Profit Margin in PCD Pharma Franchise: How to Calculate & Improve It

What is profit margin? – Profit margin tells you how much money you keep from every ₹100 of sales after paying all costs. The basic formula:

Profit Margin (%) = (Net Profit / Revenue) × 100

Step-by-step: How to calculate profit margin

Step 1- Calculate Revenue (Net Sales)

Revenue = total sales value of medicines you sold- exclude GST and subtract returns or discounts.
Example: if you invoiced ₹1,60,000 including GST 12%, net sales = ₹1,60,000 / 1.12 = ₹1,42,857 (approx). For simplicity, most distributors keep sales records already GST-exclusive.

Tip: Always use figures after returns and discounts. That gives a true picture.

Step 2- Calculate Cost of Goods Sold (COGS)

COGS = what you paid to buy those products (purchase price) + freight-in, custom duty (if any), packing cost related to purchase.
Do not include shop rent, salaries or MR commissions here – those are operating expenses.

Step 3- Add Operating Expenses

These are the everyday running costs:

• Warehouse rent, electricity, packing, storage
  
• Staff salaries, MRs incentives, travel expenses
  
• Vehicle/fuel, courier costs, marketing materials, phone/internet
  
• Accounting, bank charges, insurance, depreciation
  

Step 4- Other expenses / adjustments

Include bad debts, expired stock write-offs, license renewals, legal fees — anything that reduces profit but isn’t COGS or regular OPEX.

Step 5- Net Profit

Net Profit = Revenue − (COGS + Operating expenses + Other expenses)

Step 6- Profit Margin

Profit Margin (%) = (Net Profit ÷ Revenue) × 100

Worked example (very simple)

• Revenue (net sales) = ₹1,50,000
  
• COGS (purchase + freight) = ₹70,000
  
• Operating expenses = ₹40,000
  
• Other expenses = ₹5,000
  

Net Profit = 1,50,000 − (70,000 + 40,000 + 5,000) = ₹35,000
Profit Margin = (35,000 / 150,000) × 100 = 23.33%

So, from every ₹100 of sales, you keep about ₹23 as profit after all costs.

Also Read: How to Start PCD Pharma Franchise on Monopoly Basis

Factors That Influence Profit Margin in a PCD Pharma Franchise

1. Product mix and pricing – Selling high-value products like softgels or cardiac medicines usually gives better profit margins. Common, low-priced medicines may earn less.
   
2. Purchase cost and minimum order quantity (MOQ) – If your manufacturer offers lower purchase prices or allows small order sizes, you save money and reduce the risk of unsold stock.
   
3. Promotional support – Free samples, brochures, or medical representative (MR) training from the company reduce your own marketing expenses, which means more profit for you.
   
4. Logistics and delivery time – Quick delivery helps avoid expired or unsold stock and saves on urgent transport costs. Slow or poor logistics can eat into your margin.
   
5. Payment terms and receivables – If you have to give long credit periods to retailers, your money stays blocked. This increases financial pressure and lowers your effective margin.
   
6. Expired stock and returns – Medicines that expire on shelves or frequent product returns directly cut into your profits.

Practical ways to improve your margin

1. Negotiate better buying price or smaller MOQ
2. Focus on high-margin products
3. Cut unnecessary operating costs (optimize routes, reduce wastage)
4. Use supplier promotional support fully (samples, frames, MRs training)
5. Tighten credit & improve collection
6. Reduce expiry and returns (FIFO, smaller orders for slow movers)
   

Conclusion

Understanding profit margin is one of the most important parts of running a PCD pharma franchise business. When you know how to calculate it step by step, you get a clear picture of how much you’re really earning after all costs. For new distributors, the key is to keep expenses in check, choose the right product mix, and work with a company that offers fair prices, flexible order sizes, and good support. With careful planning and smart decisions, it’s possible to start small and still build a profitable pharma business in India.