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E-Folder - What is Profitability?
We all know what profit is: the surplus left over from revenue after covering expenses. Profitability is the measure of profit generated on an ongoing basis. Profit is generally measured in dollar terms; profitability is measured as a percentage of sales. You need to focus on both.
For many small businesses, profit
According to USFDA, a combination product is one composed of any combination of a drug and device; biological product and device; drug and biological product
equals the owner’s paycheck. If your profitability from operations doesn’t generate enough cash flow, you don’t get paid. The first step is to figure out how much you need to pay yourself—to cover your basic needs and desired lifestyle, savings and retirement, and to pay your taxes. Then, figure out how much money
; or drug, device, and biological product and fixed dose combination would include two or more combinations of drug.
Examples of combination products may in
Examples of combination products may in
your business needs to bring in to cover its expenses and pay you this amount.
This is an eye-opening experience for business owners. Your initial reaction may be dismay: “How can I ever bring in that much revenue? Am I doomed to just scrape by?” But, given your financial goals, you can begin looking seriously at
lude drug-coated devices, drugs packaged with delivery devices in medical kits, and drugs and devices packaged separately but intended to be used together.
how to restructure your business to give you what you need financially—or else get out of it and go on to something else.
Profit is more than your pay
Even if you are a sole proprietor, learn to view “profit” as separate from what you pay yourself. Pretend that your company is a corporation, where you earn a regul
here is enormous increase in the number of combination products entering the market in the recent years. Combination products have proven advantages but fixe
ar salary, and that makes a profit beyond that. You get paid to work there, and as owner, you expect a profit dividend.
Profit is more than money
Here’s how small businesses should look at profitability:
• Profit is ROI—return on investment. You (and perhaps others) put capital into your business and you
• Profit is ROI—return on investment. You (and perhaps others) put capital into your business and you
d dose combinations are still in the process of convincing regulatory authority on their advantages over the single ingredient formulations.
Combination pro
Combination pro
expect to get it back someday with a suitable rate of return. For an established yet vulnerable small business, a suitable ROI can be from 20% to 30% per annum.
• Profit is ROE—return on effort. Many people start their businesses largely with sweat equity, putting in thousands of hours of their own time—unpaid
• Profit is ROE—return on effort. Many people start their businesses largely with sweat equity, putting in thousands of hours of their own time—unpaid
ucts have become life saving products for the pharmaceutical companies who doesn’t have many innovative molecules in their product pipeline and have been inc
—to get the business up and running. Can you ever recoup the value of your time?
A business run by the owner should look at profit as the financial return per unit of your effort. For example, suppose you work 2,000 hours in a year, and your company’s profit is $250,000. For that year, you could say that you h
A business run by the owner should look at profit as the financial return per unit of your effort. For example, suppose you work 2,000 hours in a year, and your company’s profit is $250,000. For that year, you could say that you h
easingly used in the product life cycle management. Even the companies having product patents are trying to extend their product life cycle through the combi
d a return of $125 for each hour you put in. If you want to operate with greater ease, make sure you don’t increase profit by dint of harder work and longer hours. More on this in chapter 11 of my book “How to Grow Your Business without Driving Yourself Crazy” in the section on “Leverage Your Effort.”
• Profit
• Profit
nation products and maximize the revenues. But the companies involved in this practice are overlooking that they are burdening the patients both economically
is a tuning fork. It tells you how well tuned your business instrument is. When you are doing things right—working productively and cost-effectively, selling the right things to the right people, serving your customers well, treating your own people well—profit is the measure that amply demonstrates that.
The
The
and physically. They need to rightly judge the benefits of the combination products and they have to even look at the risks involved when combining the produ
opposite is also true. When your business is not tuned properly, it sounds the discordant notes of low productivity, unhappy employees, dwindling customer base, and mounting losses. Profit is acknowledgement that the business is tuned properly.
• Profit is flow. Profit provides the surplus that helps you weath
• Profit is flow. Profit provides the surplus that helps you weath
ts. Some of the combination products were well accepted by physicians while others suffered. Companies involved in development of combination products are fi
er the lean times. Profit allows you to be generous.
• Profit is energy. Many small business owners say they are more interested in achieving their vision than in making a big profit. But without adequate profitability, you get worn down, burnt-out and discouraged.
An unprofitable business fails unless ou
• Profit is energy. Many small business owners say they are more interested in achieving their vision than in making a big profit. But without adequate profitability, you get worn down, burnt-out and discouraged.
An unprofitable business fails unless ou
ding difficulty in defining their combination products and facing various challenges from selecting a combination to marketing it.
Following aspects would a
Following aspects would a
tside money is continually pumped in. You cannot make the contribution you want without bringing in a good profit.
The uses of profit
As your attitude toward profit shifts from (a) what’s left over that you use to pay yourself, to (b) a resource you use for critical business needs, you can plan
The uses of profit
As your attitude toward profit shifts from (a) what’s left over that you use to pay yourself, to (b) a resource you use for critical business needs, you can plan
dd to the challenges in developing combination products:
Which markets to tap where the combination products can do fairly well?
Which combination prod
Which markets to tap where the combination products can do fairly well?
Which combination prod
your operations so that they regularly generate profit beyond what you pay yourself. You can create a “profit budget” to calculate how much you need to cover such items as:
• Fund for expansions or upgrades. How much do you need to set aside each year for anticipated upgrades and expansion?
• Cushion t
• Fund for expansions or upgrades. How much do you need to set aside each year for anticipated upgrades and expansion?
• Cushion t
cts are meaningful and rational?
Which therapeutic categories to select?
Which Combinations can address unmet needs of the patients?
Do combin
Which therapeutic categories to select?
Which Combinations can address unmet needs of the patients?
Do combin
o cover downturns. How much should you set aside each month to provide an insurance policy against short-term financial reverses?
• Fund for bonuses and financial incentives and profit sharing. What proportion of sales revenue should you allocate to incentives and bonuses in order to motivate top performance?
• Fund for bonuses and financial incentives and profit sharing. What proportion of sales revenue should you allocate to incentives and bonuses in order to motivate top performance?
tions increase the patient compliance?
What would be the developing cost?
How to tackle the risks encountered during combination product developmen
What would be the developing cost?
How to tackle the risks encountered during combination product developmen
>
• Retirement programs. What proportion of salaries and wages should you set aside to fund retirement plans for you and your employees?
• Paying taxes. How much must you set aside each month to pay taxes on the profit you anticipate?
• Debt repayment. How much cash flow must be available after taxes to p
• Paying taxes. How much must you set aside each month to pay taxes on the profit you anticipate?
• Debt repayment. How much cash flow must be available after taxes to p
t?
As combination products don't fit into the traditional categories of drugs, medical devices, or biological products, the USFDA is in the process of devel
As combination products don't fit into the traditional categories of drugs, medical devices, or biological products, the USFDA is in the process of devel
ay down your debt—including repayment of money you have put into the company?
Calculate all these amounts that pertain to you and add them up. This is the amount of profit from operations you need each year. If you divide this sum by your projected revenue, you get a percentage that shows what proportion of eac
Calculate all these amounts that pertain to you and add them up. This is the amount of profit from operations you need each year. If you divide this sum by your projected revenue, you get a percentage that shows what proportion of eac
ping new procedures for reviewing their safety, efficacy and quality.
Professional from academic institutions, pharmaceutical industries, health care indust
Professional from academic institutions, pharmaceutical industries, health care indust
h dollar of sales revenue should be available for these uses. One of the most important uses for this percentage is to set prices that assure the desired level of profitability.
Your accountant may gnash his or her teeth over the above paragraph, correctly pointing out that many of these items are business expenses
y and representatives from various regulatory agencies are working out to design the regulatory requirements for manufacture and sale of combination products
, not profit. I agree. However, for small business owners who are trying to make a transition from a cover-the-costs mentality to a generate-surplus mentality, developing this profit budget is invaluable. These are the very items that they otherwise fail to account for in their planning, their projections and their
.
As there is an increasing trend of the combination products companies manufacturing such products should be able to tackle the problems involved in the de
As there is an increasing trend of the combination products companies manufacturing such products should be able to tackle the problems involved in the de
pricing decisions.
Need help?
Several of our books, workshops, and e-tools help you boost your profitability—and to figure out how much profit you need. These include:
• How to Grow Your Business without Driving Yourself Crazy, esp. Chapter 13, “Build a Culture of Profitability” and Chapter 15,
Need help?
Several of our books, workshops, and e-tools help you boost your profitability—and to figure out how much profit you need. These include:
• How to Grow Your Business without Driving Yourself Crazy, esp. Chapter 13, “Build a Culture of Profitability” and Chapter 15,
elopment. They need to be wiser in analyzing the market trends and the regulatory requirements.
Companies that provide selfless information through particip
Companies that provide selfless information through particip
“Calculate the Benefit and Cost.”
• “Build a Culture of Profitability” available as e-book and tel-online workshop.
• “Sources and Uses of Cash” template. A crucial tool in projecting cash flow.
• “Success in 2007” plan workshop helps you put profit in the context of all other facets of your business
• “Build a Culture of Profitability” available as e-book and tel-online workshop.
• “Sources and Uses of Cash” template. A crucial tool in projecting cash flow.
• “Success in 2007” plan workshop helps you put profit in the context of all other facets of your business
tion in industry events and feedback to regulatory authorities would be able to face the challenges and will be successful in developing combination products
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