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., Stripe, Paypal).

Manage settings individually I accept
3

Profitability case framework approach

Hi everyone!

I have a question regarding Profitability case framework. Currently I see two approaches:

1) Profit = Revenue - Cost, and then Market/Consumer/Competition/Company is covered behind either Revenue or Cost depending on the case.

2) 2 branches: External factors (Market, Consumer, Competition), Internal factors (Profit components and Company itself).

Please, kindly clarify which approach is best and why?

Many thanks in advance!

Hi everyone!

I have a question regarding Profitability case framework. Currently I see two approaches:

1) Profit = Revenue - Cost, and then Market/Consumer/Competition/Company is covered behind either Revenue or Cost depending on the case.

2) 2 branches: External factors (Market, Consumer, Competition), Internal factors (Profit components and Company itself).

Please, kindly clarify which approach is best and why?

Many thanks in advance!

3 answers

  • Upvotes
  • Date ascending
  • Date descending
Best Answer

Hi Anonymous!

Both are valid approaches. As a rule of thumb,
1) is more suitable for a quantitative assessment (e.g. "By how much has profit declined?"), while
2) seems like a good approach for a qualitative question (e.g. "Why has profit declined?")

As in all driver trees, the order of levels is not fixed and should be adjusted based on the question and situation at hand.

Hope this helps!

Chris.

Hi Anonymous!

Both are valid approaches. As a rule of thumb,
1) is more suitable for a quantitative assessment (e.g. "By how much has profit declined?"), while
2) seems like a good approach for a qualitative question (e.g. "Why has profit declined?")

As in all driver trees, the order of levels is not fixed and should be adjusted based on the question and situation at hand.

Hope this helps!

Chris.

(edited)

Hi,

I think there is no single rule to choose which one might the best option.

If you are dealing with market entry case, then you could talk about for the following:

1)Profitability

2)Company/Product

3)Industry

4)Competition

All of those will be valid areas to look into since you might want to analyze how each can affect your potential goal.

In a more specific case where the client already entered into business and there is a profitability issue, you might want to breakdown as Internal/External or still use a combination of the factors I mentioned above.

The goal is to be flexible on any case and not force fit any pre-designed framework but be quick and flexible enough to create one on the spot. That's how it sounds authentic. Also there are many cases where you can't simply use any of the frameworks above (exception Profitability) like:

-Why are the number of giraffes decrease in Australia?

-Why did the elevator wait time increased in client's office last year?

Hi,

I think there is no single rule to choose which one might the best option.

If you are dealing with market entry case, then you could talk about for the following:

1)Profitability

2)Company/Product

3)Industry

4)Competition

All of those will be valid areas to look into since you might want to analyze how each can affect your potential goal.

In a more specific case where the client already entered into business and there is a profitability issue, you might want to breakdown as Internal/External or still use a combination of the factors I mentioned above.

The goal is to be flexible on any case and not force fit any pre-designed framework but be quick and flexible enough to create one on the spot. That's how it sounds authentic. Also there are many cases where you can't simply use any of the frameworks above (exception Profitability) like:

-Why are the number of giraffes decrease in Australia?

-Why did the elevator wait time increased in client's office last year?

Book a coaching with Andre

100% Recommendation Rate

83 Meetings

3,805 Q&A Upvotes

USD 239 / Coaching

Dear A,

There are different ways to structure the profitability case. But I see here the most clear IMHO is first approach, where you can segment Revenues and 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,

There are different ways to structure the profitability case. But I see here the most clear IMHO is first approach, where you can segment Revenues and 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

Related BootCamp article(s)

Focusing on The Core: Mock Interviews

It is to practice as many cases as possible - both as interviewee and as interviewee. Here are a couple of guidelines to help you get started

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

Case Studies

The case study is the most important element of the case interview, which you'll have to nail in order to get into strategic consulting. Here you can learn the specific skills and concepts necessary to solve them.

1 Q&A

Related case(s)

DHL Consulting case: Books & Codes

Solved 57.4k 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 4626
| 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

Bain Case: Old Winery

Solved 56.3k 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 1488
| 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

zeb case: Quo vadis, customer?

Solved 51.6k 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 4290
| 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 49.6k 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 11242
| 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

Oliver Wyman Case: Setting up a Wine Cellar

Solved 49.4k 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 3474
| 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