How do you recession-proof your pharmacy business? Part 1

A simple way to define profit is this equation:  sales - cost of goods sold - expenses + other business income = profit.        

To increase or at least maintain profits in a difficult economic environment, business owners must improve positive inputs and reduce the negatives.

To manage this dilemma in the best way possible, you can take several measures to optimize the outcome while the business climate goes through a so-called recession.

Maintain tight control of major non-fixed costs

● Wages: it is obvious wages are the biggest expense, however not using common sense when manipulating wage costs may sometimes do more harm than good to a successful business. Avoid reducing the hours of your most productive employees; they are the foundation for past and future growth in sales and profits. Make certain your best people are working at your busiest times.

Nepotism and friendships should not overrule good hiring and employee relation practices. There’s a good reason many firms have a policy that does not allow nepotism when hiring; it’s sometimes difficult to reduce hours using your best judgment when nepotism interferes.

Be involved in your scheduling; delegating to a supervisor is fine, but don’t ignore obvious issues such as senior employees that do not work any busy weekends or evenings, or people who are always scheduled when it’s best for them, not when it’s best for the business. Reward those who help out in an emergency or when it’s extra busy.

● Delivery costs: many pharmacies rely on medication and front store delivery to generate a significant portion of business, often to seniors, retirement homes and shut-ins. However, some customers use delivery for purchases that, when analyzed, generate little or no net profit. Minimum dollar size transactions should be set; maximum delivery distance must be determined. Some pharmacies send out orders that require 30 minutes of travel each way. On an emergency basis this may be fine, but on a regular basis, it would require a very large dollar value or many prescriptions to make this delivery worthwhile.

Train your staff not to offer delivery as the first option by always saying “When will you be in to pick up your prescription’’ versus “Do you want that delivered?’’ This simple tact will eliminate many prescription deliveries. Remember, the delivery customer does no impulse shopping in your store. Impulse shoppers are one of the reasons pharmacies offer more than prescriptions and OTCs.

● Utility costs: as energy costs rise, businesses must avoid increasing expenditures that do not positively affect sales and the customer shopping experience. Signs and thermostats should be on timers, and the settings should be adjusted for the time of year. HVAC units are the chief driver of store utility bills; a one or two-degree adjustment may be scarcely noticeable but could pay annual dividends to the bottom line. When renovating, do an energy audit so energy efficient lighting and appliances can be considered.

● Store maintenance: use your employees for minor repairs or regular maintenance rather than an outside contractor. It may be possible to reduce the frequency of such things as floor cleaning if your employees do routine sweeping and wet mopping. Defer non-essential repairs until the economic environment improves. Repair rather than replace if it’s cost effective.

● Advertising: spend here only if it will benefit sales. Eliminate ads that do not create urgency for the customer to come into your store

● Interest and bank charges: these costs are subject to negotiation and may be reduced by meeting your banker. In today’s competitive environment, banks should look after their established customers, which might mean a reduction in your loan operating loan interest rate or your bank charges.

Communicate with and train your employees

● Regularly talk to your employees; let them know the state of the business and how you anticipate the local economy may affect it. Have a full staff meeting or individual one-on-ones. Let them know your expectations; you will not get a concerted team effort if you do not ask! If there were any better time to get rid of your least effective employees, this is it.

● Invest in extra training if possible; the most common complaint most consumers have about retail businesses is poor service, often a by-product of poor employee training.

● Train your employees on how to upsell. If half of your front store customers spent an extra $5 per visit, there would be a huge positive impact on sales.

Review your loss prevention procedures

● Have you separated the functions of the daily deposit from the daily sales reports so one employee does not do both? This is the easiest form of internal theft other than at the cash register. Show your concern to all staff about the importance of proper cash procedures, including refunds, voids and end of shift balancing of cash and lottery tickets.

● Stress these procedures to all new hires and advise them that continued employment requires their diligent adherence to these processes. Have a defined staff purchase procedure for all employees. Emphasize to your staff that good service is the most important method of reducing shoplifting or external theft.

● Don’t be surprised at year-end by a drop in gross margins because of lack of attention to detail in loss prevention. Even the smallest business can suffer severely if the opportunity to steal is not removed.

Barry Ray is a retired pharmacist in Welland, Ontario.