Having trouble with Question 4 - Can Someone Please Explain?

case math First Time Case Interview! Help Appreciated! HelpASisterOut OnlineGo
New answer on Jan 16, 2020
2 Answers
979 Views
Anonymous A asked on Jan 15, 2020

For some reason having trouble figuring out question 4 ; maybe my brain is too tired, but help would be very much appreciated!

Overview of answers

Upvotes
  • Upvotes
  • Date ascending
  • Date descending
Best answer
Clara
Expert
Content Creator
replied on Jan 16, 2020
McKinsey | Awarded professor at Master in Management @ IE | MBA at MIT |+180 students coached | Integrated FIT Guide aut

Hello!

Before putting the numbers, might help u to solve it "theoretically". Write both equations from both situations (revenue - fixed cost - variable cost) and outline which is the factor you are missing, since that is the answer you are looking for.

Hope it helps!

Cheers,

Clara

Was this answer helpful?
Anonymous A on Jan 17, 2020

You're awesome, thank you!

Antonello
Expert
Content Creator
replied on Jan 15, 2020
McKinsey | MBA professor for consulting interviews

Hi,
Old situation:
-- 10M subscribers
-- 20$/month subscription fee
-- 1800$/year goods sold per subscriber
-- 3% commission for each transaction
-- 1B$ fixed cost
-- 110M$ variable cost per subscriber
--> this leads to a profit of 20$/month per subscriber

New situation:
-- 10M subscribers (same)
-- 10$/month subscription fee (change)
-- x$/year goods sold per subscriber (what we have to calculate)
-- 3% commission for each transaction (same)
-- 1B$ fixed cost (same)
-- 110M$ variable cost per subscriber (same)
--> Costs remain constant (no factor changed): C = 1B$ + 10M*110M$ = 2.1B$
--> To maintain the same profitability Revenue per customer should be the same: R_new = 12*10$ + x*3% = R_old = 12*20$ + 1800$*3% = 294$
--> x = (294$ - 120$) / 3% = 5800$

Hope it helps,
Antonello

Was this answer helpful?
Anonymous A on Jan 15, 2020

Amazing, thank you so much

Clara gave the best answer

Clara

Content Creator
McKinsey | Awarded professor at Master in Management @ IE | MBA at MIT |+180 students coached | Integrated FIT Guide aut
65
Meetings
16,648
Q&A Upvotes
65
Awards
54 Reviews