The Business Side of Clinical Research: Profit Margins and Cash Flow

Introduction

People who run their own research centers or people who are interested in opening one in the future will usually be interested in the business side of conducting a research.

Although clinical research is an important factor when it comes to the general advancement of medicine, it’s crucial to understand and see it as a business, because essentially, it is a business that has to be profitable in order to be successful.

For this reason, we’ve prepared for you a short presentation that will give you the necessary knowledge of the business aspect of a clinical research center.

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Costs

Costs of Running a Research Center

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PI

CoordinatorRent

Overhead

Staff

A clinical research site that conducts studies has many different costs that have to be considered in order to calculate your profits. Such costs are:

- PI payment - anywhere from 10 to 35%;

- Coordinator payment - 25% or below;- Rent for the space you’re using;- Overhead (indirect costs)- Staff (employees);

Hidden Costs to Consider

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When you’re preparing your calculations and budget, don’t forget to include the following items that many sites tend to ignore:

- Insurance;- Computer hardware and software;- Utilities at the site (water, electricity, phone);- Taxes;- Professional services (attorneys, accountants,

HR staff, consultants, etc.);- Membership fees in different organizations;- Training costs;- Patient transportation costs;- IRB fees;- Storage fees;

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Maintain a Positive Cash Flow

When negotiating the budget and contract with the sponsor, you might notice that almost all of them prefer to keep their quarterly terms of payment. However, it’s really common that these payments arrive months later than agreed. When the payments are quarterly and late for a few months, then the site’s cash flow will become weak and compromised. Considering the fact that most sites have to send payments to vendors within 30 days of receiving an invoice, cash flow (or the lack of it) can become a serious problem.

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In order to avoid this problem, try to establish monthly payments from your sponsor. Even if the budget and contract are already concluded, explain him/her your position as a site and all the current expenses of the site, and try to get to an understanding. Another important practice is to follow-up on all unpaid invoices and regularly remind your sponsor. Doing this will help you maintain a positive cash flow at all times.

Profit per Employee

Profit per Study

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A method which is not so practical to use because it might be unfair to coordinators. If you’re familiar with the way things work in clinical research you probably know that coordinators do not choose which study they want but are awarded studies, so it isn’t their fault if they’re assigned on a bad study.

A good method to use in order to figure out which study is more profitable for your site. In this way, you’ll know on which study to focus more and which study is only causing stress for you. Focusing your attention on profitable studies is extremely important if you wish to succeed as a business.

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PI Payment Explained In-Depth

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10 to 20%if you don’t use their

space but have your own

30 to 35% max.if you use their space for

conducting the study

PIPAYMENT

One of the larger costs (if not the largest) that you’re going to have is the payment for the PI. In some cases, the person who owns that research center is the PI, so if this is you - no worries! However, most of the time research sites need to find a PI to lead their studies. Your PI will probably not be an employee but an independent contractor. This means that you will have to pay him or her a percentage of your gross profits.

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Ideal Profit Margins

After all of the above costs and

calculations (PI, coordinator, rent,

staff, overhead), you should aim to net 50% of the profits

for yourself!

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However, if you’re also the PI of a certain study conducted in

your research center, then your profit for

that study should be 70%. This is why we mentioned that it’s better to make this calculation with the method ‘’profit per study’’ instead of

‘’profit per employee’’.

50% PROFIT

OR

70%PROFI

T

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CONCLUSION

In conclusion, everyone who owns a research site has to understand that this is a business and treat it as such. This is the only way in which you’ll be able to keep your research center running.

We hope that this information has given you a glimpse of the things you need to watch out for.

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