TUscany Italy

Tuscany Italy

You may or may not have heard of the Pareto principle. It is also known as the 80-20 rule. It states that roughly 80% of the effects come from 20% of the causes. The Pareto principle is named after Italian economist Vilfredo Pareto who published a paper showing that roughly 80% of the land was owned by 20% of the people. He had also observed that 80% of the peas in his garden came from 20% of the pea pods.

Since then there have been many new iterations and interpretations of this rule. Economists even say that 80% of a companies profits come from just 20% of its customers. How does this relate to pharmacy? Well with the $4 prescription, free antibiotics, free lisinopril, free metformin and free atorvastatin there is a lot of medication being dispensed with very little profit.

This should come as no surprise to anyone around pharmacy, but what does this have to do with an independent pharmacy? Well, as an independent you want to maximize your profits. As a result, should you go chasing after the people filling free antibiotics? In my opinion this does not make any sense from a purely financial standpoint. In general people taking antibiotics are there for a single temporary problem. Once the problem is resolved they have no reason to come back.

The target you are looking for is the long term patient on chronic medications. This will give you a customer who keeps coming back and spending money with you. Again, not a surprise. But what exactly are you looking for? Where will you find it?

Farmacia in Pisa

Farmacia in Pisa, Italy

This will vary by pharmacy. First look for trends in  your current customer base. Look for the people who come in and spend a lot of money. Look for medications where your third party reimbursements are larger. Look for physician practices where their patients bring in more revenue. Utilize your pharmacy’s computer and run reports on drug usage, physician prescribing, third party reimbursements. Look for trends where you are seeing higher profit margins. Those trends are there, you just need to find them.

Once you have identified a trend. or a niche, then go looking for ways to attract more of these people. If you do this and find a select group of people who are more profitable, then entice them with something(s) that will attract them to your pharmacy.

Offer them specialized training related to their medical condition.  Educate them about the benefits of a companion product. Find a way to make these customers your biggest fans. If you put this into practice there is no way a big box retailer will ever be  able to compete for these more profitable customers. Let big box store give away free antibiotics and $4 prescriptions, These are not adding significantly to the bottom line. Let them have the 80%, all you need is the 20%.

If you think this won’t work because everyone is price driven, think again. Not everyone is looking for the lowest price. Check out this article from Inc 10 Reasons customers will pay more and take a close look at 6, 7, 8 and 9

Also, to help you identify profitable groups of patients, take a look at these sources.

CDC Chronic Disease Overview

Top 10 Most Costly Conditions

Please share your thoughts and leave  comment below.

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