"I'd like to segment Revenue into its components" - Victor Cheng

Question

As many of the readers of Victor Cheng might have noticed he is advising not to think too much about the possible ways to split revenues in a profitability analysis (#sales*rev./sale, price*quantity, #customers*rev./customer) but rather ask the interviewer directly for the segmentation to save time. I just want to run a reality check on this, do the interviewers today handle it the same way and hand you that arguably valuable information on a silver platter once you ask for it or would they ask you to make a reasonable assumption and explain why.

Answer 1

Hi,

Agree with Guennael,

I would ask about the revenue sources even earlier, in the clarifying questions before the actual structure. "Could you pls tell a bit more on how the company is earning money?"
If there are multiple revenue streams - you can segment the revenue by the revenue streams in your structure
If there is a single revenue stream - you simp0ly split the revenues into price / units / mix or customers / avg check

Best!

Answer 2

"I'd like to segment revenue into its components" is only the first part of the equation. Next, you must lay out how you will break that revenue down. That won't be sufficient though: If you ask point blank "what are the costs", I will think you are fishing for an answer and will then not want to help you.

Something like "Next, I want to look at the fixed costs; typicall costs I can think of would be rent and utilities; do we have numbers for these? Is there any other fixed cost I am not thinking of that would be relevant here?" => you show me you did your homework and came up with a couple of likely examples. Only then will I want to help you and move along.

PS: Probably >50% of all worldwide MBB admist for the last 7-8 years have used one or more of Victor Cheng's products. For better or for worse, he is basically the baseline reference now.

Answer 3

Rigorously disagregating revenue always means to break down revenue into the different streams at the first level, and then disaggregate further by means of Price*Quantity and further down.

Best, Sidi

Answer 4

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