Factors affecting profit margin in Pharmaceutical Sector

In any Healthcare business, the margin of profit is dependent on various factors and it is different for different companies. To calculate the profit margin of any PCD Pharma Company, we need to understand the company’s business strategy by analyzing various factors. There are many channel partners such as wholesalers, retailers, distributors, etc. are associated with any PCD Company. Their margin of profit is always different and mainly dependent on the value of medicine, brand, company reputation, business practice, etc. Now we are going to discuss the general profit margin for a manufacturer to retailers. For this, we are going to discuss the pharma distribution channel and profit sharing parts. It is given as below:

  • Pharma Company (Pharma Marketing Company/ Manufacturing Company)
  • C&F Agents
  • Pharma Franchise
  • Distributor
  • Retailer

They are the channel partners of any pcd business and profit should be divided between them but in actual practice, there are other individuals too and between them, the profit margin is divided. If we consider profit margin ethically then it should be divided in fix ratio but unethically it should be always higher than actual profit. In unethical business practice medicines are sold at higher prices than its original cost. For example, medicines are sold at MRP but in reality, its costing is 3-4 times less than MRP. Company is also setting its margin as per the expenses and annual sales turnover. Company has to manage its expenses of manufacturing, machinery, workers, material, sales and advertisement and other things. There are other factors which can affect profit margin such as competitor policy and pricing also play an important role in deciding the profit margin. Many big pharma companies offer products at a low price and generate profit by achieving big sales target.

The margin of Retailer- Ethically retailer’s margin is approximately 15 to 20%. Along with this profit margin they also enjoy various credit facilities, schemes and offers given by companies.

The margin of Distributor- Their profit margin is approximately 10 to 12%. They are also enjoying credit facilities provided by the company. Some offer and schemes are the same as retailers.

The margin of Stockist/Franchise- At this level, the profit margin is low. It is approximately 7 to 10% because stockist has to invest its money in many channels and provide advance credit terms to distributors and other channel partners.

The margin of C&F Agents- C&F agents acts as a middle man in majority cases. They simply get the stock in bulk from pharma companies and distribute them to wholesalers in small quantity. Their profit margin is approximately 5 to 7%.

The margin of Company- It is difficult to calculate the profit margin of any PCD Pharma Company. They are not earning any fix profit margin like other channel partners. They have no fix expense and cost. They decide their business strategy as par market situation, competitor’s strategy, product demand, credit terms, economic changes, etc. They have many things to consider and their profit margin is variable.