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.

Table of Contents

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.

Value Proposition:

Affordable Medications: The primary value proposition of the Cost Plus drug business model is to offer prescription medications to customers at affordable prices. By adhering to a pricing strategy that adds a modest markup to the cost of acquiring drugs, pharmacies aim to make essential medications more accessible to patients without imposing high retail prices.
Transparent Pricing: Transparency in pricing is another key aspect of the value proposition. Unlike other pricing models that may incorporate complex pricing algorithms or hidden fees, the Cost Plus model provides clear and straightforward pricing based on the actual cost of acquiring medications plus a fixed markup percentage. This transparency enhances trust and confidence among customers, who appreciate knowing exactly what they are paying for.
Cost Savings: By focusing on cost-based pricing, pharmacies operating under the Cost Plus model can pass on cost savings to customers. Since the markup is calculated based on the wholesale cost of drugs rather than arbitrary pricing decisions, customers may benefit from lower retail prices compared to traditional pharmacy pricing models.
Customer-Centric Approach: The Cost Plus model aligns with a customer-centric approach by prioritizing affordability and value for patients. Pharmacies operating under this model aim to serve the healthcare needs of their communities by offering essential medications at competitive prices, thereby supporting better health outcomes and medication adherence.

Revenue Model:

Markup on Wholesale Cost: The primary revenue stream for pharmacies operating under the Cost Plus model is the markup applied to the wholesale cost of prescription medications. Pharmacies purchase drugs from wholesalers or manufacturers at wholesale prices, which represent the cost basis, and then add a predetermined percentage markup to determine the retail selling price.
Volume-Based Sales: Increased sales volume contributes to higher revenue generation in the Cost Plus model. As pharmacies attract customers with competitive pricing and affordable medications, they can drive higher transaction volumes, resulting in increased overall revenue despite lower individual profit margins per sale.
Ancillary Sales and Services: In addition to prescription medications, pharmacies operating under the Cost Plus model may generate revenue from ancillary sales and services such as over-the-counter medications, health and wellness products, medical supplies, and pharmacy services (e.g., medication counseling, immunizations) that complement their core offering.
Partnerships and Collaborations: Pharmacies may also explore revenue-generating opportunities through partnerships and collaborations with healthcare providers, insurance companies, government agencies, and pharmaceutical manufacturers. These partnerships may involve special pricing agreements, reimbursement arrangements, or value-added services that contribute to overall revenue generation.

Distribution Strategy:

Online Pharmacy: The primary distribution channel for the Mark Cuban Cost Plus Drug Company is its online pharmacy platform. Customers can access the platform through the company’s website or mobile app, where they can browse and purchase various prescription medications.
Nationwide Availability: The online nature of the pharmacy allows it to serve customers across the United States, providing nationwide accessibility to its prescription medication offerings. This broad reach enables the company to target a wide audience seeking affordable medications.
Home Delivery: The company offers the convenience of home delivery, allowing customers to have their prescribed medications shipped directly to their residences. This aligns with the aim of providing accessibility and convenience to customers.

Marketing Strategy:

Affordability: The core message of the company’s marketing strategy is affordability. It emphasizes the significantly reduced prices of prescription medications compared to traditional sources, addressing the high cost of medications in the United States.
Transparency: Transparency is another key aspect of the marketing strategy. The company highlights its transparent pricing model, allowing customers to clearly understand the cost savings they can achieve by purchasing through Cost Plus Drug.
Addressing a Pain Point: The company’s marketing efforts address the pain point of high prescription medication costs in the United States, resonating with individuals who struggle to afford essential medications. This aligns with Mark Cuban’s mission to make medications more accessible.
Competitive Advantage: The marketing strategy showcases the competitive advantage of the company’s direct negotiation approach with pharmaceutical companies, eliminating the need for a middleman. This approach is presented as a key factor contributing to lower prices.
Online Convenience: The convenience of ordering medications online and having them delivered to customers’ homes is emphasized in the marketing messaging. This convenience factor appeals to individuals looking for hassle-free prescription medication solutions.

Organizational Structure:

Leadership: Mark Cuban, the billionaire entrepreneur and founder of the company, plays a central leadership role. His vision and commitment to addressing the issue of high medication costs drive the company’s mission.
Management Team: The company likely has a dedicated management team responsible for various aspects of the business, including operations, technology, finance, and customer service. These leaders contribute to the strategic direction and day-to-day operations of the company.
Technology and Online Platform: Given the online nature of the business, there is a specialized team focused on the development and maintenance of the online pharmacy platform. This team ensures a user-friendly and secure online experience for customers.
Pharmacy Operations: Teams responsible for pharmacy operations handle tasks related to medication procurement, storage, dispensing, and quality assurance. These teams work to ensure that customers receive safe and effective medications.
Customer Support: To provide excellent customer service, there are likely customer support teams available to assist customers with inquiries, orders, and any issues they may encounter during their interactions with the platform.
Negotiation and Procurement: A critical component of the organization is the team responsible for negotiating directly with pharmaceutical companies and managing the procurement of medications at reduced prices. This team plays a pivotal role in achieving cost savings for customers.
Marketing and Communication: A marketing team is responsible for crafting and executing marketing strategies that convey the company’s message of affordability, transparency, and convenience. They utilize various marketing channels to reach and engage with the target audience.
Compliance and Regulatory Affairs: Given the nature of the pharmaceutical industry, there are likely teams focused on ensuring compliance with regulatory requirements and industry standards.

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.

Key Highlights

Mark Cuban Cost Plus Drug Company: Founded by entrepreneur Mark Cuban, this online prescription medication service aims to provide customers with affordable medications.
Affordable Medication: The company operates as an online pharmacy, offering a range of prescription medications at significantly reduced prices compared to traditional sources.
Addressing High Medication Costs: The motivation behind starting the company was the high cost of prescription medications in the United States, which leads to a significant portion of adults not being able to afford their required medications.
Cost Savings: According to reports, customers can save a substantial amount on medications like generic leukemia and HIV treatments when purchasing through Cost Plus Drug, with potential savings amounting to thousands of dollars.
Business Model: The Cost Plus Drug business model revolves around selling generic medications at a 15% markup over the wholesale price. Generic medications offer the same active ingredients as brand-name equivalents but are more affordable.
Pharmacy Benefits Manager (PBM) Advantage: The company has its own pharmacy benefits manager (PBM) that directly negotiates with pharmaceutical companies, cutting out the traditional third-party PBM. This enables Cost Plus Drug to negotiate better prices and pass the savings on to customers.
Competitive Landscape: While there are other startups addressing the high cost of prescription medication, Cost Plus Drug’s direct negotiation approach with pharmaceutical companies gives it a unique competitive advantage in terms of affordability.
Transparent and Convenient: The company’s approach offers customers transparent pricing and the convenience of ordering medications online and having them delivered to their homes.
Scaling and Future Potential: Given its affordable pricing, ease of use, and potential for cutting out intermediaries, there is potential for Cost Plus Drug to expand its online business model and offer a wider range of medications to a broader audience.