharmacy metrics, I can’t help but get excited about the clarity and direction they provide. ALWAYS START WITH THESE 3 ESSENTIAL KPIS The treasure hunt begins with three critical KPIs: Payroll Ratio, Inventory Turns, and Expense Ratio . Consider these your compass, guiding you through the vast sea of operational management. To find your way to “X marks the spot,” you need to ensure these KPIs are in the “green zone.”
• A Payroll Ratio of less than 13% (ideally below 11%) • Inventory Turns at 24 or higher • An Expense Ratio under 19%
Are you one of the many pharmacy owners that are unsure about what to focus on?
These are your first checkpoints! You might be wondering how to navigate your pharmacy toward these benchmarks if you’re not there yet. That’s where our Pharmacy Profit Roadmap comes into play. It’s designed to walk you and your team through the necessary steps to get these critical data points where they need to be. This roadmap guides KPIs from red to green, setting a solid foundation for your pharmacy’s success. GO BEYOND THE FOUNDATIONAL 3 Now, what happens once you’ve solidified your foundation? It’s time to explore beyond the basic KPIs and consider additional metrics to enhance your pharmacy’s performance. The vast world of KPIs holds many treasures, and pinpointing which ones to focus on next can set you on the path to even greater success. In this edition, we’ll dive deeper into additional KPIs like marketing, OTC, Rx KPIs, and more. However, before you get ahead of yourself and focus on these metrics, you must strengthen your foundational critical KPIs.
You’re uncertain about what the next most important step is?
You no longer need to feel like a mouse lost inside a maze. The key to unlocking your pharmacy’s cash flow and profitability is really as easy as 1-2-3.
1. Fix your cash flow. 2. Build a strong foundation. 3. Grow your profitable pharmacy.
How?
KPIs.
I’m talking about Key Performance Indicators (KPIs), the not- so-secret treasure map for your pharmacy’s success.
I know, I know. KPIs might not get your heart racing like the latest high-margin Rx or a cutting-edge retail strategy
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BOOST THESE 3 KPIs TO IMPROVE YOUR OTC SALES Elevate OTC Performance in Your Pharmacy
You know that the key to the success of your pharmacy isn’t just filling prescriptions; it’s also in the over-the-counter (OTC) sales that can significantly boost your bottom line. We want to dive deep into a crucial topic for your pharmacy’s success — KPIs for improving your OTC performance. Before that, let’s recap: Ensuring your pharmacy’s foundational KPIs are solid is paramount. Your payroll ratio should be under 13% (ideally less than 11%), inventory turns at 24 or higher, and your expense ratio should be below 19%. Once you’ve got these critical KPIs in the green zone, it’s time to shift your focus to optimizing your OTC sales. There are three vital OTC KPIs we recommend monitoring closely: OTC Dollars per transaction, OTC Dollars per prescription (Rx), and OTC Dollars per employee hour. 1. OTC DOLLARS PER TRANSACTION This KPI helps you gauge the effectiveness of your staff’s recommendations to customers. Calculate it by dividing your total OTC revenue by the number of transactions within a specified period. While there’s no one-size-fits-all benchmark for this metric, competing against your past
performance can be incredibly insightful. You can aim to increase this number by encouraging the purchase of more items or more valuable items per transaction. 2. OTC DOLLARS PER RX Patients on prescription medications often require OTC products, whether it’s a probiotic to counter GI side effects or vitamins for drug-induced nutrient depletion. To calculate this KPI, divide your total OTC revenue by the number of prescriptions filled. This metric helps you understand whether you’re adequately serving your patients’ needs with the right OTC recommendations. Again, there’s no industry benchmark, but striving to improve from your current standing is essential. 3. OTC DOLLARS PER EMPLOYEE HOUR This KPI focuses on your non-prescription-based revenue and the efficiency of your ancillary staff. Calculate it by dividing your total OTC revenue by the number of ancillary staff hours. Knowing where you stand allows you to set improvement goals and incentivize your front-end staff effectively. For instance, you might consider rewarding employees who excel in generating OTC dollars per hour with cash bonuses or preferred schedules. Aiming for a 50% increase in OTC performance within a quarter is ambitious but achievable with the right strategies. Engage your team in understanding these KPIs and their impact on the pharmacy’s success. Encourage them to make thoughtful recommendations, understand your product range, and communicate the benefits of OTC products to customers. You mustn’t overwhelm them with KPIs but motivate them to communicate more effectively with your patients. You can even turn it into a friendly competition! Whatever you do, just ensure you’re offering a reward to motivate your staff. Remember, your OTC sales are not just an additional revenue stream; they’re an opportunity to provide comprehensive care and support to your patients. When you focus on these KPIs, you can enhance patient care, empower your team, and ultimately, drive your pharmacy’s growth and success. Let’s make this year a turning point for your OTC sales performance, ensuring your pharmacy stands out as a leader in patient care and business acumen.
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DO YOU NEED TO OPTIMIZE YOUR PRESCRIPTION REVENUE? Knowing These 3 KPIs Will Help Decide
Maintaining profitability for your independent pharmacy can often feel like a tightrope walk. But understanding and optimizing KPIs related to prescription revenue can provide a solid foundation for making informed decisions and enhancing your pharmacy’s financial health. Let’s dive into three prescription-based KPIs every independent pharmacy owner should monitor to optimize prescription revenue and drive success. NO. 1 PERCENTAGE OF RX WITH NEGATIVE MARGINS The notion that we must battle with negative margin prescriptions filled at a loss and that this is considered commonplace is bewildering. But this is our reality, and closely monitoring the percentage of scripts filled at a negative margin is crucial. Think of your pharmacy’s revenue as a bathtub; no matter how much you fill it, it will never truly be full if there’s a significant leak. The goal is to identify and minimize these ‘leaks’ by carefully analyzing how your claims are adjudicated.
Different factors can impact this KPI, such as your Pharmacy Services Administrative Organization (PSAO) contracts and the mix of patients you serve. To calculate your KPI, you want the number of prescriptions reimbursed at $0 or less. Then, divide that number by the total number of prescriptions you filled for the same period. If you find yourself unable to lower your negative margin scripts, here are a few tactics we recommend: • Work with Craig at RxCherryPick so he can save you drastic amounts of money and improve cash flow. • Contact RetailMyMeds to help you offload losing brand names to mail orders. • Create an account with Real Value Products, which has excellent pricing on thousands of products. NO. 2 AVERAGE GROSS PROFIT DOLLARS PER RX One of our favorite KPIs, average gross profit dollars per Rx , offers a window into the overall financial efficiency of your pharmacy’s dispensing. With ever-shifting PBM rules and
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BASEBALL CHERRIES
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Track the Right KPIs for Pharmacy Expansion REVOLUTIONIZE YOUR MARKETING STRATEGY WITH THESE 3 KPIs
NO. 2 TOTAL NUMBER OF NEW PATIENTS PER MONTH A growing patient list is a clear indicator of a healthy pharmacy business. This KPI is a predictor and reflects your pharmacy’s health, directly tying into potential revenue and cash flow changes. It’s a metric that speaks volumes about the effectiveness of your marketing, your services’ appeal, and your patients’ satisfaction. Tracking this number helps you understand your business’s trajectory and align your strategies accordingly. While you can check this KPI monthly, we suggest calculating this weekly if possible to get the clearest indicators of the most effective marketing strategies. Knowing your patient growth rate is invaluable, whether reacting to an influx of new patients or strategizing to boost this figure. NO. 3 TOTAL NUMBER OF SOCIAL POSTS PER MONTH In today’s digital age, a solid online presence is non-negotiable. This KPI measures your engagement and effort in digital marketing, a crucial arena for staying top of mind with potential and existing patients. A sparse social media feed won’t cut it — you need to be consistently visible, ideally with daily posts that resonate with your audience. Your goal should be 30 social media posts per month. Embracing tools like Publer can streamline this process by scheduling posts for you, ensuring your pharmacy remains active on social media without having to be tied to your phone daily. Remember, leveraging video content can exponentially increase engagement and patient interest. PUTTING IT TOGETHER Tracking these KPIs offers a roadmap to more effective marketing strategies and business growth. However, it’s not just about monitoring numbers; it’s about translating this data into actionable insights . For instance, a high average cost per new patient might indicate the need for more efficient marketing tactics or highlight an opportunity to enhance the effectiveness of current strategies. Similarly, a dip in new patients could signal a need to reassess your marketing channels or patient service offerings. Additionally, your social media efforts should be more than ticking a box. Your posts should engage, inform, and resonate with your community, driving interest and loyalty. By targeting at least 30 monthly posts, you ensure your pharmacy stays in the public eye, cultivating a brand presence that attracts and retains patients. Understanding and optimizing these marketing KPIs can significantly impact your independent pharmacy’s growth trajectory. When you focus on these metrics, you can make informed decisions that boost patient numbers and enhance overall business health. Remember, strategic marketing guided by solid KPIs is your ally in achieving sustainable growth and success.
Staying ahead isn’t just about offering the best patient care — it’s also about smart, efficient scaling through strategic marketing. Understanding and tracking KPIs related to marketing efforts is essential for pharmacy owners looking to thrive. We’ll dive into three crucial marketing KPIs every independent pharmacy owner should monitor: Average Cost per New Patient, Total Number of New Patients per Month, and Total Number of Social Posts per Month . NO. 1 AVERAGE COST PER NEW PATIENT Expanding your pharmacy’s reach begins with understanding the investment required to attract a new patient. This KPI shows the financial effort behind each new face walking through your doors, encompassing all marketing expenses from traditional to digital channels, including flyers, radio ads, social media marketing, and more. It’s vital to grasp this KPI to pinpoint what’s working and where you can optimize your spending. More than just knowing the cost of a click or a leaflet, it’s about comprehending the holistic investment made in growing your patient base and seeing what expenses are worth it (and what aren’t).
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ESSENTIAL BUSINESS
CHANGES FOR 2024 SUCCESS The past few years have been tumultuous. Much has changed since 2019, from the expansion of remote work to the rise of inflation. Almost every business needs to pivot and modernize to stay relevant in the new climate. A big part of that is finding a new target audience and more revenue streams, which is essential for keeping up with the times while boosting profits. Here’s how you can go about doing just that. NO. 1 REEVALUATE YOUR TARGET AUDIENCE. The pandemic and its consequences have shaken up almost every industry, including yours. Prospective customers may have different expectations and needs, while some loyal customers you’ve always relied on may not be coming back. In 2024, you must reevaluate your ideal customers and strive to cater to them. Make a detailed list of businesses or consumers you’re targeting. This list determines the overall direction of your business and the type of adjustments you need to make. Here are some questions that can lead you to better information about your ideal customers. • How much are they willing to spend? If you’re aiming for high-paying clients, they’ll expect the best. If you’re shooting for low-paying customers, you must provide a budget option. • What are their biggest barriers to making a purchase? Examine your current processes. Are they user-friendly? For example, an easy online transaction experience is vital for many parties. • Why do they want to work with you? You have a lot of competition. Put yourself in the client’s shoes and ask why they’d pick you over another business. • What is their personal background? Knowing someone’s location and personal info is always helpful for marketing purposes. • What does it take to keep them happy? If a high-paying client requires a lot of effort on your part, the ROI might not be worth it.
business accordingly. If you adapt the company’s business model to be more attractive to your ideal (but untested) clients, be sure to find a balance so you don’t alienate loyal customers who are staying with you. NO. 2 FIND NEW REVENUE STREAMS FROM EXISTING CLIENTS. Companies in all sectors are introducing complementary products alongside existing ones to make more sales. It’s much easier to sell to loyal clients than to find new ones. Finding ways to maximize monetization is an effective way to boost profits without making substantial changes, and you should take advantage of them whenever possible. Identifying the right product to offer is critical. Start by considering the needs of your ideal and existing clients. Why are they buying your product? What could make their experience better? For example, say you’re an HVAC company. Some companies regularly hire you for replacements and repairs. Think about offering a subscription service, such as monthly checkups and maintenance. You’ll make life easier for both parties: It will be more convenient for them and offer them peace of mind, while the income will be more dependable for you — you won’t have to keep having the same sales conversation with them. But you have to find out their recurring needs to offer something attractive. Consider introducing surveys, ideally with discount incentives, to get information from clients themselves. Ultimately, clients are the only ones who accurately know their needs and what they’re willing to pay for, and they may have ideas you’ve never considered. Remember Sears, Blockbuster, and RadioShack? Neither do we. Change is the only constant in this world; every company needs to adapt to it or face the consequences. All businesses, including yours, can be more efficient and boost profits like never before, so long as they’re willing to make the proper adjustments to grow.
Now that you know more about your ideal clients, adjust your pricing model, marketing, and other aspects of your
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GET ON THE RIGHT TRACK WITH OUR EXPERTS For those eager to continue the journey but unsure which KPIs to tackle next, I recommend joining our office hours on Tuesdays at 10 a.m. Central or the Daily Implementation Call at 2 p.m. Central. These sessions are invaluable resources for discussing specific KPIs and strategies tailored to your pharmacy’s unique needs. Additionally, for our Essentials and Up members, we’ve got a treasure trove of supplemental training. A prime example is the recording from a recent Pharmacy Profit Summit Session I conducted on KPIs, available in our membership portal. You can
also scan the QR code above! This session dives deeper into the world of KPIs, helping you map out your route to profitability and beyond. The journey toward a profitable, cash-flowing pharmacy doesn’t have to be shrouded in mystery. Your undeniable first step is to embrace KPIs and utilize resources like our Pharmacy Profit Roadmap and support sessions to confidently navigate your
way to success. So, don’t shy away from the data — embrace it. After all, in the world of pharmacy ownership, knowledge isn’t just power; it’s profit. Join those calls, get engaged, and let’s turn those KPIs green together,
strengthening the foundation of your pharmacy for years to come.
HAVE A LAUGH
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A Guide to Employee-Driven KPI Success How Employee Ownership of KPIs Boosts Pharmacy Growth
Improving your pharmacy’s KPIs should not be a solo endeavor. Involving your team in this process enhances accountability and encourages a culture of collective responsibility and innovation. Let’s explore how you can empower your employees to take charge of KPIs, driving your pharmacy toward its goals with a shared vision and effort. START SIMPLE WITH EMPLOYEE-OWNED KPIS The first step of this approach is assigning employees a specific KPI that aligns with their roles and responsibilities. This means they become the “boss” of that particular metric. They’re tasked with tracking it, reporting on their findings, brainstorming improvement strategies, and overseeing the implementation of these strategies. This level of ownership requires team members to deeply engage with their area of influence and take pride in their work. For example, assigning inventory management duties to a delivery driver would make zero sense with their daily activities. Instead, empowering them to increase OTC sales through delivery aligns perfectly with their role. Similarly, while it might seem intuitive to place pharmacists in charge of OTC sales, the hectic nature of their role might not allow them the time to focus on this KPI. So, cashiers with direct and continuous customer interaction can more effectively influence OTC sales. You must be strategic when assigning KPIs to your team! THE IMPORTANCE OF TRANSPARENCY AND ACCOUNTABILITY To keep everyone on the same page, it’s crucial to maintain transparency about the KPIs being tracked. Creating a public scoreboard where all KPIs, including those owned by employees, are displayed can help ensure everyone is on the same page and may even encourage some friendly competition! Additionally, weekly reports on these KPIs allow the team to see ongoing progress, understand the collective goals, and appreciate the contributions of their colleagues toward these objectives. INCENTIVIZE SUCCESS Linking employee performance bonuses to the outcomes of their KPIs serves as a powerful motivator. However, caution must be exercised to ensure that the goals set are realistic and
achievable. Setting the bar too high can lead to frustration and demotivation, undermining the very essence of this initiative.
It’s essential to balance ambition and attainability in goal setting. The objectives should challenge your team to stretch their capabilities without pushing them into impossibility. This approach drives performance and encourages creative problem-solving and continuous improvement. PERSONALIZED STRATEGIES FOR KPI IMPROVEMENT Remember, the one-size-fits-all strategy doesn’t apply to KPI management. Each employee’s approach to tracking, reporting, and improving their KPI will vary. It’s vital to have open communication channels and offer personalized support to each team member. Just as we don’t recommend you go on this journey alone, don’t let your employees feel isolated in their KPI endeavors. Consider scheduling one-on-one sessions to discuss their progress, address challenges, and brainstorm strategies aligning with their unique strengths and insights. Involving your team in the KPI improvement process transforms the approach from an overwhelming personal challenge into a collaborative effort. Remember, the strength of your team is your greatest asset. Leverage it wisely to navigate the path to excellence. If you’d like tailored advice on how to get your team onboard, you can schedule a one- on-one call with our team to learn more. Simply head to your membership portal and schedule your call today!
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INSIDE THIS ISSUE
1
3 Essential KPIs Every Pharmacy Owner Needs to Master
2 3 Essential OTC KPIs to Transform Your Pharmacy 3 Simplify Prescription Revenue KPIs for Pharmacy Success 4 How to Scale Efficiently With Marketing KPIs 5 2 Vital Adjustments for Businesses in 2024 7 Elevate Your Pharmacy With Team-Based KPI Strategies
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prescriptions filled for the same period. You want this number to be as low as possible, and you should keep it less than 1%. If you find yourself returning to stock too many prescriptions week in and week out, you need to dig in and find out why. Here are some areas to look at: • Are they coming from a specific prescriber’s office? • Are they cash prescriptions with no insurance? • Is the patient brand new to your pharmacy? • Are they new or refills? • Does one employee have more returns than others? Answering these questions will help you find possible fixes. Strategies to reduce RTS rates include verifying prescription pick-up intentions with patients, especially for prescriptions from known high-return prescribers. While optimizing prescription revenue through KPI management may seem daunting, the rewards for increased profitability and operational efficiency are substantial. Contact our industry experts for shared insights, resources, and strategies if you want further guidance on calculating or improving your pharmacy’s KPIs.
reimbursements, keeping a pulse on how each prescription filled contributes to your bottom line is vital. This KPI can be broken down further by BIN, allowing you to identify which plans are more profitable and tailor your marketing efforts accordingly. You must first print a sales report from your PMS to calculate this KPI. Take the total gross margin dollars and divide it by the number of prescriptions it took to generate those dollars. Aim for a minimum average margin of $16 per prescription, with high-performing pharmacies targeting above $20 per script. This reflects your ability to navigate PBM reimbursements effectively and underscores the importance of strategic purchasing and inventory management. NO. 3 PERCENTAGE OF FILLED RX RETURNED TO STOCK (RTS) Filling a prescription only to return it to stock is not just a loss in revenue but a drain on your resources. Tracking your Return to Stock (RTS) percentage is essential for identifying inefficiencies in your workflow and potential opportunities for theft prevention. High RTS rates could indicate issues with certain prescribers, cash prescriptions, or internal theft. It is best to track this KPI every week. Tally up all returned scripts and divide the number by the total number of
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