NATIONAL COMMUNITY PHARMACISTS ASSOCIATION

ProfitabilityExpense ManagementThe table below shows sales mix and gross margins forpharmacies in the four sales categories. ProfitabilityUnder$2.5M$2.5M to$3.5M$3.5M to$6.5MOver$6.5MThe charts show how payroll expenses and other operatingexpenses change as sales increase. In 2008, the payrollexpense (including owners) as a percentage of sales was highest in pharmacies with sales over $6.5 million. As payrollexpenses increased to support the higher sales, the netoperating income percentages decreased. Prescription sales 92.8% 93.9% 93.1% 93.4%All other sales 7.2% 6.1% 6.9% 6.6%Total sales 100% 100% 100% 100%Average cost of goods sold 77.9% 75.9% 76.9% 76.9%Average Gross Margin 22.1% 24.1% 23.1% 23.1%Sales mix between prescription sales and other sales variedamong the sales groups; however, all pharmacies had greaterthan 90 percent in prescription sales. The highest averagegross margins were earned by pharmacies with $2.5 millionto $3.5 million in sales at 24.1 percent. While the marginsare higher, since the volume is low, the net dollars to the pharmacy are significantly lower when compared to largerpharmacies. It is also important to note that pharmacies with sales less than $2.5 million have higher cost of goodssold and thus lower gross margins.PAYROLL EXPENSESInventory ControlInventory turns increased as sales increased, with the pharmacieswith sales more than $6.5 million being the mostefficient at inventory control. Pharmacies with sales morethan $6.5 million turned their inventory the fastest, withstock staying on hand for only 28 days. Smaller pharmacies(having sales under $2.5 million) held stock almost 43 percentlonger for a total of 40 days. Efficient management of prescription inventory had a significant impact on the trendof increasing overall inventory turnover as sales increased. OTHER OPERATING EXPENSESInventory Control Under$2.5M$2.5M to$3.5M$3.5M to$6.5MOver$6.5M Inventory turnover (annual) 9.2 10.4 10.8 12.9Inventory turnover (days) 40 days 35 days 34 days 28 daysPrescription inventoryturnover (annual)10.210.812.713.5 Prescription inventory 36 days 34 days 29 days 27 daysturnover (days)202009 NCPA Digest, sponsored by Cardinal Health