Marketing the New Venture 247Petrillo’s specifications and to give him a three-year lease with renewal options at an annual rental
of $7.50/sq. ft.
Dr. Petrillo requested a sales forecast for the venture and agreed, if the forecast was positive,
to negotiate with a bank and an equipment leasing firm.
Step 1. Determining Market Potential
The target market for ambulatory health care includes the entire population. Everyone is sub-
ject to minor injuries such as cuts, sprains, or fractures, and to minor illnesses such as colds and
flu. Industry consultants and the National Association of Free-Standing Emergency Centers
(NAFEC), the industry trade association, define the target market more narrowly: They view the
primary targets for EMC services as families with young children, working women, and individ-
uals with no regular physician. These refinements can be helpful in designing and placing adver-
tising, but it is wise to consider the total population as the target market.
In this small community the proposed site can be reached in 10 to 12 minutes driving time
from anywhere within the city limits, so the whole vicinity is in the trade area. The site is on the
opposite side of town from the general hospital, so almost no one would have to drive past a
competitor to reach the EMC.
Market potentialcan be derived from census studies. The 1980 census reports that the city
and its immediate residential areas are home to 27,531 people, 8,924 households. The town has
grown substantially in the 1970s—the number of housing units grew 55 percent. This is a plus
because people relocating to the area are less likely to have established physician relationships.
Based on discussions with city officials and members of the Chamber of Commerce, growth is
believed to have continued, though at a slower rate, during the 1980s.
In terms of market potential, NAFEC estimates that the average individual experiences one
or two incidents of minor trauma or illness per year. Assumed rates of population growth reveal
estimated total market potential (patient visits).
Total patient visits for 1984 are estimated to be between 28,649 and 64,414, but such a broad
interval may not be useful. The middle column of Exhibit 6.A.1 represents a more reasonable
interval. Based on an average incident rate of 1.5 per person per year, total market potential
would be estimated at 43,000 to 48,000 patient visits per year (Exhibit 6.A.2).
Step 2. Deriving Sales Requirements
Fixed asset requirementsfor the site consist entirely of equipment costs, both medical equip-
ment and standard office furniture and equipment. New construction will eliminate the need for
leasehold improvements such as plumbing modifications and remodeling.
Local medical supply and office supply dealers familiar with the used equipment markets in
the area are the sources of price estimates in Exhibits 6.A.3 and 6.A.4. Price estimates reflect a
mix of new and used equipment. Total fixed asset requirements are estimated at $64,500.
The nonrecurring start-up expensesinvolved in opening an EMC facility are substantial, as
noted in Exhibit 6.A.5. The figures were compiled from Dr. Petrillo’s experience with EMC #1.
Estimated operating expenses(Exhibit 6.A.6) for an EMC are predominantly fixed, mean-
ing that sales activity has little or no effect on these expenses. Salaries for physicians and non-
physicians (e.g., receptionist, X-ray technician) must be paid regardless of patient visits, as must
rent, utilities, and security services.
Monthly expenses for malpractice insurance are billed on a per-patient basis (approximately
$0.70/patient). Supply expenses also vary with the volume of patient visits and are, therefore, a