Hiwot had been pricing her medicines the same way for six years. She bought a box, added a fixed percentage on top, and put the price tag on the shelf. It was simple, and it had kept the lights on. But one afternoon a regular customer, a schoolteacher who came in every month for her blood pressure tablets, asked why the price had gone up again. Hiwot explained that supplier costs had risen. The customer nodded politely and then said, quietly, that she had seen the same tablets for less at a pharmacy across town. Hiwot felt the familiar knot in her stomach. She was not sure whether she had been pricing too high, too low, or simply without any real logic at all.
That conversation sent her looking seriously at her markups for the first time. What she found was a mixture of habit, guesswork, and a few products that were quietly losing her money. She also found something more useful: a way of thinking about price that protected her margins without treating every customer as a target.
This post is about that way of thinking. A markup is not just a number you add to your costs. It is a signal to customers about what kind of pharmacy you are, and handled carelessly it can cost you the trust that keeps them coming back.
Markup and margin are not the same thing
The first mistake many pharmacy owners make is confusing markup with margin. Markup is the amount you add to the cost of a product, expressed as a percentage of that cost. Margin is the share of the selling price that you keep. If you buy a product for 80 birr and sell it for 100, your markup is 25 percent, but your margin is 20 percent. The difference matters, because your costs and your profit are always calculated against the selling price.
Using the wrong figure leads to pricing errors that are easy to miss. An owner who thinks a 30 percent markup means a 30 percent profit may find that the real profit is much smaller once rent, salaries, and losses are taken out. Get clear on both numbers before you change any price.
Start with your true cost, not the invoice
A product’s cost is rarely just the price on the supplier’s invoice. Transport, handling, storage, insurance, and any duties or fees paid on the way into the shop all add to the real cost of getting a medicine to the shelf. Losses matter too. If a percentage of your stock expires or is damaged each month, that cost has to be spread across the products that do sell.
Hiwot began by calculating a landed cost for her top twenty products. She added delivery charges, a share of her storage costs, and an estimate of expiry losses for each line. Several products that looked profitable on the invoice turned out to be earning very little once their hidden costs were included. Two she had been selling at almost no margin at all.
Keep these calculations simple enough to repeat. A spreadsheet with a column for invoice price, a column for allocated costs, and a column for the final cost is enough for most small pharmacies. Update it when supplier prices change, and review it at least quarterly.
Not every product needs the same markup
A single markup percentage applied to every item is easy to manage, but it is rarely the best approach. Products differ in how often customers buy them, how easily they can compare prices, how essential they are, and how costly they are to hold.
Think about three groups. The first is products that customers know well and compare often, such as common pain relievers, oral rehydration salts, and frequently prescribed chronic medicines. These are the items where price matters most to trust. Keeping their markup modest tells customers that you are fair on the things they check. The second group is products that customers rarely compare, such as specialty supplements, cosmetics, and less common over-the-counter items. These can carry higher markups without damaging your reputation, provided the value is clear. The third group is slow-moving stock with a risk of expiry. Here the markup should cover the cost of holding and possibly writing off stock, not just a standard percentage.
Hiwot now sorts her range into these groups. Her high-turnover prescription and everyday medicines carry the lowest markups. Her specialist and personal care lines carry higher ones. The result is that her overall margin is healthier than before, and her regular customers see stable prices on the things they buy most.
Know what customers can see
Trust is partly about what customers can check for themselves. In a neighbourhood where people talk, word travels quickly if one pharmacy charges much more than another for the same product. That is why it helps to know which of your prices are visible to customers and which are not.
Look at the products that are most often compared. Ask staff which ones customers mention. Check prices at two or three nearby pharmacies every few weeks, not to copy them exactly, but to understand where you sit. If you are consistently much higher on a product customers know well, have a clear reason, such as better service, longer opening hours, or the convenience of being close to home. If you cannot give a reason, reconsider the price.
Be careful about price comparisons that do not like-for-like. Pack sizes, brands, and strengths can differ. Make sure you compare the same product, in the same quantity, before concluding you are overpriced.
Be transparent where it matters
Customers accept prices more readily when they understand them. This does not mean publishing your cost structure, which is nobody’s business but yours. It means being honest when prices change and explaining why when a customer asks.
Hiwot’s first step was simple. When a supplier raised the price of a common medicine, she told her regular customers before the new price took effect, and she explained that the increase came from the supplier, not from her wanting more profit. Several customers thanked her for telling them. Some asked whether there was a cheaper generic alternative, and she was able to point them to one that suited their needs. Trust grew from that openness, not from the price itself.
Avoid hidden charges. Adding fees at the till for things customers did not expect, or selling a bundle at a price that looks like a bargain but includes items the customer never wanted, quickly damages trust. A fair price, clearly displayed, is usually more effective than a clever one that customers feel they have been tricked into paying.
Protect the people who depend on you most
Some customers rely on specific medicines every day, and a price increase that feels small to you can be a serious burden for them. A pharmacy that is known for looking after its chronic patients earns a loyalty that no discount campaign can buy.
Consider offering a lower-cost option where one exists, such as an approved generic equivalent of the same strength and quality, and make sure staff know how to explain the difference clearly. Consider a simple payment arrangement for regular customers who are struggling, if your business can sustain it and you have a clear, fair process. Be careful never to suggest that a patient should change medicine, reduce a dose, or skip treatment because of cost. Those decisions belong to the prescriber, and a pharmacist’s role is to help the patient get the right medicine, not to make clinical choices for them.
Setting prices without a race to the bottom
It is tempting to match the lowest price in the area and hope volume will make up the difference. Usually it does not. A pharmacy that competes only on price is always one discount away from losing money, and it teaches customers to shop around rather than stay loyal.
A better approach is to decide where you want to compete. If your strength is convenience, extended hours, or personal advice, let those advantages justify prices that are fair rather than the lowest. If your strength is a reliable range and fast service, price the products that matter most to your regulars competitively, and let your other lines carry the margin. Use promotions sparingly, and only where they bring genuinely new customers or move slow stock that would otherwise expire.
Review your pricing on a schedule, not only when something goes wrong. Quarterly reviews of your top products, with a check against costs, competitor prices, and customer feedback, will keep your markups sensible over time.
Supply and the cost of getting it wrong
Pricing depends on stable costs, and stable costs depend on reliable suppliers. A supplier who raises prices without warning, changes packaging unexpectedly, or delivers late forces you into decisions you did not plan for. Those decisions often end up as sudden price changes that customers notice and resent.
Build your relationships with suppliers around predictability. Ask for notice of price changes, agree delivery schedules that suit your stock levels, and compare costs regularly so you know when you are paying more than you should. If you are looking for exporters who understand Ethiopian import requirements and can offer steady, documented supply, you can review the options at pharma exporter to Ethiopia. Verify product registration, certification, and documentation before committing, and check current import rules with the relevant authorities.
What Hiwot changed
Hiwot did not raise every price or cut every margin. She calculated her true costs, sorted her range into groups, explained price changes to her regulars, and offered a generic option for a customer who was struggling. Over a year her overall margin improved modestly, her stock losses fell, and the schoolteacher who had once compared prices came back regularly. She told Hiwot that the difference was not the price, but that she no longer felt surprised by it.
Practical wisdom for owners
Optimal pricing is not the highest price a customer will pay or the lowest one a competitor will accept. It is the price that covers your true costs, reflects the value you provide, and leaves customers feeling treated fairly. Calculate your real costs, treat products differently according to how customers use them, be open about changes, and protect the people who depend on you most. A pharmacy that prices this way keeps its margin and its reputation at the same time, and in a community where people talk, that combination is worth far more than a single good month of sales.
