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Digital Pharmacist Blog

Understanding Your Pharmacy Income Statement: Part III

Last updated Oct 30, 2020 | Pharmacy Management

While an accountant may manage the bulk of your books, business decisions ultimately rest with you, the pharmacy owner.  So far, in our series on key pharmacy financials, we’ve covered equations and best practices for revenue and cost of goods sold (COGS) in Part 1 and gross profit and operating expenses in Part 2

Here, we wrap up the breakdown of your income statement by examining net income.

What Net Income Means for You

Net income (also called net profit) is your pharmacy’s earnings. The “bottom line” on your income statement is the profit (net income) or loss (net loss) made after revenue is adjusted for all of the expenses incurred while doing business.

Gross profit, which we discussed in Part 2 of this series, is the amount of money that remains after revenue (or sales) is adjusted for the cost of goods sold (COGS). By subtracting business operating expenses from gross profit, you’re left with your pharmacy’s net income. 

Revenue – COGS = Gross Profit – Operating Expenses = Net Income

Successful businesses focus on driving a higher net income in order to scale and grow. As we’ve learned, this can be done by increasing revenue or sales, decreasing COGS, and reducing operating expenses.

Why Pharmacy Net Income Is So Important 

Your pharmacy must make a profit in order to stay in business. What’s more, you are in the business of care. When you turn a profit, you not only remain in business, you also continue to provide patients with quality healthcare services and products.

Like gross profit, net income is a sign of a business’s fiscal health, good or bad. When you apply for business financing, lenders will analyze your financial records, including your income statement to gauge the profitability of your business. Net income, along with other factors, tells them whether your pharmacy is a good investment or a risky one. 

Improving Your Pharmacy Income

Because generating net profit begins with revenue or sales, your goal is to produce more revenue. Two ways to do this include focusing on low-margin sales or high-margin sales

Low-margin sales rely on volume, selling more goods at an affordable price to undercut competitors and encourage return customers. By contrast, high-margin sales are more about quality than quantity: offering specialty products and services at a higher cost to increase profit margins. 

Here are a few other ways to improve your revenue and net profits:

  • Maintain proper pricing and maximize reimbursements.
  • Focus on non-prescription and OTC sales.
  • Offer weekly sales or other discounts to get more customers through your doors.
  • Market your business online with social media ads and pharmacy reviews.
  • Expand into retail product lines to increase your customer base or attract new patients with specialty services like compounding or Medical Therapy Management (MTM).
  • Add digital tools to your workflow to increase efficiency and help you offer mobile and online pharmacy services. 

Ready to transform your business? Digital Pharmacist is committed to supporting pharmacy growth. Get in touch with us today to learn more.

 

 

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