What Price Per Script Is Fair for my Business?
The price per script metric, (also known as the cost per script metric) and its close cousin, the percent of revenue, are metrics sometimes used when valuing a pharmacy.
The price per script, or any metric, will vary considerably based on how much a buyer expects to earn from your business after purchasing it. Here is an example to illustrate this point.
Imagine two pharmacies that are the same in every way. Same number of scripts, same revenue, same gross margin.
Now, imagine that Pharmacy A has three times the rent cost and double the wages of Pharmacy B. With this difference in mind, Pharmacy A could be running at a loss whereas Pharmacy B may be hugely profitable. The buyer of Pharmacy A will say “pay me the same price per script as you will pay the owner as pharmacy B. A script is a script.” Actually, it is not.
The issues with Pharmacy B are not easy to fix: a landlord is not going to reduce rent by two-thirds and reducing staffing costs by 50% will seriously impact operations. If these problems were easy to fix, the seller will have fixed them already.
If a buyer were to use a price per script or percent of revenue metric, it would completely ignore these differences. Using this logic, pharmacies that are losing money with no way to fix their problem swould have the same value as a pharmacy that is massively profitable. This is like paying for a car based on the year it was made, with no regard for its condition.
Also, the price per script metric can be manipulated by adding in inventory, accounts receivable, or excluding certain scripts. For example, some buyers will exclude your delivery, out of network, compounding, single-visit, specialty, and/or out of store (e.g. LTC, assisted living, etc.) scripts, and then only pay you the full amount if they retain a certain percentage of the scripts.
For this reason, the key metric buyers look at when valuing a pharmacy is its profitability TO THEM after a sale. If you don’t know how to have a conversation with a buyer to convince them of the full profit potential of your business, you should hire a professional, like COLONY RX, who can.