Market Estimation and Pro-forma Income Statement

Market Estimation and Pro-forma Income Statement

Healthcare economics has the market demand at its center. There is a need to calculate the projected income to establish the influence of the organization’s finances and marketing plans held by the organizations. Notably, this is established in this paper. In addition, a break-even analysis is performed to determine the number of clients that should be served to break even. Finally, various market considerations important for healthcare organizations are discussed.

Part I: Market Size Calculation

The market size for East Chesnut Regional Health (ECRHS) Women’s Health Services is estimated using the U.S. Census Demographics and Case Study analysis. Notably, the initial step in determining the market size entails determining the market share of ECRHS using the case study and then explaining it based on local concepts. That is the case when the service provider offers services in a different market. The next undertaking in determining the market size was establishing the number of beds in the possessed Northern Mountain Hospital Consortium (NMHC). Essentially, 400 physicians are employed by ECRHS in its system, with most of them being posted in the Chestnut County operations. Notably, this means that the other locations served by the service provider are under the remaining 165 physicians. The Archway Hospital (A.H.) and ERMC, which the 165 physicians serve, have 750 registered beds. It is established that there would be 402 beds for every three physicians, assuming the same physicians-to-bed ratio for the rest of the system.

In gross, it means ECRHS’s system has 1102 beds. A 73% market share is established for ECRHS, considering that the rest of the market has 400 beds. Based on census findings, the approximate number of women aged above 65 is 554,434 in Wisconsin. Notably, this figure obtained from the U.S. Census Bureau Demographics formed a basis to answer the Women’s Health Services question. A total of 404,737 market size is established by taking 73% of the established market share of 554,434.

Part II: Breakeven Analysis

Breakeven elements	Breakeven costs and revenue
Costs
Fixed costs (A set one-time cost that will be required to product or deliver a product or service, such as construction of new office or lab space. This occurs once, and does not vary based on the number of products or services delivered)	$500,000.00
Variable costs (Costs that repeat each time the product or service is manufactured or delivered, such as physician salary per procedure or visit, office staff salary per procedure or visit, supplies used per procedure or visit, calculated per individual visit).	$85.00 per 15-minute office visit
Revenue per Product or Service delivered (per visit)	$150
Breakeven Quantity Required (Fixed Costs / [Revenue per Unit – Variable Cost per Unit])	= $500,000.00/($150-$85) = 7,693 office client visits

 

The calculation of the fixed and variable costs of service provision is based on different aspects. Regarding the fixed costs, the amount established relates to the new office capital expenditure meant to expand the capacity in the existing facility for offering services to women. Notably, this is a one-time cost that is totaling to $500,000. Regarding the variable costs, three expenses inform the variable expenses. They include supplies used for every office visit, estimated to be $5, the office staff per patient visit of $20 per office visit of 15 minutes, and the physician cost for every 15-minute office visit of $60. Notably, when the three expenses are added, a total variable of $85 per client visit is established. The established price per client visit is $150. Notably, the breakeven units will indicate the price and number of units sold at this price. As calculated above, the breakeven units are 7,693 office client visits. Additionally, these break-even units represent the number of visits required to cover fixed and variable costs.

Part III: Pro Forma Income Statement

	Projected Year 1
Projected Sales Revenue	$60,710,550
Cost of Sales (Fixed + Variable Expenses) $500,00 + ($85 variable cost per client visit × 404,737)	$34,902,645
Gross Profit: (Projected Sales Revenue – Cost of Sales) ($60,710,550 – $34,902,645)	$25,807,905
Marketing Expenses (7% of Sales Revenue) 7% of $60,710,550	$4,249,739
Net Income (Projected Profit): (Gross Profit – Total Marketing Expenses) ($25,807,905 – $4,249,739)	$21,558,166.50
Net Profit Margin % (Does this amount of profit make sense?) (Net Income/Sales Revenue)	35.5%
This figure makes sense for health care providers because they can make up to an operating margin of 40%

 

ECRHS employs four hundred physicians. Most of them are posted in the Chestnut County operations, which means that the other locations served by the service provider are under the remaining 165 physicians. The Archway Hospital (A.H.) and ERMC, which the 165 physicians serve, have 750 registered beds. It is established that there would be 402 beds for every three physicians, assuming the same physicians-to-bed ratio for the rest of the system. Notably, this means ECRHS’s system has 1102 beds. A 73% market share is established for ECRHS, considering that the rest of the market has 400 beds. Based on census findings, the approximate number of women aged above 65 is 554,434 in Wisconsin. Notably, this figure obtained from the U.S. Census Bureau Demographics formed a basis to answer the Women’s Health Services question (U.S. Census Bureau QuickFacts, 2021). A total of 404,737 market size is established by taking 73% of the established market share of 554,434.

The calculation breakeven unit is informed by revenue, fixed, and variable costs. Regarding the fixed costs, the amount established relates to the new office capital expenditure meant to expand the capacity in the existing facility for offering services to women. Notably, this is a one-time cost that is totaling to $500,000. Regarding the variable costs, three expenses inform the variable expenses. They include supplies used for every office visit, estimated to be $5, the office staff per patient visit of $20 per office visit of 15 minutes, and the physician cost for every 15-minute office visit of $60. Notably, when the three expenses are added, a total variable of $85 per client visit is established. The revenue generated per client visit is $150. As calculated in the breakeven analysis table, the breakeven units are 7,693 client visits.

The projected profit is given as $60,710,550. Notably, the figure is obtained by considering that the sales revenue projected per every client visit is established in the breakeven analysis, which was established to be $150. The amount is then multiplied by the number of visits forecasted for one year in the market size estimation. The cost of sales is given as $34,902,645. The figure is obtained by adding the fixed costs to the total variable costs for 404,737 visits. Thus, the total costs for sales is the one-time construction fixed costs of $500,000 + ($85 variable cost per client visit × 404,737 = $34,402,645) = $34,902,645. The gross profit is established to be $ 25,807,905. The gross profit is obtained by subtracting the cost of sales from the projected sales revenue. Marketing expenses are taken to be 7% of the sales revenue, and by figure, the expenses are $4,249,739. When the marketing expenses are subtracted from the gross profit, a net profit of $21,558,166.50 is obtained, expressed as a percentage of 35.5%.

 Part IV: Marketing Plan Considerations

The contemporary world has been affected significantly by the Covid-19 crisis. The health sector has played the most significant role in handling the crisis even though unfortunate events took place, such as the death of healthcare officials. Arguably, this explains the importance of the healthcare sector and why crucial factors relating to the sector, such as marketing healthcare products and consumer behavior, should be monitored. Worth noting is the role of projections such as the one undertaken in this paper for ECRHS. Through the analysis, projections regarding client visits and profits are made. Various considerations are made regarding the market plan, such as the nature of healthcare services since the setting of the COVID-19 crisis and the consumer behavior of clients (Venkatesh, 2020). For instance, regarding consumer behavior, there has been a change in the behavior of consumers whereby they seek healthcare services online and communicate without physical contact. Notably, this forces healthcare providers to avail themselves of online platforms.

The current market environment comprises numerous lessons for healthcare providers. Initially, businesses did not fully comprehend what is meant by efficiency because they were primarily focused on micro-level short-term savings without considering other important factors such as energy, time, and ethics relating to production processes. Notably, these features are present in the existing pool of physicians employed by ECRHS. However, there is a need to enhance the experience of these physicians to meet the current market needs. For instance, they should be equipped with the ability to acquire client information from online platforms. Essentially, the acquired information can be utilized to define the potential clients and help discover new target groups. For instance, the healthcare organization can manage to offer personalized services to these target groups (Yeganeh et al., 2019). Another market consideration that can be made entails economic externalities. Economic externalities influence how marketers plan and execute different marketing approaches. There is a need for ECRHS to keep in touch with the changes in the marketing arena to attain the estimated market expense of 7%. Thus, focusing on these marketing aspects will ensure that ECRHS remains competitive and survives in the market for a long time.

References

U.S. Census Bureau QuickFacts: United States. (2021). Census Bureau Quick Facts. https://www.census.gov/quickfacts/fact/table/US/PST045221

Venkatesh, V. (2020). Impacts of COVID-19: A research agenda to support people in their fight. International journal of information management, 55, 102197.

Yeganeh, H. (2019). An analysis of emerging trends and transformations in global healthcare. International Journal of Health Governance. https://doi.org/10.1108/IJHG-02-2019-0012

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Market demand is a central concept in healthcare economics. In addition, the calculation of projected income is required to determine the impact of the organization’s finances on the marketing plan. This week, you will prepare a pro forma income statement for the new or revised existing product or service you recommended in your Marketing Mix Strategy in Week 5 for East Chestnut Regional Health System.

Review the Case Study document.

Pro Forma Income Statement for East Chestnut Regional Health:

Complete the following prior to preparing the pro forma income statement and budget. You will need the following information in order to prepare it.

Part I: Market size calculation:

Determine the size of the market for the ECRHS product or service you are recommending. Assume East Chestnut Regional Health is located in the market in which you live or work.

Visit the University Library Consumer Demographics page.

From this page, visit the United States Census Bureau sites linked under the heading Demographic Data. A rough estimate of the need for healthcare products or services can be made based on the population demographics, using age, gender, and in some cases, race. On these sites, you can gain information on the total U.S. market for health care, as well as the number of U.S. consumers who fit your target market segmentation.

**** I have included the links. They are:

https://data.census.gov/cedsci/
https://www.usa.gov/statistics
https://www.bls.gov/bls/blswage.htm

Determine the local market for the product or service you recommend for East Chestnut Regional Health.

Next, multiply the percentage of people likely to purchase your recommended ECRHS product or service by the estimated market share you believe ECRHS can achieve for the product or service. For example, if there are 6,000 women who might be interested in ECRHS obstetrical services, and ECRHS has a potential 40% market share, this results in 2,400 patients.

Prepare a 150- to 300-word summary of your market determination process.

Part II: Breakeven Analysis:

A breakeven analysis determines the number of products or amount of services that must be sold to consumers for the organization to break even or cover the costs of production or provision of the product or service.

You will prepare a breakeven analysis for the Case Study client, East Chestnut Regional Health.

Use the Breakeven Analysis Worksheet to prepare your analysis.

Prepare a 150- to 300-word summary of your breakeven analysis that includes the following:

The fixed and variable costs of product production or service provision
The price and number of units sold at that price
The number of units of product or service sold to cover the fixed and variable costs at the price level.

Part III: Pro Forma Income Statement:

A Pro Forma is an income statement that predicts income for your new or revised product or service you are recommending to East Chestnut Regional Health System (ECRHS) after one year. It shows the sales ECRHS expects to achieve during that period of time, along with the costs associated with that level of sales. The organization must cover the costs of products or services it delivers (Cost of Goods Sold) and the expenses we estimate to achieve those sales (salaries for sales reps, advertising, promotion, and office expenses, etc.). This will leave us with a projected profit.

A good Pro Forma Income Statement proves out a strategy by showing the expected revenue minus the expected costs and the resulting profit. Conversely, it shows that you can’t have $100,000 in forecast sales and $3 million in projected advertising, since that would result in a loss.

Use the Pro-forma Income Statement Worksheet to create your Pro Formal Income Statement.

Create a pro forma income statement based on the above. Include the following for 1 year:

Projected sales volume in units and revenue
Projected costs of goods/services
Projected marketing expenses
Projected net income

Prepare a 500-word summary statement of your Pro Forma Income Statement for East Chestnut Regional Health System for the new or revised existing product or service you have recommended. Include the following:

Summary of Market Size Calculation (150 words)
Summary of Breakeven Analysis (150 words)
Summary of Projected Profit (200 words)

Part IV: Marketing Plan Considerations:

Now that you have a better understanding of your market and the finances of the organization, you must consider how economics and finances can affect your marketing strategy.

Write a 350- to 500-word analysis of how specific economic or financial issues will affect the marketing strategies for ECRHS.

Submit your assignment as a Word document.

**** PLEASE SEE THIS NOTE :

Catina,

Individually, created marketing mix strategy, completed parts I–IV below and submitted to team/group discussion area. Yes

As a team/group, reviewed each team member’s strategy and utilized the discussions to ask questions, provide input, or make suggestions on submitted marketing mix. Yes

Individually written 100- to 200-word summary of the feedback received from team/group as well as an explanation of why it did or did not help in refining marketing mix strategy. Yes

Summary of ‘Feedback’ of components of Marketing Mix (Product, Price, Place, Promotion). The 100-200 word summary drifted off focus on components of Marketing Mix. The 4 Ps of Marketing needed to be discussed with specificity. Partially Met

We received a 95% for week 5’s assignment. Unfortunately, I failed the class and I’m re-taking it now. Hope this helps.