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Why You Need to Benchmark Your Pharmacy’s Performance

June 27, 2022

Why You Need to Benchmark Your Pharmacy’s Performance

Why You Need to Benchmark Your Pharmacy’s Performance

“If you can’t measure it, you can’t manage it.”  Popularized by business guru Peter Drucker, that idea has become a mantra in modern management, and it makes sense. If you do not know how your pharmacy is performing, how can improve and build a more profitable, resilient operation?
In other words,  measurement is important – we can all agree on that. But there is a snag: What do you measure your business’s performance against?
While working with pharmacist-owners, we often found they operate in a business vacuum.  Measuring performance is not something they activly think about. Sure, they might talk to a neighboring business, or a fellow pharmacist, or a entrepreneur friend (probably not a pharmacist-owner). But they're missing reliable, objective reference points.  In short, they do not have good benchmarks to assess their business’s strengths and weaknesses.
This series of articles is our attempt to fill the gap. In them, you will find best practices and meaningful data. These will help pharmacist-owners establish relevant benchmarks and equip themselves to act on the results. “Relevance” is vital. What you will read in these articles is based on decades of experience working in and with the pharmacy business. We will provide up-to-date information that is not only interesting, but actionable for pharmacist-owners.

Key Performance Indicators (KPI's)

At its most basic, benchmarking your company means measuring certain Key Performance Indicators (KPIs) against your best-in-class peers. The point is to identify problem areas upon which you can improve. Even if the needed improvements are less than dramatic,  benchmarking should be a regular and routine management activity.

So how do you start? There are four essential benchmark steps:benchmark-shutterstock

What? – Choose a product, service or department to benchmark Who? – Determine the best-in-class comparator and the metrics to benchmark How? – Gather information on ways to improve your metrics Do! – Adopt processes and policies to move your metrics forward
Over the course of our work with pharmacies, we have identified 12 “profit factors” that can improve your profitability. It ranges from scalability and reliable financial records to “softer” business aspects such as customer relationships and succession planning. Benchmarking can improve your decision-making on all these profit factors. The two it can most directly impact are operational efficiency and waste reduction. To improve those factors, we often recommend measuring in six areas: professional services, inventory, wages, prescription filling, compliance pack assembly and checking, and department contributions to profitability.
We will explore how to benchmark and what data to use for each of those areas. In addition,  we want to leave you with an understanding of two things. First, benchmarking is important - it can help you improve your pharmacy’s operations and maximize its profitability (and, ultimately, its value). And second, you can do it – and we will show you how in this series.
In short, (to paraphrase Drucker), if you can’t benchmark it, you can’t manage it.
More Information:  Here are some of the four most important accounting reports for you to go over. Check to see which areas generate you the most income and think of ways to do more of those tasks.
Read our entire Benchmarking Series:
Max Beairsto is President of EVCOR, a boutique valuation and M&A firm specializing in the valuation, improvement and sale of independent Canadian pharmacies. A former pharmacist, Max has more than two decades of experience in retail pharmacy mergers and acquisitions.
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