Calculate The Selling Price (Mark-up) Of Drugs In Community Pharmacy

Mark-up (selling) price of product is one the most important things for a successful community pharmacy business. It is also called the gross income of each product.

Some community pharmacies use the same mark-up ratio for all their products. Some others use different mark-up ratio for different categories.

The major consideration is the operational income. The operational income must be higher than the gross income. A small operational income or negative value is an indication of a poor mark-up ratio.
Read Also: Supermarket in community pharmacy shop benefits

Before we delve deeper into the topic properly, let's see the different types of income in a community pharmacy.

Community Pharmacy Income

Gross Income

This is the profit in a product after sales. It is the selling price minus the cost price.

Mark-up

Mark-up price

This is the selling price of a product.  It includes the cost of buying the product and the gain in it. The value is set by the pharmacist in charge to cover cost price and operational cost. It can be done using a single digit of currency or percentage. Some community pharmacies can say every product that costs less than a thousand naira will be sold with an added hundred naira why above a thousand naira will get an additional 200 naira. Using percentage, they can fix a single percentage for all products like an additional 30 %.  They can also vary the percentage depending on the category the product falls into. Some use a different percentage value for product that their cost price is below a thousand naira and another for product that their cost price is above a thousand naira.

Operational Income

Aside from the cost of buying the goods, the community pharmacy spends money to run the business. This includes utilities, salary, store rent, etc. All this should be put in mind when fixing a selling price. The operational cost should be spread across all the products. The final selling price minus the cost of the product minus the operational cost will give the operational income. This is the true income of the owner.

Categories Of Product

In a community pharmacy, the mark-up ratio is fixed based on certain conditions. Some fixed their mark-up using product categories while others use cost of buying. Let's look at them.

Product Categories

Branded Drugs

Branded Drugs are products that first hit the market. A good example is amoxil (amoxicillin). They are very popular and expensive. The reason is because their cost price is high. To mark-up these branded drugs, community pharmacies always consider what other community pharmacies in the area are selling. Using a high mark-up for popular products like branded products will make customers run away. The reason is because every other community pharmacy sells that product. To get more customers, they use a very low mark-up. This normally affects operating income. There is no much gain here.

Generic Drugs

Generics are the same ingredients as the branded counterpart. They have an added advantage of coming cheap. They got government backing encouraging people to go for these and are stocked in government owned hospitals. However, the mark-up ratio of generic products varies from one community pharmacy to the other. This depends on if the product is popular or not.

Most popular generic drugs are treated in the same way as branded in terms of mark-up ratio. But the unpopular ones in some community pharmacies get higher mark-up ratio. In the US, some pharmacies mark-up over 1000 percent, says the wall street journal (us edition). The mark-up ratio is solely at the discretion of the community pharmacy. The final selling price is always lower than the brand.

SuperMarket

When a community pharmacy decides to include a supermarket product, they should not use the same mark-up ratio of drugs. Since those things are sold in other stores, the selling price should be similar to what others are selling. Most people sell supermarket products at a very low mark-up ratio. Very common to see their products go for 10-30 %. The pharmacy should sell at those mark-up ratio. The supermarket is not for profit but for easing the stress of customers from going far looking for simple products that are related to health.

Types Of Mark-up

There are two types of mark-up. They are the percentage or currency. Percentage mark-up is more common.

Percentage Mark-up

It involves simple mathematics. The cost price is multiplied by the percentage. That is if a product cost price is 100 naira and the mark-up ratio of the product is 30 %, the calculation is 100×30÷100. The answer is the gross profit which is 30 naira. Adding 30 naira to the cost price will give the selling price which is 130 naira. However to make it simple, 100×0.3 will give the same result. So multiplying the cost price by 0.0 is 0 %, 0.3 is 30 %, 0.9 is 90 %, 0.55 is 55 %, 0.4 is 40 %, etc.

Some products come in packs of one, two, three, etc. There is some way of calculating their selling price. If the pack contains just one product, the calculation is done by adding one to the percentage value. For example if the product costs 100 naira and we are to sell with 30 percent profit, it will be 100×(1+30÷100) or 100×1.3 which will give the selling cost of 130 naira. If the pack contains two products, two is to be added. Using the same example, it will be 100×2.3 which will give the selling cost for both products inside one pack of 230 naira. This is common with products that are packed inside one box with different invoice.
Read Also: How to run more than one community pharmacy shop

In summary, to mark-up a product simply multiply the cost with the percentage value. It gives the selling cost.

Some community pharmacies use two mark-up ratio. Products below a particular cost get a different mark-up value from the others with a different mark-up. For example, a community pharmacy can decide to use a lower mark-up for a product that their cost price is below 1000 naira and higher one for those that their cost price is above 1000 naira or vice.

Currency Mark-up

The old method of mark-up still exists in some community pharmacies. They use a fixed profit for products. For example, a community pharmacy can decide to add 10 naira for a product that their cost price is below 50 naira, 20 naira for those above 50 naira but below 200 naira and so one. This is what so many businesses aside from pharmacies do.

Factors Before Mark-up

Things to consider before using a mark-up ratio include popularity of the product, purchasing power of the area, competition and cost of doing business.

Share On Social Media With Family And Friends To Show You Care!