How to Calculate the Profit Margin in Ayurvedic Products

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How to Calculate the Profit Margin in Ayurvedic Products

How to Calculate the Profit Margin in Ayurvedic Products – Ayurveda originated in India around 3000 years ago but still holds the same importance. The market size of the Ayurvedic industry is also constantly increasing due to high demand for their products. This  industry offers many benefits to the customers and the businessman. Profit margin is one of the most important things to consider while starting a new business. So, let’s discuss How to Calculate the Profit Margin in Ayurvedic Product.

The market demand and scope of Ayurvedic products is always increasing not only in India but also worldwide. The Indian Market of ayurvedic products was 626 billion rupees in 2022, and is projected to reach 1,824 billion rupees by the year 2028 at a Compound Annual Growth rate of 19.3 %. The high prevalence of health conditions, lack of immunity among the public, health awareness and easy access to Ayurvedic products are the reasons behind high demand.

How to Calculate the Profit Margin in Ayurvedic Products

General Terms You Should Know Before Understanding Profit Margin 

Before learning about the Profit margin and how to calculate it  there are certain things you should understand.

  • Maximum Retail Price (MRP) – It is the final price at which a good or a service can be sold to the end users or final  consumers by retail. 
  • Schemes/Offer – These are the free goods that are provided by companies during purchase of a particular  quantity or any particular amount or any other terms.
  • Trade rates – These rates are provided by the franchisee to their distributor or stockist. 
  • Net rates – It is the price at which the company sells their product to the franchisee. 
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How to Calculate the Profit Margin in Ayurvedic Products

Profit margin is the key indicator of financial health of a company.  By comparing profit margin, a company can determine whether they are working efficiently or not. Profit margin in Ayurvedic Products vary from company to company. Some companies take less margin while few take high margin. Now, let’s discuss how profit margin is calculated. 

Just suppose that we purchased a product of MRP 40/-

Net rate- 10/-

Add transportation cost along with others: 1/-

Product Cost- 11/-

Retail Margin- 20% plus 10% offer

If we calculate retailer’s 20% margin and offer then it will cost approx. – 9/-

Deducted amount after MRP-Retailer’s margin = 40-9 = 31/-

Distributor Margin: 10%

According to distributor’s 10% margin, it will cost you approx. 3/-

Deducted amount after retailer’s margin – distributor’s margin = 31-3 = 28/-

After deducting your product cost  from this amount. 28-11 = 17/-. 

Then You will have 17/- remaining in your hand.

In this 17/-, you have to manage doctor’s commission, your salary, team salary( If hired) and other expenses as well. 

Suppose approx. 40% of retailer’s price, you have to spend on doctor’s commission then you have to spend approx. 12/-.

Now deduct this 12/- from the remaining amount. 

Now, You will have 17-12 = 5/- as a profit margin. 

If you calculate profit margin in %age then it will be

 =(Profit margin/Net Rate)x100 

=(5/10)*100 = 50%

Some franchise distributors supply goods at further net rates to healthcare professionals and facilities such as doctors, hospitals, chemists, wholesalers etc. by adding their margin. 

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In that case, their supply rates will be Net Rate + (Net rate * % of margin)

Conclusion

In conclusion, the profit margin helps the business to determine whether they are generating any profit or not. Above we discussed the way you can calculate profit margin in Ayurvedic products. We also discussed different terms related to profit margin such as ner rate, MRP, Trade rates and schemes. By learning how to calculate profit margin you can easily determine the effectiveness and efficiency of your business and can make suitable changes if required. 

FAQS On  How to Calculate the Profit Margin in Ayurvedic Products

Question 1. On what factors does Net rate and MRP depend?

Answer 1. The factors on which the Maximum retail price and Net rate depends are mentioned as follows-

  • Cost Labour
  • Cost of the raw material
  • Market conditions
  • Price set by the competitor
  • Price controlled by Government  

Question 2. How can we calculate Net Rate?

Answer 2. In order to calculate Net rate.

Net rate= Total manufacturing or processing Cost + Margin Percentage

In order to calculate Total manufacturing or processing cost

= Raw Material + Packaging Material + Excipients +Cost of  Processing + Taxes +Cost of Transportation  + Promotion and Marketing Material Cost + Other Hidden Expenses.

Question 3. What is the profit margin in Online sale of Ayurvedic products?  

Answer 3.  The profit margin for online selling of the ayurvedic product depends upon the MRP( Maximum Retail Price). The approximate profit margin on online selling of ayurvedic products can be between 50% to 500%.

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Question 4. Is the ayurvedic business really profitable or not ?

Answer 4. Ayurveda provides a huge scope of profits for people interested in this industry. The profit margin of an Ayurvedic store is around 16 to 22 %on branded drugs and 20 to 50% on generic drugs. In addition to this the owner also receives many profits and benefits from the company’s special schemes and deals.   

Question 5. What is the importance of calculating Profit Margin In Ayurveda business?

Answer 5. Calculating Profit margin is very important in running a successful business. It help the operator to identify the profit generating products, Incorporating efficient pricing strategies, evaluating performance etc.