Much like making a pitstop halfway through a long road trip to refuel and take stock of snack supplies, the mid-year mark is a crucial milestone for assessing your pharmacy's progress and planning for the road ahead. And with 2024 nearing its midpoint, now is the perfect time for a quick check-in.
Tracking performance over time plays a vital role in understanding the 'why' behind the result. Comparing multiple data sets across a set time period can help you pinpoint the specific internal or external factors impacting your bottom line - positively or negatively. This is how informed business decisions that fuel growth and drive success are made.
Want to secure a successful end to 2024 for your pharmacy? Here are 6 key metrics to guide your mid-year pitstop.
Front-End Inventory Turns
As the name alludes, inventory turns are the number of times you’re turning your inventory over during a given period of time. You’d usually look at this number annually, but seeing where your front-end turns stand mid-2024 vs. where they stood mid-2023 isn't a bad progress report - especially if you’re actively looking to increase turns by year's end.
You should aim for somewhere around the 12 times/year mark for front-end inventory turns (well above the NCPA Digest reported average of 1.7 times/year).
Rx Inventory Turns
This is another great pitstop metric. It's something you really want to understand annually, but never hurts to check in on every once in a while. If your Rx inventory turnover (measured as the cost of goods sold ÷ the inventory's value) is less than 7, you probably have some work to do.
You should aim for somewhere around 12 for this metric, so you’re turning over your stock once/month and not carrying extra inventory that ties up cash flow.
Revenue Growth Percentage
Your revenue growth percentage is another metric that's important to evaluate annually, but still can offer some valuable insight during mid-year performance assessments. You can find this percentage by using the following formula:
(revenue from a certain period this year - revenue from the same period last year)
÷ last year’s total revenue
You should aim for a number somewhere in the 6% zone, but ultimately you want to be seeing at least some amount of growth and no shrinkage.
Payroll Expense Ratio
Next to your inventory, your biggest expense is probably payroll - and it’s a number you really want to keep good track of. You can determine your payroll expense ratio by using this formula:
(employee wages [including your own wages as a pharmacist if you're paying yourself for that role] + payroll taxes + employee benefits) ÷ annual revenue
This number should be about 12-13% on average but can be hard to keep lean, so checking in mid-year (or even more often) can be helpful.
Non-Rx Gross Profit Percentage
It’s well established that growing your non-prescription revenue (i.e., revenue not dependent on a 3rd-party contract) is key to running a profitable pharmacy.
And yet, many pharmacy owners don’t have a good grasp on their non-Rx gross profit percentage, even though this number really should be at least 20% of your total gross profit.
Regularly measure what you’re bringing in from OTC sales, point of care testing, or other services to make sure that number is trending in the right direction.
Gross Margin Return on Investment (GMROI)
As point of sale providers (and huge fans of pharmacy profitability), we can’t really have a chat about metrics without talking about GMROI.
Calculated as gross profit ÷ total sales, GMROI measures the amount of profit generated as products sell. This is arguably the most important metric to utilize when conducting mid-year check-ins, as GMROI offers the best possible snapshot of your front-end performance.
To keep your pharmacy on track, be sure to run regular GMROI reports using your POS system throughout the year.
Want more metrics that will help you evaluate your pharmacy? Check out this previous CLIMB session all about the metrics that help you grade your pharmacy.
