This article was written by our expert who is surveying the industry and constantly updating the business plan for a drugstore.
Understanding drugstore profitability is crucial for anyone entering this challenging yet potentially rewarding industry.
Current market data shows that prescription margins have reached historic lows at 19.7%, while over-the-counter products maintain healthier margins of 35-50%, creating a complex profitability landscape for new drugstore owners.
If you want to dig deeper and learn more, you can download our business plan for a drugstore. Also, before launching, get all the profit, revenue, and cost breakdowns you need for complete clarity with our drugstore financial forecast.
Drugstore profitability in 2025 presents a mixed picture with prescription margins at historic lows but strong opportunities in over-the-counter products and services.
Success requires careful attention to revenue mix, cost control, and diversification into higher-margin categories and wellness services.
| Key Metric | Current Performance | Industry Benchmark/Notes |
|---|---|---|
| Prescription Gross Margin | 19.7% | Historic lows due to reimbursement pressure and fees |
| OTC Gross Margin | 35-50% | Much higher profitability, beauty/personal care can exceed 50% |
| Revenue Mix (Rx/OTC) | 85-90% / 10-15% | Prescription dominant but OTC growing steadily |
| Average Basket Size | $40-45 | Growing at 3.9-5% annually in developed markets |
| Daily Transactions | 150-350 | Varies by location density, up 2-5% year-over-year |
| Labor Costs | 10-15% of revenue | Best practice is keeping below 13% including benefits |
| Inventory Capital | $100,000-300,000 | Turnover 10-17x/year for Rx, 2-4x/year for retail |
What are the current gross margins on prescription and over-the-counter sales, and how do they compare with industry benchmarks?
Prescription drug gross margins have dropped to historic lows at just 19.7% on average across North America, with many independent drugstores experiencing even lower margins due to increasing reimbursement pressure and administrative fees.
Over-the-counter products deliver significantly higher gross margins, consistently ranging between 35-50%, with beauty and personal care categories sometimes exceeding these rates. This stark difference makes OTC products crucial for maintaining overall drugstore profitability.
Industry data shows that overall drugstore gross profit margins average around 42%, but this figure is heavily weighted upward by the higher-margin front-of-store and OTC merchandise. The prescription business, while generating the majority of revenue, operates on increasingly thin margins.
You'll find detailed market insights in our drugstore business plan, updated every quarter.
What are the average monthly operating costs, including rent, utilities, insurance, salaries, and marketing expenses?
Monthly operating costs for drugstores vary significantly by location and size, but staffing typically represents the largest expense category after cost of goods sold.
| Expense Category | Monthly Range | Industry Notes |
|---|---|---|
| Staff Salaries | 10-15% of revenue | Largest single expense; 10.5% cited as best practice for cost control |
| Rent/Real Estate | 10-15% of operating costs | Varies widely by location; prime locations command premium |
| Utilities | $1,500-$3,000 | Typical range for mid-size drugstore operations |
| Insurance | $500-$1,000 | Professional liability and general business coverage |
| Marketing/Promotions | $500-$1,200 | Higher in competitive markets or during product launches |
| Total Labor (including benefits) | Up to 15% of revenue | Efficient operations maintain below 13% of revenue |
| Administrative Costs | 2-3% of revenue | Includes licensing, professional services, technology |
What is the average customer basket size, and how has it trended over the past 12 months?
Average customer basket size in developed drugstore markets currently ranges from $40-45, with premium locations and stores seeing higher averages.
The trend over the past 12 months has been consistently positive, with basket sizes growing at a compound annual rate of 3.9-5%. This growth reflects both inflation and consumers purchasing more items per visit.
Premium drugstores in affluent areas typically see basket sizes above the average range, while stores in price-sensitive markets may experience lower per-transaction values. The growth trend appears sustainable as consumers increasingly view drugstores as convenient one-stop shops for health and wellness needs.
This is one of the strategies explained in our drugstore business plan.
What percentage of revenue comes from prescriptions versus over-the-counter products, and how stable are these revenue streams?
Prescription drugs typically generate 85-90% of total revenue for community drugstores, while over-the-counter products represent 10-15% of revenue.
However, this revenue mix is shifting as prescription margins shrink and consumer preferences move toward self-care and wellness products. OTC and wellness categories are becoming a greater percentage of the revenue mix, offering more stability and growth potential.
Prescription revenue streams remain dominant but are becoming less stable due to reimbursement pressures, insurance changes, and regulatory factors. In contrast, OTC revenue is more consistent and has shown steady growth patterns.
The trend suggests successful drugstores will need to diversify their revenue streams beyond traditional prescription filling to maintain profitability and growth.
What is the average foot traffic per day, and how many transactions does that translate into?
Larger drugstores and chain locations average 150-350 transactions per day, depending on urban density and location quality.
Foot traffic has been rising 2-5% year-over-year in high-performing chains, particularly following the closure of weaker competitors in 2024. This has resulted in increased visits per remaining location as demand concentrates at surviving stores.
The conversion rate from foot traffic to actual transactions varies significantly based on store layout, product mix, and customer service quality. Successful drugstores typically achieve higher conversion rates through strategic product placement and trained staff.
Location remains the most critical factor in determining daily transaction volume, with corner locations and medical center adjacencies typically generating the highest traffic.
What are the most profitable product categories, and what percentage of total sales do they represent?
The most profitable product categories in drugstores are over-the-counter medicines, vitamins and supplements, and beauty and personal care products.
| Product Category | Gross Margin | Share of Sales | Trends/Notes |
|---|---|---|---|
| OTC Medicines | 35-50% | 10-15% | Fastest growing revenue driver |
| Vitamins/Supplements | 40-55% | 8-12% | High profitability, steady demand growth |
| Beauty & Personal Care | 40-55% | ~10% | Resilient margins, expanding product range |
| Prescription Drugs | 18-22% | 85-90% | Margins shrinking, volumes stable |
| Health & Wellness | 35-45% | 5-8% | Growing category with good margins |
| Seasonal Items | 40-60% | 2-5% | High margins but limited sales window |
| Convenience Products | 30-40% | 3-7% | Impulse purchases with decent margins |
What is the current inventory turnover rate, and how much capital is tied up in stock at any given time?
Inventory turnover ratios for drugstores average 10-17 times per year for prescription medications, which equals one complete turnover every 3-4 weeks.
Front-of-store retail items, including OTC products and personal care, typically turn over 2-4 times per year, requiring more careful inventory management and forecasting. This slower turnover rate means more capital is tied up for longer periods.
Capital tied up in inventory typically ranges from $100,000-$300,000 for an average drugstore operation. Efficient outlets use robust inventory management systems to keep this figure at the lower end of the range while maintaining adequate stock levels.
We cover this exact topic in the drugstore business plan.
What are the main seasonal fluctuations in sales, and how do they affect profitability across the year?
Q4 winter months remain the highest sales period for drugstores, with cold and flu season driving prescription and OTC sales 20-30% above average months.
- Winter months (December-February) see peak prescription volumes and OTC cold/flu medication sales
- Spring brings increased allergy medication sales and health screening activities
- Summer drives skincare, sun protection, and travel-related product sales
- Back-to-school periods in late summer generate increased wellness and preventive health purchases
- End-of-year periods benefit from insurance deductible resets and health savings account spending
These seasonal patterns allow drugstore owners to plan inventory purchases, staffing levels, and marketing campaigns to maximize profitability during peak periods while managing costs during slower months.
What are the direct and indirect labor costs as a percentage of revenue, and how do they compare to best practices?
Direct labor costs for drugstore operations typically account for 10-12% of revenue, covering pharmacists, technicians, and front-of-store staff.
When including indirect labor costs such as administration, management, and employee benefits, total labor impact can reach 15% of revenue in some operations. However, industry best practices suggest maintaining total labor costs below 13% of revenue for optimal profitability.
The largest component of labor costs comes from licensed pharmacist salaries, which are often mandated by state regulations for prescription dispensing operations. Efficient scheduling and cross-training of staff can help optimize labor costs while maintaining service quality.
Successful drugstore operations focus on productivity metrics such as prescriptions filled per labor hour and transactions per employee to benchmark their labor efficiency against industry standards.
What proportion of sales comes from repeat customers, and what loyalty strategies are in place to maintain them?
Typically, 60-75% of drugstore sales come from repeat customers, making customer retention crucial for sustained profitability.
- Points-based loyalty programs that reward frequent purchases and prescription refills
- Automatic refill programs that ensure medication adherence and customer convenience
- Wellness rewards for health screenings, vaccinations, and preventive services
- Personalized coupons and offers based on purchase history and health needs
- Senior discount programs targeting the demographic most likely to have regular prescriptions
- Text and email reminder systems for prescription pickups and health services
- Expanded pharmacy services like medication synchronization and blister packaging
Additional services such as flu shots, basic health screenings, and medication therapy management act as strong drivers of customer loyalty while generating higher-margin revenue streams.
It's a key part of what we outline in the drugstore business plan.
What is the current debt level and interest expense, and how does this affect net profitability?
Many independent drugstores currently maintain relatively low debt levels, as rising interest rates have led to caution in new borrowing among business owners.
Industry practice suggests keeping interest expense under 2-3% of total revenue to avoid compromising already thin prescription margins. Higher debt service ratios can signal financial stress and may impact the ability to invest in inventory, technology, or store improvements.
Current higher interest rate environment makes new borrowing more expensive, affecting expansion plans and equipment financing decisions. Drugstore owners are focusing on cash flow management and may delay non-essential capital investments.
Debt structure should align with cash flow patterns, considering that prescription reimbursements may have 30-90 day payment cycles while operating expenses remain constant.
What are the growth opportunities in services such as vaccinations, health consultations, or wellness products, and what is their potential contribution to profit margins?
Expanding into vaccinations, health consultations, and wellness products can add 8-15% to total drugstore profit with significantly higher margins than traditional prescription dispensing.
Vaccination services are experiencing rapid growth, with some chain drugstores reporting double-digit annual increases in immunization revenue. These services typically offer margins of 60-80% and require minimal additional overhead once staff certification is obtained.
Health consultation services, including medication therapy management, diabetes education, and wellness screenings, command premium pricing while strengthening customer relationships. These services often qualify for insurance reimbursement and can generate $50-150 per consultation.
Wellness products including CBD items, specialized supplements, and health monitoring devices represent fast-growing categories with margins often exceeding 50%. The trend toward preventive health and self-care supports continued growth in these areas.
Get expert guidance and actionable steps inside our drugstore business plan.
Conclusion
This article is for informational purposes only and should not be considered financial advice. Readers are encouraged to consult with a qualified professional before making any investment decisions. We accept no liability for any actions taken based on the information provided.
Understanding drugstore profitability requires careful analysis of multiple revenue streams and cost centers, with particular attention to the shifting dynamics between prescription and over-the-counter sales.
Success in the modern drugstore market depends on diversifying beyond traditional prescription filling into higher-margin services and products while maintaining operational efficiency.
Sources
- Fitzgerald Power Pharmacy Pulse Report Q2 2025
- PrimeRx OTC Products Revenue Analysis
- Fonto Pharmacy Sales Growth Report
- Retail Pharmacy Magazine Consumer Report
- Accio Pharmacy Top Sellers Analysis
- Business NES Top Selling Pharmacy Items
- Placer.ai CVS Q2 2025 Performance
- GoFrugal Retail Pharmacy Trends
- CSI Market Industry Efficiency Report
- Sykes CPA Managing Labor Costs Guide