The burning problem of some of the entrepreneurs is that they start the business but they don’t have complete knowledge of the product or detailing of the product. Product is a new development which companies bring in the market like new oil, new soap, new medicines, etc. These companies are called product companies. They bring products to solve customers' problems. **For example:** - If you are in the medical industry and you think the medicines available in the market are not able to treat cough properly, then you launch your cough syrup. - You can bring a new type of Deo with new fragrances like AXE does and has become very popular. When you make a product company, you decide: - What product should be made? - What is the cost of the product? - What should be the price of the product? - How to manage employee expenses? A product company itself doesn't sell a product but it sells the product offline through distributors and retailers and online through Amazon, Flipkart, and other e-commerce sites. In such a case, the company needs to decide the margin of distributors and retailers. If you are not able to give the right margin, then you will not able to earn profit and the distributors and retailers will also leave you. Similarly, if you don’t know how to price the product correctly, you will not able to earn the profit. You cannot price your product randomly based on your competitor's product price. For instance, If a similar product company is selling the same product for Rs. 100 and you think that you will sell it at Rs. 99 and earn the profit, then it won't happen. If you don’t know whether your business is profitable or not, then you cannot sustain or grow your business. The one-third framework will help you to run your business. # **What is One-Third Framework?**  It means you have to divide your business and revenue into three parts. ### **1. First One-Third** - It is the product development cost. - In the above examples of Cough Syrup and Axe Deo, the one-third of the price of such products should be their product cost. - This means if the sales price of cough syrup is Rs. 100, then its production cost should be Rs. 33, i.e. the one-third of the product price. - This production cost includes the cost of liquid, bottle, cap, wrapper, labour, etc. ### **2. Second One-Third** It is the second one-third of the product price, which is the business operations cost, i.e. the cost to run your business that includes: - Salaries - Rent - Administration - Marketing - Channel Partner - Margin of Distributors - Margin of Retailers ### **3. Third One-Third** **It is the third one-third of the product price, which is the profit before tax. After deducting taxes, you will get your profit.** So, the golden thumb rule for running a business is - **_One Third, One Third, One Third._** # **Examples of Companies using One-Third Framework** #### **Example 1 – Bajaj Consumer Care** - Total Revenue – Rs. 935 Crores - Product Cost – Rs. 237 Crores - This means the **product cost is 32**%. Business cost includes Depreciation, Rent, Electricity, Interest, Marketing, Distribution, and Employees Salary. - Total Revenue – Rs 935 Crores - Business Cost – Rs 355 Crores - This means the **business cost is 38%.** - Now, **Product Cost+ Business Cost = 70%** - **Profit Before Tax – Rs. 283 Crores, which is 30%.** #### **Example 2 – Thyrocare** - Total Revenue – Rs. 403 Crores - Product Cost – Rs. 109 Crores - This means the **product cost is 26.4**%. - Total Revenue – Rs. 403 Crores - Business Cost – Rs. 167 Crores - This means the **business cost is 40%.** - Now, **Product Cost+ Business Cost = 66.4% ,which is 2/3rd of Total revenue.** - **Profit Before Tax – Rs. 138 Crores, which is 33.4%.** #### **Example 3 –** - Total Revenue – Rs. 1271 Crores - Manpower Cost – Rs. 520 Crores - This means the **manpower cost is 40.9**%. - Total Revenue – Rs. 1271 Crores - Business Cost – Rs. 341 Crores - That means the **business cost is 26.8%.** - Now, **Manpower Cost+ Business Cost = 67.7%** - **Profit Before Tax – 32.3%.** All the above companies are listed companies and are having nearly 33% of profits before tax. If you are not able to take One-Third portion revenue to your home,  then reduce or adjust the other costs so that you earn one-third revenue. If you are a product company, then see how you can implement the framework of one-third. How your Product Cost and business cost should become 2/3rd and profit before tax 1/3rd. # **Merits of One-Third Framework** - **`Clear Benchmark-`** A clear benchmark will set for your business that you have to work on the One-Third framework. - **`Owner & Managers –`** Owner and managers will be oriented and working in one direction only. - **`Ensures Profitability –`** The One-Third framework ensures profitability. You know you will earn profits. - **`Positive Cash Reserve -`** Your Cash Reserve will also be positive as there will be consistency in earning revenue. - **`No Track Deviation -`** You can immediately take a decision if you deviate from the track of the One-Third framework because you know on what numbers and the percentage you have to work. **_Either grow your revenue or optimise every cost to bring J-curve and One-Third._**