how-does-cost-plus-drug-money

Cost Plus Drug Business Model

The Mark Cuban Cost Plus Drug Company is an online prescription medication service that was founded by American billionaire entrepreneur Mark Cuban.

The service is essentially an online pharmacy where customers can purchase numerous medications at a drastically reduced (and more transparent) price.

Cuban started the company because of the exorbitant cost of some prescription medication in the United States, where almost 30% of adults do not take their pills because they are unaffordable.

According to Business Insider, consumers can save almost $3,000 on the cost of a generic leukemia medication and over $1,000 on a similarly generic HIV treatment by ordering from Cost Plus Drug.

The service also offers medication for diabetes, heart health, mental health, gastrointestinal disorders, and high blood pressure.

What is the Cost Plus Drug business model?

The Cost Plus Drug business model involves selling generic medication at 15% above wholesale price.

Generic medications have the same active ingredients as their brand-name equivalents, which are more expensive but nevertheless remain the preferred option for consumers.

In any case, Cost Plus Drug is a more convenient option that allows consumers to order medication online and have it delivered to their homes.

While the company’s technology is certainly not unique, it does have one advantage over its competitors.

Cost Plus Drug has its own pharmacy benefits manager (PBM), which is usually a third-party that liaises with pharmacies and drug manufacturers to negotiate a better price for consumers.

Instead of paying a PBM, Cuban’s company negotiates directly with the pharmaceutical company and cuts its costs in the process.

These savings are then passed to consumers with just enough product markup for the company to remain viable.

Cuban is not the first entrepreneur to tackle the prohibitive cost of prescription medication in the United States, with start-ups such as GoodRx, Capsule Pharmacy, and Blink Health also reducing costs in various ways.

However, Cost Plus Drug may be able to disrupt the industry with its affordable and transparent prices, ease of use, and the ability to cut out the middleman. 

Moving forward, there is potential for Cost Plus Drug to scale its online business model and offer a greater diversity of medication to an ever broader audience.

Key takeaways:

  • The Mark Cuban Cost Plus Drug Company is an online prescription medication service that was founded by American billionaire entrepreneur Mark Cuban. The online pharmacy sells various numerous medications at a drastically reduced price.
  • The Cost Plus Drug business model involves selling generic medication at 15% above wholesale price. Generic medication is less expensive than brand-name medication but has the same active ingredients.
  • While the Cost Plus Drug business model is neither unique nor world-beating, the company does have an important competitive advantage in terms of price. It negotiates with pharmacies and drug manufacturers itself instead of employing a middleman, with these savings then passed to the consumer.

Read Next: How Does GoodRx Make Money.

RelatedWhat Is A B2B2C Business Model?

Related Business Model Types

Platform Business Model

platform-business-models
A platform business model generates value by enabling interactions between people, groups, and users by leveraging network effects. Platform business models usually comprise two sides: supply and demand. Kicking off the interactions between those two sides is one of the crucial elements for a platform business model success.

Marketplace Business Model

marketplace-business-models
A marketplace is a platform where buyers and sellers interact and transact. The platform acts as a marketplace that will generate revenues in fees from one or all the parties involved in the transaction. Usually, marketplaces can be classified in several ways, like those selling services vs. products or those connecting buyers and sellers at B2B, B2C, or C2C level. And those marketplaces connecting two core players, or more.

Network Effects

network-effects
A network effect is a phenomenon in which as more people or users join a platform, the more the value of the service offered by the platform improves for those joining afterward.

Asymmetric Business Models

asymmetric-business-models
In an asymmetric business model, the organization doesn’t monetize the user directly, but it leverages the data users provide coupled with technology, thus have a key customer pay to sustain the core asset. For example, Google makes money by leveraging users’ data, combined with its algorithms sold to advertisers for visibility.

Attention Merchant Business Model

attention-business-models-compared
In an asymmetric business model, the organization doesn’t monetize the user directly, but it leverages the data users provide coupled with technology, thus having a key customer pay to sustain the core asset. For example, Google makes money by leveraging users’ data, combined with its algorithms sold to advertisers for visibility. This is how attention merchants make monetize their business models.

Wholesale Business Model

wholesale-business-model
The wholesale model is a selling model where wholesalers sell their products in bulk to a retailer at a discounted price. The retailer then on-sells the products to consumers at a higher price. In the wholesale model, a wholesaler sells products in bulk to retail outlets for onward sale. Occasionally, the wholesaler sells direct to the consumer, with supermarket giant Costco the most obvious example.

Retail Business Model

retail-business-model
A retail business model follows a direct-to-consumer approach, also called B2C, where the company sells directly to final customers a processed/finished product. This implies a business model that is mostly local-based, it carries higher margins, but also higher costs and distribution risks.

B2B2C

b2b2c
A B2B2C is a particular kind of business model where a company, rather than accessing the consumer market directly, it does that via another business. Yet the final consumers will recognize the brand or the service provided by the B2B2C. The company offering the service might gain direct access to consumers over time.

Crowdsourcing Business Model

crowdsourcing
The term “crowdsourcing” was first coined by Wired Magazine editor Jeff Howe in a 2006 article titled Rise of Crowdsourcing. Though the practice has existed in some form or another for centuries, it rose to prominence when eCommerce, social media, and smartphone culture began to emerge. Crowdsourcing is the act of obtaining knowledge, goods, services, or opinions from a group of people. These people submit information via social media, smartphone apps, or dedicated crowdsourcing platforms.

Open-Core Business Model

open-core
While the term has been coined by Andrew Lampitt, open-core is an evolution of open-source. Where a core part of the software/platform is offered for free, while on top of it are built premium features or add-ons, which get monetized by the corporation who developed the software/platform. An example of the GitLab open core model, where the hosted service is free and open, while the software is closed.

Open Source vs. Freemium

open-source-business-model
Open source is licensed and usually developed and maintained by a community of independent developers. While the freemium is developed in-house. Thus the freemium give the company that developed it, full control over its distribution. In an open-source model, the for-profit company has to distribute its premium version per its open-source licensing model.

Freemium Business Model

freemium-business-model
The freemium – unless the whole organization is aligned around it – is a growth strategy rather than a business model. A free service is provided to a majority of users, while a small percentage of those users convert into paying customers through the sales funnel. Free users will help spread the brand through word of mouth.

Freeterprise Business Model

freeterprise-business-model
A freeterprise is a combination of free and enterprise where free professional accounts are driven into the funnel through the free product. As the opportunity is identified the company assigns the free account to a salesperson within the organization (inside sales or fields sales) to convert that into a B2B/enterprise account.

Franchising Business Model

franchained-business-model
In a franchained business model (a short-term chain, long-term franchise) model, the company deliberately launched its operations by keeping tight ownership on the main assets, while those are established, thus choosing a chain model. Once operations are running and established, the company divests its ownership and opts instead for a franchising model.
Scroll to Top
FourWeekMBA