By definition, investments are meant to yield something. Profits. Usefulness. A worthwhile result. In other words, if you put something in, be it money, time and/or effort, you expect to get something in return.
Return on investment, or ROI, isn’t always easy to measure, but when you can measure it, you gain access to a whole new level of insight into your pharmacy business.
In financial terms, ROI is calculated by dividing the net profit or loss by the original cost. But what if you’re looking to define ROI on something that’s not so easily expressed? You might need some less traditional equations and some out of the box thinking.
Here are some of the top investments you make in your pharmacy and how to calculate whether you’re getting the value you expect out of them. (Plus what to do if you aren’t.)
Product
When it comes to evaluating how effective your front end is at making you money, you need to look a bit deeper than a simple cost vs profit calculation. The magic number is actually Gross Margin Return on Investment, or GMROI. This metric lets you see what you’re getting back for every dollar you put into your inventory. Your GMROI can be calculated by dividing your gross profit (total sales minus cost of goods sold) by your average inventory cost.
When you dive into Gross Margin Return on Investment you can more easily see what products are performing and putting the most money back in your pocket, and which are tanking your overall front end profitability.
People
Your employees are your biggest asset. So it only makes sense that you’re investing a fair amount in your team. Not just payroll, benefits and taxes, but your time and effort to recruit, train, and maintain a happy, productive team.
People is where it gets a bit tough to really define your ROI. You can understand your payroll expense, and even the percentage that payroll expenses take up in your total annual revenue. (This should be somewhere in the neighborhood of 12-13%.) What does that really mean though when it comes to ROI?
Instead of looking at the numbers on this one, ask yourself this question about each pharmacy team member: If you were given the chance, would you hire them all over again? If you have employees where the answer is no, you might have a bit of work to do in order to make sure your team is as high performing as possible. For more on this topic, check out our article on building and keeping the best pharmacy team.
Technology
Technology can represent another area where you make a significant investment. Both in money and time. And it should pay you back in kind.
In order to measure your technology ROI, you first must determine what you were trying to achieve in the first place. The more specific the goal, the better. Then make sure you take note of your starting point for later reference. Lastly, set yourself a time frame for measuring your progress. Know when you expect results. Will they be immediate? Like if you wanted to make a specific process takes less time. Or will it take time to see the change? Like if you wanted to increase your front-end profitability.
Once you’ve set these parameters you can monitor the changes you’re seeing and whether your point-of-sale, pharmacy management, or other pharmacy technology is offering you a significant enough return on investment.
Content
Don’t underestimate the value of your time. Like the time you invest in reading articles, listening to podcasts, watching videos, attending conferences and more. Are you getting anything in return for the time and attention you devote to all the different content you consume?
For example, if you attend a conference, did you learn anything that will help you solve specific challenges or achieve defined goals? This will help you know if it's worth going again next year or if your time might be better spent elsewhere.
There’s no specific calculation for this, but it’s a worthwhile question to ask yourself as you pick and choose what to spend your time on, because one thing’s for sure... you can’t do it all.
As you evaluate your ROI in different areas of your pharmacy, you’ll begin to build a picture of what works best for your business. Remember, there may be some trial and error. Some things that work great for your peers might not work for you. Stay flexible and keep measuring everything you try.
