Pharmacy Accounting
The Real Cost of a Weak Wholesale Agreement
For an independent retail pharmacy, Cost of Goods Sold (COGS) consumes up to 80–85% of your revenue. Small purchasing gains add up fast.
COGS = 80–85% of revenue
Purchasing = your biggest lever
The 1% rule
$35,000
in pure profit from a 1% purchasing improvement, measured against $3.5M in sales
While a 1% improvement in purchasing, measured against sales, might sound like a rounding error, for a pharmacy doing $3.5 million in average sales, that 1% shift instantly drops $35,000 in pure profit straight to your bottom line.
Mastering your inventory purchasing is arguably the most critical skill for your survival and growth. But as you already know, buying drug inventory is incredibly complex.
The complexity
What Makes Wholesale Agreements So Complicated
Owners juggling a wholesale agreement are constantly balancing:
01
NDCs
Multiple NDCs with varying reimbursement rates
02
Rebates & Fees
Complicated rebate tiers and hidden fees
03
Volume
Strict minimum order volume requirements
The stakes are rising
Why Industry Shifts Are Raising the Stakes
Watch: Maximum Fair Price (MFP)
To make matters worse, shifting industry dynamics force you to constantly adapt. The rollout of Maximum Fair Price (MFP), for example, is lowering your total monthly purchase amounts while simultaneously impacting your Generic Compliance Ratio (GCR). This dynamic dictates how much you can safely buy outside your primary wholesaler without jeopardizing your rebate tiers, and it guarantees that future wholesale agreements will look drastically different than today's.
When we see pharmacies struggling with purchasing, it usually isn't because they signed a bad wholesale agreement. More often, it's because:
Maximizing a complex wholesale agreement is a full-time job—and as an owner, you simply don't have the hours in the day.
How we help
How a Pharmacy-Focused Accountant Helps
As accounting partners exclusively serving pharmacies, we consider it our responsibility to decode these wholesale agreements. We actively work alongside our clients to:
✓
Evaluate their contracts
✓
Adjust daily purchasing habits
✓
Negotiate new agreements when necessary
✓
Connect them with trusted purchasing partners, including buying groups that simplify the process and improve terms
If you want to talk through your own wholesale agreement with someone who works exclusively with independent pharmacies, you can schedule a discussion with our accounting team.
Your checklist
Questions to Ask About Your Wholesale Agreement
1
What's your Generic Compliance Ratio target, and where are you today?
2
At what purchase volume does each rebate tier kick in?
3
How much can you buy off-contract before it affects your rebates?
4
What fees apply, such as delivery, minimum-order, and returns?
5
What are the payment terms, and is there an early-pay discount?
6
How long is the contract, and what does it cost to exit early?
The big picture
The Three Real Levers of Pharmacy Profitability
Ultimately, independent pharmacy owners only have three real levers to pull for profitability:
1
Increase profitable revenue
2
Reduce payroll
Highest immediate yield
3
Purchase better
The lever that fluctuates the most—and offers the highest immediate yield—is purchasing. Aligning with advisors and partners who can turn you into an expert buyer isn't just a good idea; it is the foundation of your long-term success.
Keep reading
Related Reading
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Talk Through Your Wholesale Agreement
Get a second look from accountants who work exclusively with independent pharmacies.
