Your Current Revenue Strategy
The majority of pharmacies have a revenue model based upon just relying on filling scripts for their customers with little thought about increasing their number of customers, transaction frequency and average sale. Due to the fact that there are just over 5,000 pharmacies in Australia each pharmacy on average has roughly 4,500 individuals located within their catchment area (based on an Australian population of approximately 22,500,000 as per Australian Bureau of Statistics). There is a real opportunity for pharmacies that have a focused revenue strategy to increase the number of customers within and beyond the number located in their catchment area as well as enhance their overall revenue growth.
The typical revenue strategy for each pharmacy is a two dimensional revenue strategy. Profitability improvements are driven by minimising costs and squeezing the margin out of sales and ad hoc sales and marketing activity.
The problem with this model is you are only looking at servicing your existing catchment area with limited opportunity to grow this number of customers. Moreover, due to the limited approach to new sales and marketing activities other strategies to increase customer’s frequency of doing business with your pharmacy and increasing the average sale are not explored.
This model is very “ad hoc” and inward focused and the only way to increase profitability is due to margin gains through product pricing, buying terms and efficiency gains in terms of reducing costs such as wages and rent. In addition, ad hoc sales and marketing activities will get you very limited results, if any. Sure, systems improvements produce efficiency gains; however, the greatest gains are only made when the systems improvements are initially implemented.
Your New Revenue Strategy
My challenge for pharmacies is to adopt “business best practice”, which means understanding that an “ad hoc” inward focus to revenue generation is not going to achieve genuine revenue growth. The revenue activities that drive revenue growth come from focusing on integrated product, marketing, sales and client relationship management activities.
If you look at any successful business, it has separated the key revenue activities so that it can minimise the impact of variables on its daily/weekly/monthly/quarterly and annual revenue targets. For a business to truly be successful it must adopt the following 5 Dimensional Revenue Strategy:
Product = What you sell
Marketing = How you generate leads
Sales = How you convert leads to sales ($revenue)
Operations and Delivery = How you build and deliver the product
Customer Relationship Management = How you manage your customers experience so they
buy and buy again
Each activity requires different skills and hinges on each other for revenue to grow. But each activity requires a different strategy so that the action plans are clear.
For a pharmacy to truly be successful the Proprietors of the business need to ensure that their mindset changes towards a 5 Dimensional Revenue Strategy as described above. This may mean that they need to spend money in developing the other dimensions such as Customer Relationship Management, Sales, Marketing and Product, however the benefits of adopting this model far outweigh the costs.
To build your revenue model using the 5 Dimensional Revenue Strategy, you need to understand and apply the Revenue Growth Formula which is:
Target Revenue = (current customers+ new customers^) x transaction frequency^ x average sale^
Growing revenue is simply a matter of maths. ‘^’ means ‘make it exponential’. Every strategy you implement must work to leverage the activity so that it produces consistent growth.
Any strategies you develop to grow revenue must fall within one of the formula components. If you analyse this further, each of the components relate back to the five revenue strategy activities as follows:
With the former revenue strategy, the inward approach, you can only improve so much in terms of efficiency gains. But with a 5 dimensional Revenue Growth Strategy, the growth in revenue can be exponential.
In the below example, you can see that small increments in each component have an exponential impact on the result.
The focus is to develop strategies in each of the growth formula components and then drive the activities to produce the revenue results. In implementing any revenue strategy you must first start with your current customers. They already know you, they already trust you. In nearly every instance they will have unmet needs.
You must prioritise your actions that will have the greatest probability of revenue growth so that you do these first. Any strategy must be assessed and categorised according to the following order of priority:
Priority #1 Providing existing products to existing customers.
This is the first priority because you already know the product and the customer already knows you. Make sure you are providing all of your products to all of your customers.
Priority #2 Providing new products to existing customers.
You already have a relationship with these customers, so their resistance to purchasing new products from you will be less.
Priority #3 Providing new and existing products to new customers.
We all agree that it is easier to sell to an existing client than a new customer. New customers usually take time to acquire, time to understand their needs and time to build trust with you.
The Top 5 Revenue Improvement Strategies
Product
- Define all products/services provided by your business, or capable of being provided, to your customers. You will find that there are endless opportunities to provide these products to existing customers that have not bought them from your business. Don’t tell yourself that the customers don’t want them. You don’t know until you ask them. Price these products using a value-based approach, so that customers can see the benefit of purchasing from your business.
- Develop a marketing strategy to drive an increase in transaction frequency so that your customers are aware of all of your products/services. The marketing strategy must be designed to educate your customers about all of the products and services you provide and to drive leads from customers for these services.
- Separate sales activities from marketing and implement a structured sales process so that leads generated are converted to revenue.
- Systemise everything and manage your operations strategy so that it is used as a measure of capacity management and efficiency performance to drive improvement in your margin.
- Build a structured system so that customers’ experiences aren’t left to chance.
Marketing
Sales
Operations and Delivery
Customer Relationship Management
If you implement these 5 key strategies by focusing on providing your existing products to existing customers, and ensuring that your revenue strategy is built using the Revenue Growth Formula, your revenue will grow in a structured and sustainable way.
I offer a free Profit & Cash Flow Improvement Potential Review using your numbers. We will meet and discuss the financial position of your business, and discuss strategies that you can implement to drive improvement. Call Michael Ward on 07 3833 3999 to book your no obligation free appointment.
