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Business plan for a pharmacy

Business plan for a pharmacy

It is a very regulated business , however it is a business. Pharmacies have long since ceased to be offices to dispatch the medications prescribed by the doctor or requested by the patient to become true health product stores, with their gondolas full of products and their advertisements in the showcase. We are going to see a pharmacy’s business plan , also reviewing the legal requirements.

Options to have a pharmacy

Obtain the authorization of installation by the Ministry of Health of the respective Autonomous Community, which from time to time call for competitions to open a pharmacy office.

Buy the license of an existing pharmacy, that is, a transfer. The amount to be disbursed is usually quite consistent.

Inherit the business. It is no surprise that many pharmacies are family businesses that are passed from one generation to another.

  • Legal requirements to set up a pharmacy
  • Have the academic degree of pharmacist.
  • Be collegiate
  • Local documentation (deed of sale or lease).
  • Local plans sealed by the College.
  • Declaration of owning the required products and devices (chemical products, devices and utensils, emergency medications.
  • Get the health license.
  • Have the industry patent registration.
  • Being discharged from the Treasury.

There are strict territorial limits . For example, in each pharmaceutical area, only one pharmacy can be created per modules of 2,800 inhabitants, and if that proportion is exceeded, an additional pharmacy can be created if there is a fraction greater than 2,000 inhabitants. In addition, the establishments must be at least 250 meters away.

Business Promotion Team

Opening a pharmacy is an option that only one person with a pharmacist’s degree has, but that does not mean that the whole team has to be. It is a health-focused trade, and therefore there are two essential requirements for the team: having important knowledge in pharmacy and health, and knowing how to perform perfectly in the public eye. In fact, the tendency is to sell more and more parapharmacy products, and for that reason the required profile resembles any other commercial profile in a proximity store.

Pharmacy Location

We discussed earlier, there are very strict requirements to locate a new pharmacy, but despite this, within the restrictions, being a proximity business you have to find a very visible location. The density of pharmacies is notable in Spain, and that is why it is essential to stand out for the location of the place, ideally in a commercial street with a lot of passage.

Opening hours

In large cities, the issue of schedule is also raised. If the pharmacy is located on a large avenue, and is easily accessible by car, then you can think of a wider opening, until 11 at night, or even 24 hours. But for that we must be sure that there is a sufficient market to justify the salaries of the people who will work in the two night shifts.

Regulated pharmacy activity . In this case, the competition is the other pharmacy offices, which are at a distance of at least 250 meters, which in many cases is little. In principle it seems that all pharmacies are the same, and as prices are regulated, that not much can be done, but there is nothing more false. Elements such as the design and distribution of the premises, and of course customer service and speed of service are essential to create a good clientele.

Sale of parapharmacy products . For those products, the competition does not come only from the other pharmacies, but from many other stores. There are chains specialized in parapharmacy, entire sections in supermarkets and department stores, and there are even some competing products in the drugstores or even in the bazaars. Of course, the good image that the pharmacy gives, with a health professional at the helm, allows you to generate more confidence, and sell products with more margin than other stores.

Market evolution

According to a CESCE report, in 2015 the total turnover of Spanish pharmacies was 18,470 million euros, among the 21,937 offices operating in the country. If you wonder how much a pharmacy bills, you already have the answer, at least from the point of view of the Spanish average: about 840,000 euros a year. But there can be big differences between the establishments.

Of that billing, approximately 71% is from prescription drugs , most of them from prescriptions of doctors in the public sector. A 6% are doctors without prescription , and the rest, ie , a 23%, are the products of parafarmacia . But all the growth in the activity of pharmacies in recent years has occurred in the latter segment. In fact, in 2013 over-the-counter health products only accounted for 21% of the turnover of pharmacy offices.

Hence the transformation of pharmacies into health stores , with a design increasingly similar to that of a store than that of an office with a simple counter. As the sale of medicines does not grow, the strategy is to bet on parapharmacy.

Customer segmentation

With prescription drugs being the first source of billing for a pharmacy, its most frequent clients are the sick, both occasional and chronic. In particular, there is an especially significant clientele of older people , since with age the health problems get worse. However, the final customer of the medications is usually the Department of Health of the Autonomous Community, since it pays most of the price of the medications. In the recent past in many regions the public administration paid very late, and is a factor to take into account for the business treasury.

For the parapharmacy activity, the clientele is younger , since those health-related products range from cosmetic products (slimming creams, for example), baby nutrition products, products that supposedly slow hair loss in men , etc.

Necessary investment

As we said before, whoever wants to set up a pharmacy can try to run for a public tender when new authorizations are issued (although there are many who present and few chosen) or buy a transfer.

In the first case, the investment is important, between the conditioning of the premises, the purchase of the shelves and storage material, the purchase of tools and equipment and the purchase of the stocks of medicines, the money invested can easily exceed 150,000 at € 200,000 .

In the second case, the purchase of an active pharmacy, the price obviously depends on the supply and demand in the city where it is located. The reference is usually the annual turnover of the office, with a transfer price ratio over annual sales that generally range from 0.6 to 1.2. In general, it is not recommended to buy a transfer for more than one billing year. According to some studies, transfers currently exceed € 500,000 on average .

Expenses

The two main expenses of a pharmacy are the salaries of the employees and the rent of the premises. Personnel expenses represent approximately 10/11% of the turnover, which in the case of an “average” pharmacy would represent about € 90,000 per year or € 7,500 per month. The rent can easily cost about € 2,500 per month. To that we should add supplies, insurance, amortization of investment, etc.

Margins

Another reason why pharmacies increasingly invoice more over-the-counter parapharmacy products is that they get better margins with them. And it has logic. The drugs covered by Social Security are subject to a fee, and to control public spending the administration tends to tighten to reduce margins. On the other hand, over-the-counter products do not have this problem.

In general, a standard pharmacy can be considered to have an average margin of approximately 30% , which will be lower if it sells more prescription drugs than the average, and higher if it has a higher turnover of parapharmacy products than the average.

How much does a pharmacy earn?

It is difficult to give a figure, since each office has its own reality, but according to some available studies, the average result of an after-tax pharmacy would be approximately 7% of the turnover. In other words, if we take as reference the invoicing of € 840,000, an average pharmacy office earns about € 58,000 a year after taxes. Of course, it will have nothing to do with an establishment located in a small town, which may bill € 300,000 and earn € 20,000 than a large pharmacy in a city, which can bill 2 million euros and have a net profit after taxes € 150,000.

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