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Profitability of Community Pharmacies

Discussion in 'Pharmacy' started by blueclassring, Dec 4, 2008.

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  1. blueclassring

    blueclassring Senior Member

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    The typical profit margin for an independent pharmacy processing 3rd party claims is about 20% gross and 6% net margin. The profit margin for a compounding pharmacy is about 60% gross, but I am unsure about the net profits.

    We can do well against the big chains particularly if we specialize into some clinical services(immunizations, cholesterol screenings, diabetes counseling, compounding.)
  2. FORTLIVINGROOM

    FORTLIVINGROOM

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    Some documents I have read indicate profit margins of around 2%. In talking with some owners they say the margin is slim...do you think they just want to scare the new guy away from independent pharmacy?
  3. blueclassring

    blueclassring Senior Member

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    2% sounds really bad. Why even go into business if the profitability is this low? A 100,000 investment would yield only 2,000. It sounds like it would be better to put money in a CD.
  4. PharMed2016

    PharMed2016 Eternal Scholar

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    I'm not sure the profit margin is that low... if it is then why would companies open up new pharmacies? It's because they can get better deals on their meds.

    However, on the flip side if you open up at a good location.. you can get potentially broughtout by big pharm... and make a killing that way.

    Eh... food for the thought.
  5. Aznfarmerboi

    Aznfarmerboi Senior Member

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    For most pharmacies, the profit margin is 2-3 percent. The profit margin varies based on what is "sexy", how tightly you run your pharmacy, among other things.

    For example, filling a script for HIV medications can net you 20-100 dollars per script. You open a pharmacy next to a HIV clinic, you can expect strong profit margins because usually HIV patients have a wide variety of other problems.

    On the other hand if you cater to people who have hypertension and diabetes, your profit margin is slim. You might get a dollar for each script and end up losing money after you factor in labor, vial, transmission fees, etc. Of course diabetes patient also spend ~10k a year on other pharmacy supplies such as bandages and sugar free products that a gas station or supermarket might not carry.

    It also depends on how tightly you run your pharmacy. Everything costs money. A vial might cost 20-30 cents, labels might cost 30 cents, transmission fee every time you bill the insurance is about a nickel, etc. If you are a pharmacy that reuses the vials, your profit goes up.

    Blueclassring, profit margins are that low!!! However it is still nice to go into business because you are your own boss. The statement where you said you put in 100,000 dollars to get 2,000 dollars is false. Although a 2 percent return right now is pretty good, you have to look at how much business you do. Most pharmacies should be able to do a million dollars worth of sales considering that a refill of Lipitor cost 100 dollars, HIV meds can cost up to thousands, etc. A 2-3 percent profit isn't bad compare to other industries. Don't forget that profit is after you pay yourself (maybe 150k considering you will probably work about 60-80 hours a week).
  6. blueclassring

    blueclassring Senior Member

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    I agree that being your own boss is a fantastic thing. I am mistaken about the 2% profit margin. Based on sales, your net profit would be 2%. So if you sell 2 million dollars in merchandise, your net profit after all expenses would be 20K.

    The transmission fee is typically 10 cents in these parts, and those add up if you transmit several times for one prescription.

    The typical third party pharmacy in my opinion is not the way to go; many independent pharmacies are having difficulty surviving these days because of the low reimbursement rates and time it takes to get paid by the PBMs. Specialty pharmacy(HIV, closed door, compounding) is much better, and certainly more profitable.
  7. ItsOverZyvox

    ItsOverZyvox Retired

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    2% net profit of $2 million is $40,000 not 20K. So, after paying yourself a salary of $120,000 per year, if the business made a net profit of $40,000, it's not so bad is it? And I would think $2 million in gross sale would be a lethargically slow store. Double the gross and you've got a sizeable income. Stick a burger joint and let it make some money for ya while you fill scripts.
  8. Aznfarmerboi

    Aznfarmerboi Senior Member

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    Don't tell me you are still thinking about that burger joint/gift shop/ pharmacy idea. . . .
  9. ItsOverZyvox

    ItsOverZyvox Retired

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    Ok... I won't tell you..
  10. bananaface

    bananaface Pharmacy Supernerd Staff Member Administrator SDN Senior Moderator Lifetime Donor

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    Z is going to pimp out the Alli burger.
  11. Kruton

    Kruton Professionally Rad

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    Tell me though. It sounds like great potential.
  12. ItsOverZyvox

    ItsOverZyvox Retired

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    What's an Alli Burger?
  13. ItsOverZyvox

    ItsOverZyvox Retired

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    ehh...I don't really know much about retail independent business..
  14. SpirivaSunrise

    SpirivaSunrise Go Gators! Lifetime Donor

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  15. PharmD 2008

    PharmD 2008

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    What would be a good summer internship if I am planning to open up my pharmacy after finishing pharmacy school?
  16. SpirivaSunrise

    SpirivaSunrise Go Gators! Lifetime Donor

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    Try an indie. Somewhere where you'll feel comfortable getting to the know the ins and outs. Granted, a summer won't necessarily be enough time to do this. Get as much experience as you can on the business side too; figure out if you'd like to cater to a specific niche...DME, infusion, etc. And be sure you're secure with the working capital; keeping these types of pharmacies afloat is not easy with all of the $ you need to put forth with inventory, overhead, etc. If you can find someone who's been successful at this, and that can take you under their wing, more power to you!
  17. model63

    model63

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    Our net profit is about 4 1/2 %. We keep a very close eye on our buying, and have a pretty active front end. I realize our profit margin is higher than most, but we are vigilant in keeping our buying costs down.
  18. Doctor M

    Doctor M

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    does this include front end sales?? I would imagine front end sales would bring this number up a bit...
  19. blueclassring

    blueclassring Senior Member

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    How about compounding niches? Can I compete with the retail giants with a traditional store?
  20. FORTLIVINGROOM

    FORTLIVINGROOM

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    So you do have uber rich parents and no loans or something?

    That's quite a lofty statement.


    On another note...from what I understand the biggest thing hurting independents is the very long reimbursement times from Medicare. How are you supposed to make a profit when you dispense a drug then have to wait 90 days for $3????

    I'm an absolute novice in this arena so take my comments with a grain of salt

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