Don’t you just love these big companies that try to have their stuff sound more important. I mean, Customer Transition Program, who doesn’t want to be a part of that? I wish they’d call it what it really is “Sales Rep Needs to Meet Her Quota Program.”
I’m sure you’ve gotten something like this ad on the side and since you are a smart, level headed business person you ask yourself, should I jump on these savings? Is it worth to buy more vaccines than I actually need? How much will I actually save?
If you asked an MBA to answer these questions for you, here is what she’d say:
The MBA Response
First, we need to estimate the future cash flow that the vaccine will generate. Then compare it to a return from an investment account option, like a CD or a treasure bond to see which one gives the best return on your investment.
Here is how we can work this out:
Vaccine Revenue – Cost of Vaccines / Cost of vaccine
Vaccine Gross Rev = +$175,000
Cost = – $135,000 (cost = vial, admin, storage, insurance, handouts, excise tax, etc)
Revenue = $40,000
$40,000 / $135,000 = 30% rate of return.
Now, we need to compare this result to another investment to see if the vaccine investment is a good one. So, let’s say we take $135,000 (the money you’d spend on the vaccines) and put it in an investment account that gives us 5% interest. Our $135,000 will be worth $141,750 in one year ($135,000 multiplied by 1.05).
Now we can compare which investment is better because we have something to compare the vaccine investment to. So, this is what we need to determine: put the cash in a money market with a 5% return or invest the cash in vaccines and expect a 30% return in a few months.
Small Business Owner Response
That was the MBA response. But the small business owner has to keep an eye on cash flow carefully thus cash flow is also something to consider. Buying 6-months worth of vaccines can tie up a lot of cash. If you have the cash, knock yourself out. But if things get tight at the practice and you need the money to help with payroll or another expense (i.e. a new air-conditioner unit), the money won’t be there. Something to think about.
Financial Planner’s Response
From a financial planner’s perspective, one may want to consider using the money you’d invest in the vaccines to pay down debt. Although saving a few bucks on vaccines might help to reduce cost while potentially increasing your revenue, paying interest on loans can easily offset any savings one may get by jumping on the Customer Transition Program offered by a pharma company.
So, should you buy the vaccines or not? I guess the best answer is, depends. My friend Chip says it best when he said: A practice thinking about buying new equipment, expanding into a new office, hiring a new partner, etc., might find a higher return on an investment in the practice. Thus, every practice’s situation is different. It’s not simply the future value of money, but the future value of what you do with it besides put it into the market.