For most small retail businesses, wages represent a significant outgoing. In pharmacy, they represent the largest controllable cost. Good people come at a cost but they, along with the owner, represent the goodwill of the business on a daily basis. The ability to retain good staff is a key success factor in any business. (This is often more acute in country areas where the investment and effort to retain professional staff can be more expensive, difficult and time consuming). No matter whether you operate under a well-known brand or as an independent pharmacy, your customers remember the service they receive.

In a previous Pharmacy Solutions E-News article (July 2021), Profit from motivated and engaged pharmacy staff, we covered the importance of getting the utmost from your staff, because pharmacy is very much a ‘people’ business. Their knowledge, expertise and the impressions they make are critical to customer loyalty. Accordingly, you must ensure that they are up to the job, motivated, incentivised and appropriately deployed to achieve your business outcomes.

The other side of the staff equation is their cost in terms of rate (cost per hour) and quantity (number of hours). From Sigma’s deep experience of the financial aspects of pharmacy businesses, wages are one of the five fundamentals that can go wrong.

While wage rates are typically fixed by awards or EBAs, a pharmacist can control the quantity of staff and labour hours they work. In this way, wages are one of the fundamentals that you can dial up and down according to the peaks and troughs of your business. Simple decisions like amending trading hours, or changing roles, or the professional/retail staff mix can make a huge difference to your pharmacy’s financial performance. Remember, every $1 saved adds about $6 to your pharmacy valuation.

Here are five important considerations if you want to avoid risk and unnecessary costs in remunerating and managing your workforce.

  1. Understand and comply with the law
    As even some of Australia’s largest retailers have found, underpaying your staff can be catastrophic in terms of reputation, brand damage and goodwill. It can also be financially very costly in terms of compensation payments for underpayment of wages, in addition to the statutory fines and penalties you might face. Pleading ignorance is not a defence. It is true that Australian awards can be complex and onerous to comply with, but it is
    essential you keep up to date with any changes and, at a minimum, are meeting your obligations under the relevant industrial instrument. Therefore, it is recommended you get expert advice when interpreting and applying awards.

    When Sigma Financial Services reviews a pharmacy business, we quickly assess compliance by checking for workers compensation insurance, payroll tax, group tax, fringe benefits tax and superannuation. For example, calculating payroll tax can be quite difficult if you own multiple pharmacies across different states. Our recommendation is to always seek professional tax and legal advice on any employment-related matters to avoid claiming tax-free thresholds incorrectly.

    Other issues can arise when pharmacies treat their professional staff or consultants (especially locums) as contractors rather than employees. Again, the correct classification between contractor and employee is critical to determining your obligations as an employer. Seeking professional tax advice from your accountant or an expert in this field is prudent.

  2. Document the ‘true’ cost of labour
    The wages you pay your staff are not all that employing them costs you. Record all entitlements including annual and long service leave in your financial statements. Even consider recording contingencies such as sick or carer’s leave, and identify worker’s compensation insurance, payroll tax, superannuation and fringe benefits tax. This will give you a clear picture of the true cost of labour to your pharmacy business at all times.

    Where you have corporate structures, it is important that you separate yourself as an owner working in the business from the corporate structure itself. You should calculate and include your own entitlements and a commercial wage for the hours spent working in the business. This will give you a true reflection of the financial performance of the pharmacy. Wages can always be adjusted in any calculation of future maintainable earnings when a valuation of the pharmacy is required.

  3. Assess your opening hours and workforce flexibility
    By measuring and analysing revenues against your operating hours, you can identify opportunities to either reduce wages costs or increase sales. Does your pharmacy open too early or close or too late? Should you be rostering more staff on at the busiest times to cope with higher volumes?

    Do your operating hours and staff rosters match with customer foot traffic and the demographics of your area? As an example, we have seen a new pharmacy owner open 90 minutes earlier to capture the passing morning commuter traffic and generate 8% sales growth, with no overall increase in labour costs. Data is your friend in helping make these important decisions.

    Go beyond your own records, talk to allied health professionals to get their feedback on the usefulness of your opening hours and any other customer feedback. Keep an eye on the operating hours of new allied health infrastructure in your catchment zone.

    Assess how can you reallocate or multi-skill your existing staff to create a more flexible workforce. We sometimes see the same owners of two pharmacies in close proximity treating each workforce as independent instead of blending the labour to achieve efficiencies. For example, why have part-time resources 200 metres apart when you could have one full-time person able to move between pharmacies as required?

  4. Analyse aged care packing costs
    In working with many pharmacy businesses, we find that they have not assessed the true cost of providing aged care packing services. In addition to the labour costs related to the costs of delivery, packing and quality control, labour is the most significant cost because of the time invested in administration and compliance associated with managing each patient – which doesn’t generate revenue.

    Consider outsourcing the packing service to someone like MPS to free up your valuable staff. Careful measurement and analysis of all these costs will ensure you are generating the necessary revenues from this service and, if you are not charging for this service, you should consider doing so.

  5. Consider automation and re-configuring your dispensary
    Re-engineering your dispensary workflow practices and upskilling your pharmacists can create labour efficiencies inside your pharmacy and place your most trusted advisors, ‘the pharmacist’, in key customer engagement zones. More often, that can lead to sales growth, with little investment in additional labour. This can be done in two ways:
    • Pharmacist Availability
      Maximising your pharmacists’ time with patients and reducing their non- essential tasks through dispensary workflow efficiencies can be a business;gamechanger’. Pharmacists need both time and headspace to deliver exceptional counselling and health services provision to their patients. This in turn results in improved loyalty with both new and existing customers plus better health outcomes – while driving increased revenue through health services income and 7CPA opportunities.
    • Dispensary Automation
      A key efficiency driver with demonstrated workflow and business benefits, it allows your dispensary team members to be in the right places at the right times – putting pharmacists at the forefront of everything we do.

      Sigma Healthcare is a market leader in health and dispensary services programs and our LEAPP Dispensary Excellence program has been recognised as an industry first. The 12-week LEAPP program focuses pharmacists and their teams on creating efficient dispensary workflows, upskilling pharmacists in exceptional CARE counselling techniques and maximising their health services programs. This enables them to both improve patient health outcomes and drive increased business profitability.

      Your Sigma Healthcare Account Manager is a great source of ideas on the ways pharmacy owners can now enhance customer experience and ‘stickiness’ through forward pharmacy dispensing programs and other forms of service automation.

How does your pharmacy rate?

We believe that by taking these five considerations into account and potentially acting on them, you can maximise your pharmacy’s financial performance. Remember, we work with hundreds of different pharmacy owners around the country on improving their business success. This gives us authoritative measures to benchmark against. If you have questions about labour costs, or any other aspect of how your pharmacy business rates within the industry, just ask!

You can arrange for a comprehensive Finance Health Check – which examines financial and non-financial aspects of your staffing – through your Sigma Account Manager or by contacting Sigma Financial Services via pharmacy.finance@sigmahealthcare.com.au. Your privacy is of paramount importance and any discussion is highly confidential.