Choosing a city for mail order pharmacy

When a company is considering the establishment of a mail order pharmacy, costs are a major consideration, according to John Boyd, president of the Boyd Co. An expensive location can cost millions more than an inxpensive one — each year. A new analysis of comparative operating costs conducted by the company ranks Sioux Falls, S.D., as the least costly location of 21 cities under consideration to operate a hypothetical mail order pharmacy center. San Diego ranked first. Only major geographically variable factors were considered : labor, utilities, land acquisition and construction, taxes, and corporate travel.

In addition to these costs, insurers should also look at “the regulatory climate for a given state,” says Boyd. “South Dakota recently expanded the ratio of technicians to pharmacists. Most states have two technicians for every registered pharmacist. Some states allow more technicians — South Dakota has a 4:1 ratio.

“Insurers are prioritizing the comparative costs of doing business. They are focusing on the potential labor cost savings in a smaller market location,” says Boyd. “The trend is to consider smaller market, less costly, more favorably regulated locations.”

The highs and lows of operating a mail order pharmacy
	San Diego, Calif. (highest cost city)	Phoenix, Ariz.	Willingboro, N.J.	Sioux Falls, S.D. (lowest cost city)
Labor
Weighted average annual earnings	$48,066	$43,573	$46,315	$38,777
Annual base payroll	$5,767,920	$5,228,760	$5,557,800	$4,653,240
Fringe benefits	$2,134,130	$1,934,641	$2,056,386	$1,721,600
Total annual labor	$7,902,050	$7,163,641	$7,614,186	$6,374,939
Electricity	$252,540	$138,732	$245,016	$138,231
Natural gas	$4,615	$4,965	$5,743	$4,690
Amortization	$2,617,576	$1,854,776	$1,515,171	$1,261,083
Property and sales tax	$618,291	$714,029	$532,005	$453,973
Heating and air conditioning	$28,073	$49,201	$82,097	$96,479
Shipping	$23,597,190	$24,095,205	$23,406,705	$23,562,765
Corporate travel	$207,730	$196,117	$207,748	$146,565
Total annual geographically variable operating costs	$35,228,065	$34,216,426	$33,608,671	$32,038,725
Source: A 2008 Comparative Cost Analysis for the Mail Order Pharmacy Industry, The Boyd Co., 2008.