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Main Subject - A Strong Sales Model Underlies Every Assumption In a Business Plan
One of the most difficult tasks a new prospective entrepreneur faces is the construction of a Sales Model. Many books devoted to instruction for writing a business plan devote little or no attention to this vital exercise. The knowledge needed to assemble a quantified, qualified and clearly narrated Sales Model is essential to convey
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
the scope and validity of an opportunity.
The most elemental data point required to commence assembling a strong sales proposition is the Cost of Goods (COG). Knowing with absolute certainty the all-inclusive COG is the foundation number necessary to build the Sales Model and ultimately a strong business plan. Guessing, estimating
The most elemental data point required to commence assembling a strong sales proposition is the Cost of Goods (COG). Knowing with absolute certainty the all-inclusive COG is the foundation number necessary to build the Sales Model and ultimately a strong business plan. Guessing, estimating
; 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
r hoping that the number you slot into your plan is accurate will lead to a solid dead end, and very quickly.
The Sales Model, just like the completed business plan, is written based on a series of assumptions. These assumptions are then qualified (given historical and current market perspective), quantified (COG and sales goals are
The Sales Model, just like the completed business plan, is written based on a series of assumptions. These assumptions are then qualified (given historical and current market perspective), quantified (COG and sales goals are
lude drug-coated devices, drugs packaged with delivery devices in medical kits, and drugs and devices packaged separately but intended to be used together.
utilized to extrapolate a believable sales universe is available for the product) and narrated (explanation is provided to support the basis on which the assumptions were based). The Sales Model is but one section of a business plan: however, it is the heart and soul of the following financial section so crucial to investors.
I see
I see
here is enormous increase in the number of combination products entering the market in the recent years. Combination products have proven advantages but fixe
so many business plans that scream “this is guesswork”! First year sales are projected at a nice, clean round number (so often $1,000,000). Growth ramps up too quickly, and to unbelievable numbers. The justifications for these assumptions are based on mirrors and hope.
Let us make a few assumptions here to show a basic example of a
Let us make a few assumptions here to show a basic example of a
d dose combinations are still in the process of convincing regulatory authority on their advantages over the single ingredient formulations.
Combination pro
Combination pro
method to build a believable Sales Model. We will assume that research has proven that our COG (remember, including packaging, shipper, master shipper and freight, customs and duties, if any) is $1.00 per unit for our widget.
Our next assumption to decide is the wholesale selling price: if the item is to be sold through traditional
Our next assumption to decide is the wholesale selling price: if the item is to be sold through traditional
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
etail sales distribution channels. The nearest competition we can find on the market is selling in mass-market distribution stores (Wal Mart, K-Mart, etc.) for an average of $6.49. Assuming a 37.5% markup, the competitive item is being sold at wholesale for $4.06 (round to $4.00). Assuming that our item has features and benefits that
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
would be perceived as similar to the competition $4.00 is an acceptable wholesale. A 25% COG is well within industry parameters (based on historical norms).
We now have our COG, a wholesale sales price and a pretty good picture of the retail price that will enable the item to be competitive and still offer excellent profit potentia
We now have our COG, a wholesale sales price and a pretty good picture of the retail price that will enable the item to be competitive and still offer excellent profit potentia
nation products and maximize the revenues. But the companies involved in this practice are overlooking that they are burdening the patients both economically
. The easy part is over. Here is where things get tricky.
Our item will be sold in the hardware section of stores. After studying industry specific data and researching the hardware product category we determine that we will have over 135,000 potential store placements if 100% of the American market could be penetrated. This is hard
Our item will be sold in the hardware section of stores. After studying industry specific data and researching the hardware product category we determine that we will have over 135,000 potential store placements if 100% of the American market could be penetrated. This is hard
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
data. Now we must leave science and become artful.
How many of these 135,000 hardware outlets can we believably project to carry our widget in year one of operations, year two, year three, etc? Making every effort to build our plan on solid assumptions, we are going to be conservative. During the first year after operations commenc
How many of these 135,000 hardware outlets can we believably project to carry our widget in year one of operations, year two, year three, etc? Making every effort to build our plan on solid assumptions, we are going to be conservative. During the first year after operations commenc
ts. Some of the combination products were well accepted by physicians while others suffered. Companies involved in development of combination products are fi
, we will open 2% of our potential universe. Year two will see the widget’s distribution add another 2.5% of the hardware outlets and year three we will gain another 3.5%. After three years we will conservatively projected 8% of the potential distribution points for a hardware widget.
Another point to consider when building out a di
Another point to consider when building out a di
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
tribution model, not all of the stores will be shipped at one point in any yearly cycle. It is important to have a line at the very top of the cash flow section in the Financials that details how many stores you project to open each month. Allow for seasonal variations. Is the widget a summer item, a Holiday item? This will determine
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
peak shipping months.
The next assumption is sell-in levels. How many units of the widget will a store typically carry in inventory? Competition averages 18 units per store. Is the widget going to be promoted, placed on end cap display, given a floor stand or presented in a featured way? These are questions that must be qualified,
The next assumption is sell-in levels. How many units of the widget will a store typically carry in inventory? Competition averages 18 units per store. Is the widget going to be promoted, placed on end cap display, given a floor stand or presented in a featured way? These are questions that must be qualified,
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
uantified and narrated to justify the sell-in assumption.
If the sell-in assumption is 18 units per store, then our next task is creating a retail sales turnover. Again, if it is verifiable that the competitive leader turns goods an average of eight times per year, we will be conservative. An inventory turn of six times during year
If the sell-in assumption is 18 units per store, then our next task is creating a retail sales turnover. Again, if it is verifiable that the competitive leader turns goods an average of eight times per year, we will be conservative. An inventory turn of six times during year
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
one, seven times during year two and eight times in year three is easily defensible. This will, of course, be average out as stores come on line during monthly new door openings.
As we are not completing a proper spreadsheet here, reflecting 12 month flows in our example, let us assume that year one sales are for stores that have be
As we are not completing a proper spreadsheet here, reflecting 12 month flows in our example, let us assume that year one sales are for stores that have be
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
n carrying the product for a full 12 months. Here is where our Sales Model construction for year one has brought us.
Doors Opened 2700 (2% of 135,000)
Sell-in per Door 18 units
Wholesale Price 4.00
Inventory Turnover 6 Turns
Sales Year 1 = $1,166,
Doors Opened 2700 (2% of 135,000)
Sell-in per Door 18 units
Wholesale Price 4.00
Inventory Turnover 6 Turns
Sales Year 1 = $1,166,
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
400
Perform the same calculations on the assumptions we have created for years two and three and the results are $3,061,800 and $6,220,800 respectively.
The Sales Model we have created for our mythological widget is built on assumptions that we have vetted, checked against historical norms and properly support our theorem with logi
Perform the same calculations on the assumptions we have created for years two and three and the results are $3,061,800 and $6,220,800 respectively.
The Sales Model we have created for our mythological widget is built on assumptions that we have vetted, checked against historical norms and properly support our theorem with logi
y and representatives from various regulatory agencies are working out to design the regulatory requirements for manufacture and sale of combination products
and a conservative, believable rationale. The numbers work together and tell a story of strong sales traction with a lot of distribution to be gained (after year three we have 92% of the market still not serviced).
We now have the top line sales number under which we can project a financial picture that will excite potential invest
We now have the top line sales number under which we can project a financial picture that will excite potential invest
.
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
ors, licensees and partners. They will know that we are serious, professional and knowledgeable. This presentation of a comprehensive plan supported by reality based assumptions is lacking in so many business plans I read.
By definition, a business plan is based on assumptions, and lots of things happen to distort assumptions. Murph
By definition, a business plan is based on assumptions, and lots of things happen to distort assumptions. Murph
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
named a law after himself for a reason. Stuff happens! Nevertheless, business plans that achieve successful results are built on assumptions that mitigate the potential for ugly surprises. A business plan without a well-constructed Sales Model has no chance of overcoming the natural cynicism inherent in investors and decision-makers
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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