{"id":75239,"date":"2023-10-24T20:09:03","date_gmt":"2023-10-24T20:09:03","guid":{"rendered":"https:\/\/todaysveterinarybusiness.com\/?p=75239"},"modified":"2024-01-30T12:27:21","modified_gmt":"2024-01-30T17:27:21","slug":"where-did-your-money-go","status":"publish","type":"post","link":"https:\/\/navc.sitepreview.app\/todaysveterinarybusiness.com\/where-did-your-money-go\/","title":{"rendered":"Where Did Your Money Go?"},"content":{"rendered":"

D<\/span>oes the following scenario sound familiar? Dr. Smith reaches for her go-to NSAID on the shelf of the pharmacy and found the space empty. She does a quick look toward the clinic back door and sees the UPS driver left a few boxes lined against the wall. She asks her technician to check the boxes for the missing NSAID. Sure enough it\u2019s there, and she quickly begins to dispense the correct number of pills. While entering the transaction in her inventory software, Dr. Smith happens to check her packing list against the cost of the drug shown in the system. To her disappointment, she sees the price of the drug increased 5% over the past month and no one made a change to the client charge in the billing system. So, in effect she has been losing 5% margin for a month now. The client is waiting in the exam room and the next appointment is already running 15 minutes behind. She quickly applies the customary 2X prescription drug markup, prints the label, slaps it on the dispensing bottle and moves on with her day.<\/span><\/p>\n

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Brought to you by Norbrook\u00ae<\/sup>, Inc.<\/span><\/p>\n

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Veterinarians and office managers have doubled (2X) the cost of drugs and goods as a rule for decades now. Do you do the same in your practice? Some exceptions to the 2X markup are drugs and goods that are heavily shopped, like flea and heartworm products, and more \u201cexpensive\u201d drugs \u2014 in these cases the markup usually drops to 1.5X. Again, does this sound familiar? Have you ever stopped and asked if this is really a good pricing strategy, and can we do better? Veterinarians should move away from thinking in terms of \u201cmarkup\u201d and instead focus on \u201cmargin dollars\u201d or \u201cprofit\u201d in setting pricing. The desired <\/b>gross margin should drive your markup, <\/b><\/span>not the other way around. <\/b><\/p>\n

Focusing on margin vs. traditionally employed markups with your pharmacy inventory may increase your clinic\u2019s revenue and profit margins.<\/span><\/p>\n

Some definitions:<\/b><\/span><\/p>\n

Markup<\/b><\/span> <\/b>is the ratio between the cost of a good or service and its selling price (client charge). Markup is expressed as a percentage over the cost:<\/span><\/p>\n

Sell Price of Drugx<\/sup> to Client \u2013 DVM\u2019s Cost of Drugx<\/sup><\/b><\/span><\/p>\n

DVM\u2019s Cost of Drugx<\/sup><\/b><\/span><\/p>\n

Gross Margin<\/b><\/span> is the difference between the selling price and the cost of goods <\/span>sold, divided by the selling price, <\/span>expressed as a percentage. Gross profit is the difference between revenue and the cost of goods sold, expressed in dollars.<\/p>\n

Sell Price of Drugx<\/sup> to Client \u2013 DVM\u2019s Cost of Drugx<\/sup><\/b><\/span><\/p>\n

Sell Price of Drugx<\/sup> to Client <\/b><\/span><\/p>\n

Note: <\/b><\/span>Selling Price = Client Charge = Revenue<\/span><\/p>\n

The following sample calculation of markup and gross margin for an FDA- approved generic drug helps explain the difference:<\/span><\/p>\n