Alan Newport reviews the trend of product sales moving to sources outside of clinics. Though directed to livestock veterinary practices, the key points are valid for all practices.
Source: Beef Vet, Fall 2016, page 24.
Newport addresses three choices:
- Stop actively marketing drugs and supplies
- Write prescriptions to be filled from an online pharmacy
- Partner with an online pharmacy to retain some margin from product sales
INSIGHTS: Newport writes about the total costs associated with running an in-clinic supply business. Total costs include all elements of replenishment. They include: procurement, receiving, restocking, inventory carrying costs, accounts receivable and accounts payable management. The example below shows how quickly margin is diminished by including replenishment costs into the margin considerations. A third-party pharmacy becomes more attractive when all costs are aligned with in-house inventory and dispensing.
By some measures an individual DVM will represent approximately $150,000 in annual purchase potential of which at least a third is sold in a dispensing model.
- At a combined margin opportunity of 25 percent, the $50,000 in dispensed product can generate a gross margin of $12,500.
- In most models, the replenishment costs will amount to at least 60 percent of the gross margin leaving a net margin of $5,000 or 10 percent.