Market Estimation and Pro-forma Income Statement

Summative Assessment: Market Estimation and Pro-forma Income Statement [due Mon]

Exam Content

Market demand is a central concept in health care economics. In addition, calculation of projected income is required to determine the impact of organization 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 need for health care 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. 

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 estimate of 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 word summary of your market determination process. 

Part II: Breakeven Analysis: 

A breakeven analysis determines the number of products or amount of service 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 breakeven analysis for the Case Study client, East Chestnut Regional Health. 

Use the Breakeven Analysis Worksheet to analysis. 

Prepare  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. 

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