The Inventory Myth: What do you really earn?
Written Oct 13th, 2016 by Franco Varriano
Don’t let the margins deceive you
At first glance, many practitioners will mistakenly believe that carrying physical inventory offers a better margin than a platform like Fullscript. On the surface it may seem that way, but we decided to take it one step further and break down the true cost of on-site dispensing. You can check out our free case study here.
Carrying inventory comes with many hidden or lesser known costs that are often not factored in when deciding between on-site inventory or a virtual dispensing solution like Fullscript. When you carry inventory, you’ll have to factor in the variable costs of:
- Operational overhead. Your staff could spend their time more wisely on patient retention or other areas of practice growth, instead of managing inventory.
- Expired products. Not only is there a very tangible cost of throwing away expired products, but mismanaging expiry dates on your shelves could also expose your clinic to the risk and liability of selling these products to a patient.
- Payment processing fees. Most merchant providers charge ~2%, whereas Fullscript absorbs this cost.
When you begin to break down these costs, your net profit margin is often the same or less than a hassle-free platform like Fullscript.
The Refill Rate is Key
The biggest flaw with inventory isn’t actually the initial order, but rather the follow-up refill orders. Most clinics don’t have a solution for tracking the number of patients that actually come back to the clinic to refill.
We’ve found that practitioners with inventory see an average refill rate of 1.3x—you might have the odd patient who comes back in looking to renew their prescription, and the rest either turn to their local health store or other online stores where counterfeit products are often an issue. With Fullscript, the refill rate is an industry-leading 5 x and quality is guaranteed.
What about the opportunity cost?
Aside from lower refill revenue, the next biggest cost for onsite inventory is the actual capital cost. Some clinics have as much as $20,000 tied up in inventory sitting on their shelves. Imagine that capital could be spent on initiatives that actually drive the business forward.
Most clinics that make the switch to Fullscript end up reallocating their new found time and capital into practice growth and patient acquisition/retention. Some areas to invest in could include:
- Developing and refining your website
- Advertising your practice and services
- Developing a patient referral program
- Promoting your practice through social media
- Hiring or reassigning admin staff to more pressing projects
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