Cookie and Privacy Settings

This website uses cookies to enable essential functions like the user login and sessions. We also use cookies and third-party tools to improve your surfing experience on preplounge.com. You can choose to activate only essential cookies or all cookies. You can always change your preference in the cookie and privacy settings. This link can also be found in the footer of the site. If you need more information, please visit our privacy policy.

Data processing in the USA: By clicking on "I accept", you also consent, in accordance with article 49 paragraph 1 sentence 1 lit. GDPR, to your data being processed in the USA (by Google LLC, Facebook Inc., LinkedIn Inc., Stripe, Paypal).

Manage settings individually I accept
expert
Expert with best answer

Sidi

99% Recommendation Rate

426 Meetings

4,129 Q&A Upvotes

USD 449 / Coaching

8

Initial structure a profitability case

Dear community,

I struggle with the initial structuring of the profitability case as I am not sure whether in my initial structure I should already include Economy & Market trends (Case In Point) or only stick to the internal perspective (Victor Cheng) and focus on competitive comparison later on when I go into detail in the different branches of the problem.

I am worried, that starting by asking about the economic & market trends in the beginning might be too early & unspecific, however only focusing the initial structure on the internal perspective with Profit = Revenues - Cost also sounds too little in detail.

Many thanks in advance! :)

Dear community,

I struggle with the initial structuring of the profitability case as I am not sure whether in my initial structure I should already include Economy & Market trends (Case In Point) or only stick to the internal perspective (Victor Cheng) and focus on competitive comparison later on when I go into detail in the different branches of the problem.

I am worried, that starting by asking about the economic & market trends in the beginning might be too early & unspecific, however only focusing the initial structure on the internal perspective with Profit = Revenues - Cost also sounds too little in detail.

Many thanks in advance! :)

8 answers

  • Upvotes
  • Date ascending
  • Date descending
Best Answer
Book a coaching with Sidi

99% Recommendation Rate

426 Meetings

4,129 Q&A Upvotes

USD 449 / Coaching

Hi,

In my view, the most important thing here is to understand the purpose of a structure:

Structuring a case does NOT mean to tell the interviewer what you're going to look at! This is not a structure - it's just a bucket list... and a pretty random one most of the time!

Structuring a case means to explain to the interviewer the LOGIC according to which you will answer the question at hand. "Areas to look at" are just a byproduct of this logic.

Therefore it is not very helpful to start with defining qualitative "buckets" to look at (e.g., "I'm going to start with looking at the market, then I want to understand the customers etc."). This is, at the end of the day, quite random, with no clear logic from which your areas are derived (other than "experience" or "gut feeling", both of which are not what MBB interviewers are supposed to assess!). If you think about it, this approach is the opposite of how you should work as a strategy consultant. Defining buckets and then hoping to find something interesting in there is pure explorative working - another word for this is "guessing".

One fundamental things that needs to be learned in order to rigorously disaggregate the value drivers of a business and, hence, business-related questions, is how to set up rigorous driver trees. The driver tree allows you to identify the numerical drivers and sub-drivers of your focus metric (e.g., profits). The qualitative elements (such as consumer demand, market structure, company operations, etc.) then have to be mapped to the sub-branches of the tree!

Hence, your analysis has two steps. Imagine you want to run a diagnostic on why profits have fallen:

1. First you need to identify the numerical driver of the problem (e.g., customer base is shrinking). This gives you an understanding of the WHAT has (mathematically) caused the problem (e.g., customer base has shrinked, which you would discover by drilling three or 4 levels down in your profit tree).

2. The second step is the understanding of the WHY (why has this cause emerged?). To do this, you have to examine the qualitative elements that link to the "number of customers"-sub-branch in your driver tree (e.g., competitive situation, market entries, new substitutes, relative price point, customer preferences, product/service properties vs. competition, etc.)

You can think of these qualitative elements as the typical business situation framework elements (see V. Cheng et al.) - but here, they are not hanging in the air, but they are embedded in a rigorous thinking frame which emerges from the disaggregation of value drivers and linking it to qualitative reasons.

Another aspect that is very important (and usually violated in Case Coaching books) is the principle of first isolating the numerical problem driver, before asking qualitative question. Never start your analysis with asking qualitative questions ("First I would like to get a general understanding of the market development" and such phrases)! This is practically the very definition of "boiling the ocean", i.e., working in an extremely inefficient way. First, you should seek to narrow down the area that you need to qualitatively understand - and this can be done very quickly by doing a numerical analysis as described above. Once you know where the problem comes from, THEN you can start to understand the qualitative reasons that underlie the negative development of this driver, and this analysis will be far more focused and concrete than if you would have tried to do it at the start.

Cheers, Sidi

Hi,

In my view, the most important thing here is to understand the purpose of a structure:

Structuring a case does NOT mean to tell the interviewer what you're going to look at! This is not a structure - it's just a bucket list... and a pretty random one most of the time!

Structuring a case means to explain to the interviewer the LOGIC according to which you will answer the question at hand. "Areas to look at" are just a byproduct of this logic.

Therefore it is not very helpful to start with defining qualitative "buckets" to look at (e.g., "I'm going to start with looking at the market, then I want to understand the customers etc."). This is, at the end of the day, quite random, with no clear logic from which your areas are derived (other than "experience" or "gut feeling", both of which are not what MBB interviewers are supposed to assess!). If you think about it, this approach is the opposite of how you should work as a strategy consultant. Defining buckets and then hoping to find something interesting in there is pure explorative working - another word for this is "guessing".

One fundamental things that needs to be learned in order to rigorously disaggregate the value drivers of a business and, hence, business-related questions, is how to set up rigorous driver trees. The driver tree allows you to identify the numerical drivers and sub-drivers of your focus metric (e.g., profits). The qualitative elements (such as consumer demand, market structure, company operations, etc.) then have to be mapped to the sub-branches of the tree!

Hence, your analysis has two steps. Imagine you want to run a diagnostic on why profits have fallen:

1. First you need to identify the numerical driver of the problem (e.g., customer base is shrinking). This gives you an understanding of the WHAT has (mathematically) caused the problem (e.g., customer base has shrinked, which you would discover by drilling three or 4 levels down in your profit tree).

2. The second step is the understanding of the WHY (why has this cause emerged?). To do this, you have to examine the qualitative elements that link to the "number of customers"-sub-branch in your driver tree (e.g., competitive situation, market entries, new substitutes, relative price point, customer preferences, product/service properties vs. competition, etc.)

You can think of these qualitative elements as the typical business situation framework elements (see V. Cheng et al.) - but here, they are not hanging in the air, but they are embedded in a rigorous thinking frame which emerges from the disaggregation of value drivers and linking it to qualitative reasons.

Another aspect that is very important (and usually violated in Case Coaching books) is the principle of first isolating the numerical problem driver, before asking qualitative question. Never start your analysis with asking qualitative questions ("First I would like to get a general understanding of the market development" and such phrases)! This is practically the very definition of "boiling the ocean", i.e., working in an extremely inefficient way. First, you should seek to narrow down the area that you need to qualitatively understand - and this can be done very quickly by doing a numerical analysis as described above. Once you know where the problem comes from, THEN you can start to understand the qualitative reasons that underlie the negative development of this driver, and this analysis will be far more focused and concrete than if you would have tried to do it at the start.

Cheers, Sidi

Book a coaching with Emily

100% Recommendation Rate

58 Meetings

2,137 Q&A Upvotes

USD 189 / Coaching

Hi,

I suggest you first find out where the problem lies, is it revenue, cost or both. No point going in asking economic & market trend without knowing whether these are relevant questions or not. E.g. If it is a company specific cost issue, you might be just wasting precious time of the case interview, and you'd run the risk of appearing to the interviewer as if you don't have a clear approach but just fishing for info.

For revenue and cost, you can elaborate into the next layer of details, and try to customise according to the context of the case.

Best,

Emily

Hi,

I suggest you first find out where the problem lies, is it revenue, cost or both. No point going in asking economic & market trend without knowing whether these are relevant questions or not. E.g. If it is a company specific cost issue, you might be just wasting precious time of the case interview, and you'd run the risk of appearing to the interviewer as if you don't have a clear approach but just fishing for info.

For revenue and cost, you can elaborate into the next layer of details, and try to customise according to the context of the case.

Best,

Emily

Book a coaching with Vlad

97% Recommendation Rate

406 Meetings

11,395 Q&A Upvotes

USD 239 / Coaching

Hi,

Hi,

I would recommend the following approach:

1) Ask clarifying questions:

- Clarify the business model (i.e. how the business works and what are the revenue streams / core products or business lines). 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.

- Clarify the objective both in money terms and timeline (e.g. Our objective is to increase profits by 5M in 5 years). When you have a to select from several options in a case - clarify the selection criteria

- Clarify other possible limitations if you feel that it's necessary

2) You make a classic profitability structure adapting it to the case. Sometimes cases are not that easy as just declining profits. For example, if the profits are lower than planned, it is either because we have problems with profits or we have problems with planning. Try to be MECE here.

3) Don't forget to split revenues into revenue streams / products

4) There are 3 ways to split your revenues further for individual products / revenue streams:

  1. Price / quantity / mix (for production companies)
  2. Number of customers / avg check (for retail, restaurants, etc)
  3. Market / Market share (when you are launching a new business and assessing feasibility)

While you do your structure and split revenues into price and quantity - and proactively the 3rd box with the "Mix". Thus you show your business sense and demonstrate that you know the most common case traps. Pls note that the "mix" can be anything - geography, customer, product, etc. You split the costs into fixed and variable.

5) Costs I would split into Fixed and Variable

6) I would start the case by checking whether its increasing revenues, declining costs, or both - so that you could eliminate the part that is irrelevant

7) If it is the quantity / customers problem I would further analyze whether it's the external market problem or internal one

Best!

Hi,

Hi,

I would recommend the following approach:

1) Ask clarifying questions:

- Clarify the business model (i.e. how the business works and what are the revenue streams / core products or business lines). 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.

- Clarify the objective both in money terms and timeline (e.g. Our objective is to increase profits by 5M in 5 years). When you have a to select from several options in a case - clarify the selection criteria

- Clarify other possible limitations if you feel that it's necessary

2) You make a classic profitability structure adapting it to the case. Sometimes cases are not that easy as just declining profits. For example, if the profits are lower than planned, it is either because we have problems with profits or we have problems with planning. Try to be MECE here.

3) Don't forget to split revenues into revenue streams / products

4) There are 3 ways to split your revenues further for individual products / revenue streams:

  1. Price / quantity / mix (for production companies)
  2. Number of customers / avg check (for retail, restaurants, etc)
  3. Market / Market share (when you are launching a new business and assessing feasibility)

While you do your structure and split revenues into price and quantity - and proactively the 3rd box with the "Mix". Thus you show your business sense and demonstrate that you know the most common case traps. Pls note that the "mix" can be anything - geography, customer, product, etc. You split the costs into fixed and variable.

5) Costs I would split into Fixed and Variable

6) I would start the case by checking whether its increasing revenues, declining costs, or both - so that you could eliminate the part that is irrelevant

7) If it is the quantity / customers problem I would further analyze whether it's the external market problem or internal one

Best!

Book a coaching with Clara

100% Recommendation Rate

55 Meetings

14,173 Q&A Upvotes

USD 229 / Coaching

Hello!

It´s a good question, and profitability cases are very very common -and also standarized!-

My suggestion would be to do both.

In the "economic" branch of the issue tree, include:

  • Profitability analysis, that breaks down into:
    • Revenues
      • Price x Quantity
    • Costs
      • Fixed vs. variable
      • other breaksdowns
  • External factors: also to be taken into consideration since they influence the first branch above presented. You can ask:
    • Are there any overarll market trends?
    • Do we know if our competitors are experiencing the same?
    • etc.

Hope it helps!

Cheers,

Clara

Hello!

It´s a good question, and profitability cases are very very common -and also standarized!-

My suggestion would be to do both.

In the "economic" branch of the issue tree, include:

  • Profitability analysis, that breaks down into:
    • Revenues
      • Price x Quantity
    • Costs
      • Fixed vs. variable
      • other breaksdowns
  • External factors: also to be taken into consideration since they influence the first branch above presented. You can ask:
    • Are there any overarll market trends?
    • Do we know if our competitors are experiencing the same?
    • etc.

Hope it helps!

Cheers,

Clara

Book a coaching with Ian

100% Recommendation Rate

233 Meetings

19,874 Q&A Upvotes

USD 289 / Coaching

Honestly, it depends! You need to think about the industry/business context, the company context, and the situationally/problem context. Only then can you create an appropriately tailored cost breakdown.

In general, for determining cost issues, you need to break down the problem into a tree/root-cause analysis and ask the highest level (but specific) questions first! In this way, you essentially move down the tree.

How do you identify where to look? Well, you need to look into whichever of the following 5 make the most sense based on where you are:

  1. What's the biggest? (i.e. largest piece of the pie...most likely to change the end result)
  2. What's changing the most? (I.e. could be driving the most and most likely to be fixable)
  3. What's the easiest to answer/eliminate? (i.e. quick win. Yes/No type of question that eliminates a lot of other things)
  4. What's the most different? (differences between companies, business units, products, geographies etc....difference = oopportunity)
  5. What's the most likely? (self-explanatory)

Honestly, it depends! You need to think about the industry/business context, the company context, and the situationally/problem context. Only then can you create an appropriately tailored cost breakdown.

In general, for determining cost issues, you need to break down the problem into a tree/root-cause analysis and ask the highest level (but specific) questions first! In this way, you essentially move down the tree.

How do you identify where to look? Well, you need to look into whichever of the following 5 make the most sense based on where you are:

  1. What's the biggest? (i.e. largest piece of the pie...most likely to change the end result)
  2. What's changing the most? (I.e. could be driving the most and most likely to be fixable)
  3. What's the easiest to answer/eliminate? (i.e. quick win. Yes/No type of question that eliminates a lot of other things)
  4. What's the most different? (differences between companies, business units, products, geographies etc....difference = oopportunity)
  5. What's the most likely? (self-explanatory)

Dear A,

Yes, at the begining I would recommend you to ask ony clarifying questions - about objective of the case, about business model of the company or about unfamiliar terms.

For structuring I would recommend you the main formula of what profitability is about.

Profitability = revenues - costs.

There are 3 typical ways on how you can structure the revenues and segment them:

1. by customers,

2. by products

3. by geographical markets

Regarding the costs you may structure them either in the fixed and variable cost, or may also structure them by different kinds of cost - like personell cost, material cost, etc. The other way to look about it is to structure the cost along value chain.

So, depending on the case you might use different approaches and segment your revenues and cost side.

Recently I've uploaded a profitability case “Deep Water rescue” (available in English & German) here on Preplounge:
https://www.preplounge.com/en/management-consulting-cases/candidate-led-usual-style/advanced/deep-water-rescue-206

I used similar cases when I was interviewing candidates on my own in Central Europe (Germany & DACH Region), Eastern Europe (Ukraine & Russia) as well as Middle East (Dubai, KSA, Lebanon, and Qatar). So, this case is very advanced and could be typically used in the 2nd or 3rd interview rounds by the leading consulting firms.

Try, whether you can crack it.

Best,
​André

Dear A,

Yes, at the begining I would recommend you to ask ony clarifying questions - about objective of the case, about business model of the company or about unfamiliar terms.

For structuring I would recommend you the main formula of what profitability is about.

Profitability = revenues - costs.

There are 3 typical ways on how you can structure the revenues and segment them:

1. by customers,

2. by products

3. by geographical markets

Regarding the costs you may structure them either in the fixed and variable cost, or may also structure them by different kinds of cost - like personell cost, material cost, etc. The other way to look about it is to structure the cost along value chain.

So, depending on the case you might use different approaches and segment your revenues and cost side.

Recently I've uploaded a profitability case “Deep Water rescue” (available in English & German) here on Preplounge:
https://www.preplounge.com/en/management-consulting-cases/candidate-led-usual-style/advanced/deep-water-rescue-206

I used similar cases when I was interviewing candidates on my own in Central Europe (Germany & DACH Region), Eastern Europe (Ukraine & Russia) as well as Middle East (Dubai, KSA, Lebanon, and Qatar). So, this case is very advanced and could be typically used in the 2nd or 3rd interview rounds by the leading consulting firms.

Try, whether you can crack it.

Best,
​André

Book a coaching with Antonello

98% Recommendation Rate

154 Meetings

5,191 Q&A Upvotes

USD 219 / Coaching

Hi, Cosentino's book is a great starting point to approach your preparation, but you should try to remain flexible in the structuring, by customizing your framework depending on the question, the client's problem and the industry

Best,
Antonello

Hi, Cosentino's book is a great starting point to approach your preparation, but you should try to remain flexible in the structuring, by customizing your framework depending on the question, the client's problem and the industry

Best,
Antonello

Book a coaching with Thomas

100% Recommendation Rate

23 Meetings

466 Q&A Upvotes

USD 149 / Coaching

This is a great question that I think many people struggle with. My advice is to try to understand the situation as much as possible before creating the structure. The way to do this is to create a model or list of questions that you want to have an answer to before you can recommend a solid structure. This list should include economic and market trends. If the interviewer prompts you to go to the structure immediately, add aspects as economic and market trends to your structure.

In my opinion, it is critical to ask those questions to establish a good starting point. You need to have a good understanding of the business before you can give any recommendations or drill down further. You will find that not all cases have this extra level of detail. In that case, the interviewer will likely give you a hint to continue.

This is a great question that I think many people struggle with. My advice is to try to understand the situation as much as possible before creating the structure. The way to do this is to create a model or list of questions that you want to have an answer to before you can recommend a solid structure. This list should include economic and market trends. If the interviewer prompts you to go to the structure immediately, add aspects as economic and market trends to your structure.

In my opinion, it is critical to ask those questions to establish a good starting point. You need to have a good understanding of the business before you can give any recommendations or drill down further. You will find that not all cases have this extra level of detail. In that case, the interviewer will likely give you a hint to continue.

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.

1 Q&A Quiz

Related case(s)

Bain Case: Old Winery

Solved 68.3k times
Bain Case: Old Winery You have inherited the “Old Winery” from your grandfather, a winery which has been family owned for five generations and can be dated back to the 16th century. Half of the eleven hectares are used to grow white grapes, the other half to grow red grapes. They are grown in the conventional way, i.e. they are not organically farmed and certified. The vine stocks are in a good condition regarding age and care. Overall, only ¼ of the harvest is made into wine by the winery itself; the rest is sold. Your grandfather never wanted to change the image of the winery and left the managerial and administrative task to a young and energetic wine-maker. Due to the not so well-known brand , the demand for the “Old Winery” wine is currently rather low. You do not intent to run the winery operatively, given your limited knowledge of wine making, but find the idea of owning a winery exciting. Your plan is to give the winery some fresh impetus.
4.4 5 1858
| Rating: (4.4 / 5.0)

You have inherited the “Old Winery” from your grandfather, a winery which has been family owned for five generations and can be dated back to the 16th century. Half of the eleven hectares are used to grow white grapes, the other half to grow red grapes. They are grown in the conventional way, i.e. ... Open whole case

DHL Consulting case: Books & Codes

Solved 64.6k times
DHL Consulting case: Books & Codes A friend of yours recently got promoted to the position of director of a university library. Yesterday, your friend received a call from the Ministry of Education, who offered him to be part of a national RFID pilot with his library. As your friend is unsure if he should pursue this option, he asks you for your advice. Your task is to assess the RFID technology for his library. How would you approach such a request?
4.6 5 4910
| Rating: (4.6 / 5.0)

A friend of yours recently got promoted to the position of director of a university library. Yesterday, your friend received a call from the Ministry of Education, who offered him to be part of a national RFID pilot with his library. As your friend is unsure if he should pursue this option, he asks ... Open whole case

Oliver Wyman Case: Setting up a Wine Cellar

Solved 59.2k times
Oliver Wyman Case: Setting up a Wine Cellar 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 appreciate in value several years down the line. The idea is to earn enough money with the “investment” section of the cellar in order to subsidize whatever I consume in the “drinking” section over time.   I'm obviously constrained by several things: the amount of money I am able to spend, the amount of wine I can (or want to) drink, the space available for the cellar, and so on.
4.3 5 3601
| Rating: (4.3 / 5.0)

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

zeb case: Quo vadis, customer?

Solved 58.7k times
zeb case: Quo vadis, customer? The bank "His Earlship Charles", a domestic retail and private bank is in a difficult situation. Profits have been declining over the past years due to the ongoing low interest rates set by the central bank. Additionally, the bank is suffering from a decreasing number of customers. The board of directors is worried about digitalization and wondering, whether the bank is adequately prepared for it. Please analyze the situation of the client and develop means to sustainably increase profits. Consider the worries expressed by the board of directors.
4.6 5 4496
| Rating: (4.6 / 5.0)

The bank "His Earlship Charles", a domestic retail and private bank is in a difficult situation. Profits have been declining over the past years due to the ongoing low interest rates set by the central bank. Additionally, the bank is suffering from a decreasing number of customers. The board of dire ... Open whole case

DHL Consulting case: Bike Shop

Solved 54.8k times
DHL Consulting case: Bike Shop 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 it was affected by the revenue decline, and what the priority actions are to survive the next year. (short term) In addition they would like to understand the strategic competitive position of the shop better and how to increase revenues again mid- to long-term.
4.3 5 11496
| Rating: (4.3 / 5.0)

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