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Mix for profitability and revenue growth cases

Carl asked on May 17, 2019

Hi,

I have a question regarding both revenue and profitability case. I will explain "the situation" and then what I am having some problem with.

First of all, during the clarifying questions I like to ask about the revenue streams to understand the business model. But then if there is a profit problem or revenue growth problem I like to ask about the mix or segmentation regarding either profits or revenues as my first question while solving the case.

Then, let's say that the interviewer gives me the mix of customer segments or distribution channels - do I never segment regarding revenue streams or should I do that in the second aggregation, i.e. first divide into e.g. customer segments and then proactively divide into product line/revenue streams?

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Ian
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replied on May 17, 2019
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I agree, that thread has helped me a lot with understanding this. The only thing that is unclear to me is when or if I should segment in to revenue streams. Because - I will first ask for profit segments, and if that happens to not be revenue streams or product line, should I still segment in to product line further down the line(e.g. when looking at revenues for the specific segment that the interviewer has given me). Or is it sometimes unnecessary to segment with revenue streams? — Carl on May 17, 2019

A revenue stream IS a segment! It is the entity that generates a stream of income. It doesn't matter if you call it revenue stream or profit stream or what not. One revenue stream generates a certain profit, which can be disaggregated into revenue and costs. — Sidi on May 17, 2019

Thank you Sidi. I agree that it is a segment, the question I am having is rather if it should always be used as THE segment. Let me explain with an example: I get a profitability case, I ask the interviewer for profit segmentation and he tells me go segment profits into customer segments. When I go deeper in to one interesting customer segments and go go revenue, Should I then segment again based on revenue streams (if the company has more than One) or should I never do segmentation within a segmentation, if it makes sense — Carl on May 17, 2019

Vlad replied on May 19, 2019
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Hi,

  1. Ask about the revenue streams in clarifying questions. Then you can split either the profits or revenues and costs into the streams
  2. Put the bucket mix and split particular revenues into volume, prices and mix.

Best

Thank you Vlad. So what you are saying is that I should always segment first into the revenue streams (if multiple). Then within the streams, ask for further segmentation ("mix")? — Carl on May 21, 2019

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