Why You Need to Benchmark Your Pharmacy’s Performance

By Max Beairsto and Mike Jaczko

“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 certainly makes sense. If you do not know how your business is performing on the metrics that matter, how can you identify areas for improvement and work to build a more profitable, more resilient operation?

So measurement is important – we can all agree on that. But there is a snag: What exactly do you measure your business’s performance against?

In working with pharmacist-owners, we have often found that they operate in a business vacuum when it comes to measuring performance. Sure, they might talk to a neighbouring business, or a fellow pharmacist in the next community over, or a friend who is likewise an entrepreneur (but probably not a pharmacist-owner). But they do not have reliable, objective reference points against which to assess their business’s strengths and weaknesses. In short, they do not have good benchmarks.

This series of articles is our attempt to fill the gap. In them, you will find best practices and meaningful data to 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, and we will provide up-to-date information that is not only interesting, but actionable for pharmacist-owners.

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

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

·???????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 drive profitability in your business, ranging from scalability and reliable financial records to “softer” business aspects such as customer relationships and succession planning. Benchmarking can inform your decision-making on all these profit factors, but the two that it can most directly impact are operational efficiency and waste reduction. Towards improving those factors, we often recommend that pharmacist-owners begin 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 subsequent articles, but for now we want to leave you with an understanding of two things. First, benchmarking is important, because 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.

Because (to paraphrase Drucker), if can’t benchmark it, you can’t manage it.

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. [email protected]

Mike Jaczko is a Partner & Portfolio Manager with Toronto-based private investment firm KJ Harrison, where he provides discretionary investment management services and strategic advice to high-net-worth clients, including pharmacist-owners. A former industry executive, Mike has 30-plus years of mergers and acquisitions experience in Canadian retail pharmacy.?[email protected]