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Useful Advices - Higher Prices Lead To Higher Profits - Part 1
I know at first glance this sounds obvious, but it may be worth it for you to think about your prices. At least just for a moment.
How did you decide on your current pricing? Did you conduct market research to understand what prospects would pay? Or did you compa
How did you decide on your current pricing? Did you conduct market research to understand what prospects would pay? Or did you compa
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
re yourself to your competitors and base your price on that? Or was it a crapshoot, and random shot in the dark?
These are the ways most people do it, and they are all wrong. Because the price you set for your products and services is more important than you thin
These are the ways most people do it, and they are all wrong. Because the price you set for your products and services is more important than you thin
; 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
k.
The following few paragraphs are a bit number heavy, but stay with me because this will be really valuable for you to understand.
Let's say you sell a high margin product - information products and software are two good examples. Your price is $60, and your co
The following few paragraphs are a bit number heavy, but stay with me because this will be really valuable for you to understand.
Let's say you sell a high margin product - information products and software are two good examples. Your price is $60, and your co
lude drug-coated devices, drugs packaged with delivery devices in medical kits, and drugs and devices packaged separately but intended to be used together.
sts are $10 - that means your gross margin (selling price - your costs) is $50 each time you sell one unit. Let's say further that your overhead is $5,000 per month. If you sell 100 units you'll break even, right?
Now you want to sell more, and decide you can tak
Now you want to sell more, and decide you can tak
here is enormous increase in the number of combination products entering the market in the recent years. Combination products have proven advantages but fixe
e some business from a competitor by lowering your price - temporarily. You lower it to $40 - a 33% price cut, and not uncommon.
Your costs remain $10 and your overhead is still $5,000, only now your gross margin is $30 - 60% of what it was before. And how many un
Your costs remain $10 and your overhead is still $5,000, only now your gross margin is $30 - 60% of what it was before. And how many un
d dose combinations are still in the process of convincing regulatory authority on their advantages over the single ingredient formulations.
Combination pro
Combination pro
its do you need to break even now? 166! That's 66% more unit sales required to make up for the 33% price cut!
But what if you're feeling very aggressive and you cut your price in half (also not unheard of) to $30. Now you have to sell 250 units - just to break eve
But what if you're feeling very aggressive and you cut your price in half (also not unheard of) to $30. Now you have to sell 250 units - just to break eve
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
n! That's 2-1/2 times as many as before. How easy do you think that's going to be?
Let's use a different example - something that has real manufacturing costs. This time, your product sells for $100, and your cost of goods are $50 per unit, for a gross profit of
Let's use a different example - something that has real manufacturing costs. This time, your product sells for $100, and your cost of goods are $50 per unit, for a gross profit of
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
$50. Same $5000 overhead, same number of units to break even.
Now imagine you cut your price 20%, to $80, leaving you with $30 of gross margin. You need to sell 66% more units. Ouch!
What if you cut the price to $70. This 30% price cut means you have to sell 2-
What if you cut the price to $70. This 30% price cut means you have to sell 2-
nation products and maximize the revenues. But the companies involved in this practice are overlooking that they are burdening the patients both economically
1/2 times more units - just to stay even.
Let's go further...
Competition is really heating up and you think that matching them cut for cut is the way to go. The price for this amazing widget of yours is now a bargain basement $60.
(Shucks, that's only 40% off
Let's go further...
Competition is really heating up and you think that matching them cut for cut is the way to go. The price for this amazing widget of yours is now a bargain basement $60.
(Shucks, that's only 40% off
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
your original price. Salespeople and business owners do this every day.)
How many units do you need to break even? 500.
Five hundred? That's five times your original number.
Do you really think you can sell five times what you did before - at least without sign
How many units do you need to break even? 500.
Five hundred? That's five times your original number.
Do you really think you can sell five times what you did before - at least without sign
ts. Some of the combination products were well accepted by physicians while others suffered. Companies involved in development of combination products are fi
ificantly raising your overhead and your variable cost of sale?
How many times have you done just this in response to competitive pressures?
How many times have you cut prices because you thought it would help you sell more?
:(:(:(
What we've just done is a sim
How many times have you done just this in response to competitive pressures?
How many times have you cut prices because you thought it would help you sell more?
:(:(:(
What we've just done is a sim
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
plified version of what's called margin analysis, and I hope it gives you a glimmer of what can happen when you mis-price.
For the most part, your price cuts don't automatically enable you to sell 66% more than you did before, and generally - at least not in this
For the most part, your price cuts don't automatically enable you to sell 66% more than you did before, and generally - at least not in this
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
universe - you don't sell 250% more, and never, ever do you sell 500% more with this kind of price cutting.
But there is some good news - and it's very good.
Let's look at what happens when you raise your prices.
Remember your high-margin product. It sells for $
But there is some good news - and it's very good.
Let's look at what happens when you raise your prices.
Remember your high-margin product. It sells for $
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
60 and costs $10 to make.
Through good product positioning and excellent marketing you raise the price to $70. That's only a 15% increase. Now you only have to sell 83 units to break even, and if you sell the same 100 units, your profits go from $0 to $1000. Nice
Through good product positioning and excellent marketing you raise the price to $70. That's only a 15% increase. Now you only have to sell 83 units to break even, and if you sell the same 100 units, your profits go from $0 to $1000. Nice
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
increase...
And that "hard" product - the one with $50 of costs? Raise the price tag 20% to $120, your margins increase to $70, and now your breakeven drops 71, and you make $2000 if you sell the same number of them.
See how this works?
:):):)
You can do this
And that "hard" product - the one with $50 of costs? Raise the price tag 20% to $120, your margins increase to $70, and now your breakeven drops 71, and you make $2000 if you sell the same number of them.
See how this works?
:):):)
You can do this
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
same analysis in a bit more sophisticated way, considering your marketing costs, sales or affiliate commissions, travel expenses if you have them, and so on. You can see the actual pricing effect varies quite a bit depending on these details.
If you have a high-le
If you have a high-le
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
verage, pay-only-for-results affiliate model, a very high gross margin and almost no fixed overhead, you have a lot of price flexibility. You can cut the price 25% and only need to sell 15% more! That's not too bad at all.
But only in that type of model. If you h
But only in that type of model. If you h
y and representatives from various regulatory agencies are working out to design the regulatory requirements for manufacture and sale of combination products
ave a office, some staff, and a physical product - in other words, fixed overhead -lower prices can kill you - and you won't even see it coming.
And higher prices?
They can make you rich.
By now you are starting to see the tragic effects of mis-pricing on the do
And higher prices?
They can make you rich.
By now you are starting to see the tragic effects of mis-pricing on the do
.
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
wnside, and the marvelously enriching possibilities of raising your prices.
This only works, of course, when you can also increase your value proposition...
Stay tuned for part 2.
Follow this link at the bottom of the page to get a copy of an excel spreadsheet t
This only works, of course, when you can also increase your value proposition...
Stay tuned for part 2.
Follow this link at the bottom of the page to get a copy of an excel spreadsheet t
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
o play with. Get the spreadsheet, plug in your own numbers. It will really blow your mind. Also, feel free to pass this article or the spreadsheet on to your friends and associates. They will definitely appreciate it.
(c) Copyright Paul Lemberg. All rights reserve
(c) Copyright Paul Lemberg. All rights reserve
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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