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.
expert
Expert with best answer
"I'd like to segment Revenue into its components" - Victor Cheng
3 answers
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!
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
"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.
Related BootCamp article(s)
Profitability Case
Learn to crack Profitability Framework Consulting Cases, which are the number 1 reason for real consulting projects and hence are an important case type.
Related case(s)
You have been hired to support the owner of a bike-shop as a business consultant. The bike-shop has suffered a significant revenue decline during the last year, and now the owner would like you to assess the situation and options for the way forward. They want to know last year’s profit, i.e. how i ... Open whole case
I’m thinking about setting up a wine cellar in my basement. The way I see it, shelf space would be divided into two sections: (1) a “drinking” section where I store bottles for my own consumption and (2) an “investment” section where I store bottles that I intend to sell at a profit after they appre ... Open whole case
Private Bank Anytown disposes total assets of approx. EUR 3 bn on December 31, 2014. The growth strategy of the institution determined at the end of 2010, however, has a higher impact on the cost side than on the income side. Aggregated to the return on equity as defined central parameter of the ba ... Open whole case
Your client, Customlope, is the leader in the US secure envelope manufacturing industry. Banks buy these envelopes for operations such as money deposits and high value transactions. Next year, a new digital technology will reduce the overall number of units sold in the industry by 25%. In the shor ... Open whole case
Your client is a chewing gum manufacturer. The CEO of the manufacturing company wants you to find out why his company is experiencing a declining profit margin. He then wants you to suggest ways to improve his company’s profit margin. Open whole case
