Point in Profitability Cases

Hi,

I think you have several misconceptions here:

1. Profitability is NOT the most common case type. There is a lot of them at Bain, while McKinsey almost doesn't have them
2. It doesn't matter how the case starts. It can be profitability at the beginning and then the complicated ops problem on the cost side. You should be constantly structuring throughout the case- and this is the greatest problem for candidates.

Basic profitability cases have several pitfalls:

1. I recommend asking the clarifying question at the beginning of the case: How does the business work and what are therevenue streams? Why do you need to know the revenue streams? Because it's one of the most critical pieces in understanding the business model. An example is Oil&Gas with up-, mid- and down- streams that are completely different businesses. And downstream basically generates 50% of revenues selling snacks on the gas stations. This is the most common pitfall in profitability cases - when you start splitting up revenues into price and QTY without understanding the revenue streams

2. While you do your structure and split revenues into price and quantity - add proactively the 3rd box with the "Mix". Thus you show your business sense and demonstrate that you know the most common case traps. While presenting the structure, provide some examples of what can be under the Mix bucket - geography, customer, product, etc.

3. Split the revenues first by the revenue streams (if you have multiple streams) and then into either:

• Price and quantity (and mix) for the production companies
• The number of customers and the average checkfor retail stores, restaurants, etc. You can further split the customers into traffic and conversion (if relevant, e.g. for a fashion store) and the avg check into the products and prices

Good luck!

Increasing profitability is a common outcome most clients are trying to achieve when they hire consultants. Its wrong to assume that a profitability case would be easier to solve than other case type. However, the initial framework i.e. R-C is easier to envisage and most often that it is applicable. Firms are testing you on structure, critical thinking, communication etc. so the case type really does not matter.

Its important to come up with a multiple hypothesis in a profitability case and seek information to prove it and move to other branches of analysis if the data indicates that your original hypothesis was incorrect.

Profitability framework might help you to identify the root cause but while providng insights into how the company can increase profitability you would need employ a different framework , such as delving into customer (new distribution model for reaching consumer , improve customer experience), competition (entry of new competition or alternate product substitutes), cost (reduce raw material cost, reduce cost through economies of scale) etc.