How a Pharma Franchise Can Calculate the Net Price and Profit Margin – For successful running of any kind of business the profit is essential. Good profit means more growth and expansion of the business. Do you know how a pharma franchise calculate the net profit and profit margin? Are you looking for the best way to calculate and manage the further invest? If so, here you will answer all your questions.
If you are new to the business of pharmaceuticals, then no need to understand the whole idea and procedure of calculation. This will help you estimate the revenue you expect and earn from a given franchise. In this post by Sunwin Healthcare, we present you with a detailed analysis of how a pharma franchise can calculate the net price and profit margin. Along with the calculation, we will tell you about the factors and points to look which affects the profit margin.
Know The Various Terminologies | Glossary Of Business Terms
Pharma Franchise companies give priorities to those who are aware of common business terminologies which are important for every member to know. We present you with glossary of terms and the formulas based upon it.
Net Rate OR Price:
Named as Selling price / Final Price or Net Rate of the good. It is the price at which the generics and drugs are sold to you. It is further sold at MRP or Maximum Retail Price. It is initially calculated on Total cost.
Formula for Total Cost
TC or Total Cost = Manufacturing expenses + Administration expenses + Selling Expenses + Taxes | Other Cost (Total Fixed Cost + Total Variable Cost)
Formula for Net Rate
= Total Cost X Percentage of Margin
(% of margin may differ from company to company)
Named as Net Margin/ Net Profit Ratio/ Net Profit Margin! It helps to measure profit which you can expect. Due to differences in policies and strategies, it varies from organization to organiseion. It is the difference between revenue earned & cost before accounting.
Formula For Profit Margin
= Net Profit / Revenue Or Selling Price
*(Net Profit = Revenue – Cost)
Factors Which Will Effect While Calculating Net Price Or Profit Margin
One must have observed that the amount and percentage differ from one company to another. Various factors affect the working while you do the calculation. We enlist the factors for you which will influence the MRP and the profit margin in near future.
- A business will always be affected by market condition and economic condition of the nation or that particular area.
- The business cycle also plays a vital role in effecting the calculation as the period is recession and recovery are two opposite poles. One may see growth and the other a loss.
- The cost of raw materials and other Factors also affect the cost of production at each stage.
- Expenses like packaging cost, marketing cost, administration cost, selling cost to shipping or aviation charges (whichever mode of transportation used) the company adds up to the calculation of net price.
- The calculation takes up miscellaneous expenses done in the process.
How is Profit margin calculated by Pharma Franchisee?
The above terminologies and formulas are used in the calculation of net price and profit margin determination. Once you take out those, you have to calculation the amount you can expect as a residue of all the workings expenses. Now we will tell you the process of how a pharma franchise can calculate the net price and profit margin which is as follows:
- Use the total cost to find out the net rate which will help you take out the profit margin.
- Deduct the profit margin from the revenue.
- Add if the company offer like 10+ 1 or 10+ 2, the expense increase with the similar increase.
- Deduct the doctors share under Price to Retailer (PTR) which is usually 20% to 30% of the revenue you earn by selling the products.
- Deduct if you hired a stockiest share or commission amount from operating revenue.
- You get the realisation amount.
Be careful while you calculate! Know about the company policies before you start the calculation process. As the company can give its own percentage of profit or changes may have taken place which all effects the working.