Pharmaceutical profit margins vary widely, from less than zero to more than 40 percent, depending on the size of the company. Read on to know more about the profit margins in pharmaceutical inductry.
Before entering the pharmaceutical business as a retailer, there always a question that ‘What profit margin one can earn being in this business’. If we are talking about the profit margins, they are set by the pharmaceutical company but most of the time, profit margins depend upon the market condition and demand. Profit margin in the pharmaceutical sector varies from brand to brand. It is not a term that can be estimated by any company’s margin, by analyzing from outside. A lot of factors are there that affect the pharmaceutical retail business. A retailer or a chemist is an essential part of the chain that keeps the chain of business alive and connected with the end-customer. If you are looking to start your own pharma retail business, then knowing what is the profit margin of pharmaceutical retailers is a must.
Being the most essential part of the pharma supply and distribution channel, chemists and pharmacies come at the bottom of the chain. As they are directly connected with the customer, it makes them locally aware of the on-going demand and benefits. One can go for a good profit margin in this business. We have to involve deeply with the company’s business strategy to calculate the margin in the pharmaceutical sector. Profit Margins of chemists, pharmacies, stockists, and Carrying and Forwarding Agent (CFA) also vary depending upon many factors like branded medications, generic medications, the brand value of medications, OTC medications, company status, ethical/unethical practice, so on.
Here we have discussed the general profit margin cycle, you need to know about distribution channels in the pharmaceutical sector through which profit share divides. A distribution channel includes mainly the following parts that are mentioned below:
1. Manufacturing company and/or Marketing Company
2. Carrying and Forwarding Agent
The company’s or manufacturer’s margin varies according to their expenditures. A company has to handle a big sales team, executives, staff members, workers, and other employees. They also have to invest in stocks, machinery, plants, advertisements, promotions, and other aspects of profit and growth. As their expenses grow bigger, they have to set profit margins accordingly.
The sales team they have also play a greater role in affecting the profit margin. If the sales turnover is huge so the company can compete in the market by taking low margins. Competitors also play role in MRP(Maximum Retail Price), trade rates fixation hence profit margins. Nothing is fixed in any business sector and the same goes for the pharmaceutical sector. Below margin’s explanation is based upon standards margins.
1. Company profit margin:
It is difficult to fix and/or calculate. Many factors affect the profit margin fixation of a company. At the pharmacy, stockist, distributor, and CFA level, there are fixed expenses and running costs. Hence fixed margins don’t affect their money flow.
2. Carrying and Forwarding Agent (CFA) margin:
The approx margin is 4-8 percent. It plays a middle man role in the majority of cases. CFA receives stock from the company in bulk and distributes it to stockists in small quantities.
3. Stockist margin:
The approx margin is 6-10 percent. At this level fewer chances of scheme/offers. Majority of cases a stockist has to invest many in distribution channels by providing advance payment to the company/CFA and/or credit facility to distributors.
4. Distributor margin:
The approx margin is 8-12 percent. Distributors could also enjoy some benefits schemes and offers. At this level, a credit facility could be enjoyed. Medicine wholesale business profit margin is good in this sector.
The margin is approx 16-22 percent ethically. Along with margins they also get benefits of schemes and offers provided by companies. Retailers/pharmacies also enjoy credit facilities provided by companies and/or stockists.
But at Company hand lot of things to consider. As we discussed above company’s profit margin depends on many factors. What could be the possible profit margin that we will understand with a simple example according to their marketing types? The following market types are mentioned below:
1. Profit Margin of Retailers:
The distribution channel has its own method of working and dividing the profits into various levels. The distributors include medical stores, drugstores, pharmacists, chemists, etc. The pharma retailers are the ones who get the maximum benefit in this chain of distribution. They are involved in the direct dealing of dispensing of drugs against the prescription of a doctor who prescribed the medication to the patients. This provides them with the opportunity to earn the maximum profit margin on the medications. According to the various types of marketing of the pharmaceutical company, the amount of the retailer’s profit margin varies from market to market.
2. Generic Medicine Marketing:
The dealer has to sell the generic medicine to the pharmacy and chemist and not directly to the patients, in this generic medicine market. The profit margin here is 30 percent (approximately), around 30% market depends on the rate here and therefore the retailers have to sell the maximum drugs to the patients to gain the maximum profit margins.
3. Branded / Ethical / Description Drug Marketing:
The dealer in the branded drugs marketing has to directly sell the drugs to the patients by collaborating with specific doctors. Here it is advisable to have good links and relations with the doctors who would refer the patients to their particular pharmacy.
The profit margin offered in this marketing is around 18 to 22 percent plus lots of other benefits. The wholesaler sells the medications to the pharmaceutical retailer at price to retailer PTR (Price to Retailer) which is 18 to 22 percent less than MRP minus GST(Goods and Services Tax).
In case the invoice is issued then it will have PTR less GST if the distributor is registered under the GST Act. The companies add the manufacturing cost and their profit margin and then distributor generic medicine. The company does not have much control over the profit margin of the distribution channel.
4. Pharma Franchise Marketing:
This sort of marketing plays the role of distributing medications. Recent prices distributors promote medicines in somewhat the same manner as branded medicine, therefore, resulting in a similar profit margin that shall be 18 to 22 percent including other benefits.
5. OTC (Over the Counter) Medicine Marketing:
OTC medications sale follows the same pattern as branded drugs where buy they are sold without any doctors prescriptions or recommendations. Therefore, whenever the patient asks for the OTC medication, he/she must ask for the drugs by the name of the brand, or else they shall be treated as a generic medication and the retailer shell on the profit margin that is applicable in case of branded drugs marketing.
Knowing your profit margin is essential for every marketing business. To earn the best connection with a genuine and profitable business in the pharma industry, there are many pharma franchises in India available on which you can trust and rely on. An entrepreneur can easily get connected with the pharma and their distribution network, wholesale to retailer business chain via various franchise opportunities available across India.