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How do pharmacies generate their profits?

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  • How do pharmacies generate their profits?

    I realise this this might seem like a stupid question.
    Say a pharmacy dispenses 6000 items a month (about 300 a day).
    They would dispense 72000 items a year.
    It's 90p per item, so thats £64800.
    You get about £25000 for dispensing around this number so thats 90k
    If you achieve murs another 10k, so 100k.
    How much could an average pharmacy generate in pharmacy form otcs.
    Also how much does observed an non observed methadone generate.
    Most independant chemists i've met have done really well, just wondering where the profits come from.

  • #2
    Re: How do pharmacies generate their profits?

    The payments to pharmacies are outlined in the Drug Tariff. There are practice payments and other item of service payments. Pharmacies are also expected to make a profit on their purchasing of £500m. Put simply, that works out at £45k per pharmacy but can vary wildly.

    Local enhanced services such as EHC, Supervised methadone/subutex etc are locally determined so figures relevant to say Glasgow are irrelevant in Norwich.

    OTC sales are declining due to availability over the internet, supermarkets etc. 10 years ago a typical split would be 70/30 NHS/OTC Today it would be nearer 90/10.

    The income in pharmacies recently has been a roller coaster. Two years ago pharmacies were doing really well but since October 2007 cuts in Category M reimbursement (the prices paid for generic drugs) have hit profits very hard.

    If you look at figures for pharmacies advertised for sale gross profits average around 30% but that will certainly be less at the moment. Crudely, with the figures you quoted 6000 items would on average (and there will be wide variation depending on local trends in prescribing) generate about £66k per month or £792k per year. Assuming a 90/10 split you could perhaps expect £90ish"k" OTC giving about £880k turnover.

    On average that would generate a gross profit of £264k

    From that you would have to pay rent and rates (some pharmacies pay rentals in excess of £50k and some health centre pharmacies owned by third party developers I have heard of pay over £80k). Business rates vary significantly on location and can be as high as rentals.

    You would have to pay indemnity, public liability and employer's liability insurance as well as insuring stock, fixtures and fittings and stock.

    Staff costs are rising very quickly, we pay ACTs about £18-£20k and technicians about £16k

    IT costs, heat and light, fees etc all mount up.

    If you do the sums and think it is worth a go bear in mind that for NHS work you will work, spend money on stock and have to pay for it before you get final settlement from the NHS. Staff costs are paid before you recover the money to pay them.

    If you still fancy it remember that no matter how hard you work, any mortgage/loan you take out will work even harder.

    If you still fancy it go and do it. I did and even though it has been a difficult ride, I believe it has been worth it. Not just financially but the freedom you have to practice pharmacy as you wish to and not as someone tells you how to is priceless.
    http://uk.youtube.com/watch?v=Hmbyj0XFUhA

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    • #3
      Re: How do pharmacies generate their profits?

      The last line of your post is the most valuable one to anyone aspiring to become a proprietor in these days of MUR targets and waiting time monitoring.
      47 BC : Julius Cesar : Veni Vidi Vici : I came, I saw I conquered.
      2018 AD : Modern Man : I shopped, I clicked, I collected.
      How times change.

      If you find you have read something that has upset or offended you an anyway please unread it at once.

      Comment


      • #4
        Re: How do pharmacies generate their profits?

        The bank manager is a harder task master than any area manager. Everyone gets paid before you do. MUR targets become self imposed but no less relentlessly pursued.
        http://uk.youtube.com/watch?v=Hmbyj0XFUhA

        Comment


        • #5
          Re: How do pharmacies generate their profits?

          Originally posted by Tony Schofield View Post
          The bank manager is a harder task master than any area manager. Everyone gets paid before you do. MUR targets become self imposed but no less relentlessly pursued.
          Once again - agree with you completely.
          There's no harder boss to work for than the man/woman in the mirror.
          47 BC : Julius Cesar : Veni Vidi Vici : I came, I saw I conquered.
          2018 AD : Modern Man : I shopped, I clicked, I collected.
          How times change.

          If you find you have read something that has upset or offended you an anyway please unread it at once.

          Comment


          • #6
            Re: How do pharmacies generate their profits?

            isnt net profit closer to 35%?
            We are the music makers, We are the dreamers of dreams and God damn we are that good

            Comment


            • #7
              Re: How do pharmacies generate their profits?

              Gross profit can vary dramatically. If you have a high net ingredient cost (lots of branded items and 84 day prescriptions) the percentage will be very small, possibly under 20%. However if you have lots of 7 day nomads and exclusively generic prescribing it can be very high. Pharmacies like this doing lots of enhanced services with significant fee income eg supervised consumption I have seen GP margins approaching 38%.

              Gross profit is profit before overheads are taken off. Net profit is the profit remaining when all overheads have ben deducted and is usually about 10% on average. Again rentals are not constant. I have seen rental figures for similar businesses that range from £7k per annum to £40k

              I WISH net profit was 35% but unfortunately no.

              Again I am averaging, every individual business is unique and generalising can be a serious mistake.
              http://uk.youtube.com/watch?v=Hmbyj0XFUhA

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              • #8
                Re: How do pharmacies generate their profits?

                Actually recently did a calculation of the gross profit the DOH pays out and it is around 20% of turnover. Additional profit is from local services and OTC turnover.

                I will be amazed if CatM reductions last October allow 30% gross profits any more. Never mind 35%
                http://uk.youtube.com/watch?v=Hmbyj0XFUhA

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                • #9
                  Re: How do pharmacies generate their profits?

                  So if you've got got an 880k turnover you would only have 88k at the end of the year? Is that after you have made loan repayments. I read that as a business you pay less tax. I wonder if there are any books or articles on how to purchase and run an effective pharmacy business. Lots of independants tend to come from families with business experience whereas I don't.

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                  • #10
                    Re: How do pharmacies generate their profits?

                    With all due respect, what I have been spending a considerable amount of time doing is trying to show you that there is no such thing as a typical business. Loan repayments would not be included. In fact loan repayments are made up of capital and interest. The interest is allowable against tax but capital repayments are charged to you and taxable. So if you borrow say £100k over 10 years, on average you pay £10k capital back every year (It isn't quite like that as in the early years you pay back more interest and in later years more capital. However for the sake of the calculation lets assume it is the same each year) that £10k will be credited to you as income even though you hand it straight over to the bank and you will have to find the tax on it.

                    As for the £880k business, as I said, that can vary dramatically. If the rental is £7k you will earn more than if it is £25k and there is no average value. Each one is charged differently. I should also point out that to make 10%, that would normally include the cost of a manager so if you were working for yourself that salary could be added to what you were left with. However, if you paid say £750k for a £880k turnover business with say £50k stock you will need that sort of profit to service your loan and fund your cashflow.

                    Re business owners and their backgrounds. I know independents and some of them come from business back grounds, some indeed inherit family businesses but I didn't and very few of my colleagues did. In the main you either have a go or don't. You can't blame background. Finance is easily available in the form of wholesaler guaranteed loans. The trick is to make sure you don't pay too much!!
                    http://uk.youtube.com/watch?v=Hmbyj0XFUhA

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                    • #11
                      Re: How do pharmacies generate their profits?

                      Also, the question of whether you are a company or not is an individual question that can only be answered by your accountant. There is no one answer as everyone's circumstances differ. Remember that if the company pays corporation tax, any drawings you make would be taxable at full income tax rates etc. after paying corporation tax. There is no right answer and only an accountant can help you make the correcty decision which may change from year to year.

                      Your income will appear massive if you have a big loan as will be tax chargeable to you. However the cash you have to spend on yourself and pay the tax will not be as great as your tax return will imply!!
                      http://uk.youtube.com/watch?v=Hmbyj0XFUhA

                      Comment


                      • #12
                        Re: How do pharmacies generate their profits?

                        is there any guide explaining the important information about 'how to start a new community pharmacy' or some relevant information regarding this topic?
                        cheers in advance
                        [COLOR=Olive]xxxx They tried to break my back, but i survived. whatever doesn't kill you, will only makes you stronger xxxx
                        [/COLOR]

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                        • #13
                          Re: How do pharmacies generate their profits?

                          Have a look on the PSNC website under "control of entry"
                          http://uk.youtube.com/watch?v=Hmbyj0XFUhA

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                          • #14
                            Re: How do pharmacies generate their profits?

                            Cheers Mr TS
                            i'll have a look
                            [COLOR=Olive]xxxx They tried to break my back, but i survived. whatever doesn't kill you, will only makes you stronger xxxx
                            [/COLOR]

                            Comment


                            • #15
                              Re: How do pharmacies generate their profits?

                              What a patient man and helpful man you're Tony.

                              Usually if you have no personal capital to start your own business you'll have to be content for just paying yourself a manager's salary and spend 5 to 7 years paying back your loan.

                              If the business you want to acquire can't do it in this timeframe it's surely overvalued!

                              Have a look here for some advice.

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