Monitor Gross Profit Margin Effectively in 4 Steps

1. Cooperate with your accountant and software developer to lay the right foundation.

2. Programming of pharmacy software to easily extract the basic statistics necessary to monitor gross profit.

The pharmacist can choose a specific time period, specify the various product categories, set the costs and sales prices, without VAT for each product, sales figures, all in Excel spreadsheets, so that he/she can make corrective moves.

Monitor Gross Profit Margin Effectively in 4 Steps.

3. Register purchases in the pharmacy software, both in quantity and value.

These, combined with the registration of the physical inventory, will give us the opportunity to have proper monitoring of the acquisition costs, and product stock.

This work must be done with great care by the people in charge in each department of our pharmacy (medicines, homeopaths, cosmetics, etc.).

4. Motivate the pharmacy team, by informing them about the factors that affect gross profit and business performance, as well as each department, category and product share in total profits.

At the same time, determine an action plan to improve performance and engage all our staff in achieving specific goals.

Analyzing the Data

Financial data based control can make anomalies and errors surface, which may have great impact on gross profit.

For example, bad pricing or discount policy on dermocosmetics, can have severe impact on profit.

Of course, this does not mean that when we want to unstock, we should not make discounts, or even when we want to reward loyal customers for bulk purchases (e.g. customer loyalty card).

We should always set check points to control in what degree this policy boosted our sales and our gross profit’s net value, not only percentage.

Because at the end of the day, that’s what matters!

Having high percentage of profit margin is no help, when I'm not competitive in prices, turnover is dropping and I lose customers?

It is not easy to analyze the above only “by experience” or “by feeling”.

Only numbers and statistical analysis can provide specific data for our business performance.

This is when the pharmacist should reevaluate his/her commercial policy and ask the following question:

Who is my competition? Big department stores, other pharmacies...

Only numbers and statistical analysis can provide specific data for our business performance.

This mostly depends on the geographic location of our pharmacy.

If the pharmacy is in an area with doctors, hospitals, health centers, and mostly works with medication prescriptions, you may not be so interested in being competitive in non-drug product prices.

However, if it is located in a commercial environment with department stores that have dermocosmetics or among other pharmacies in the area that sell non-drug products at lower prices, the same mark-up rate of 35+% will not work!

In order to improve gross profit, the pharmacist should:

- Analyze customer segments and fast moving product categories.

- Analyze customer behavior towards promos or offers.

- Find the right balance between discount and profit.

There is no need to continuously make excessive discounts on all items to attract customers.

There are more suitable strategies for the healthcare professional to create a loyal customer base, capitalizing on scientific advice and customer-centric emotional approach.

- To monitor activities (commercial, marketing or customer service) from other pharmacies, but also other commercial stores and evaluate success stories as case studies.

It is important to know that

- To boost sales does not mean that we always have to make discounts and "kill" prices on all non-drug products.

- We may not "kill" the suggested retail prices, provided that we offer services related to the product: deal with the customer's problem, provide advice, a free facial care, a useful gift etc.

- However, price is important.

- A proper non-drug product pricing policy helps to increase sales and attract customers.

- A 10% discount on non-drugs, whatever the method of application (offer or customer loyalty card), corresponds to a 7 point reduction of gross profit on the turnover.

Therefore, in order to compensate for this, sale volumes should increase by 15%.

Unless this price reduction in non-drugs attracts more prescription customers, in which case it may worth it.

Any way you look at it, only numbers tell the truth!


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