All questions tagged improving profitability - Consulting Q&A - PrepLounge.com

Hi,

Have you checked out the case library on this website?

https://www.preplounge.com/en/management-consulting-cases?language=en&topic[]=4&sort=real-case-desc&page=1&perPage=20

Here are also some more case books from universities which have loads of cases:

https://www.wallstreetoasis.com/forums/business-school-case-books

Hope this helps,
​Jorrit

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 numeric 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) While you do your structure you split the revenues first by the revenue streams (if you have multiple streams) and then into either:

• Price and quantity for the production companies. I also recommend to add proactively the 3rd boxn - 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.
• The number of customers and the average check for retail stores, restaurants, etc. You can further split the customers into traffic and conversion (if relevant, e.g. for a fashion store) and the avg check into the products and prices

3) Costs I would split into Fixed and Variable. VCs you can split further into costs per unit and units sold

4) 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. Then you dig deeper into the parts of your structure

5) You may split into internal / external causes on the price / qty level

Best!

Ciao Guillaume

I found a lot of good, profit / loss cases in the LBS case books. Especially in the one of 2012. Let me know if you have them. If not, I can share.

Cheers,

Andy

Hi Anonymous,

for question 1: theoretically yes, however you have to double check that product 3 is not required for the sales of the other two products since it is complementary (eg - you sell razors at a loss to sell blades at a profit). If that's the case, decreasing the volume of product 3 may lead to a decrease in volume for the other products not compensated by the target advertising, thus to an overall decline in profits.

for question 2: correct, you may have situations where margin decreases and absolute profits increase. For example:

• Revenues: 100
• Cost: 50
• Profit: 50
• Margin: 50/100=50%

Let's assume:

• Revenues increase: 10%
• Cost increase: 15%

Then:

• New revenues: 110
• New costs: 57.5
• New Profit: 52.5 (higher)
• New Margin: 52.5/110=48% (lower)

Of course, you may also have situations where the magin decreases and absolute profits decreases, which is the case when cost only increases. For example:

• Revenues: 100
• Cost: 50
• Profit: 50
• Margin: 50/100=50%

Let's assume:

• Revenues increase: 0%
• Cost increase: 15%

Then:

• New revenues: 100
• New costs: 57.5
• New Profit: 42.5 (lower)
• New Margin: 42.5/100=42.5% (lower)

Best,

Francesco

Hi,

In my opinion, it is absolutely fine starting with the standard Revenue and Costs structure to understand why profitability has declined. Effetively driving down each of these will lead to identifying the key issues that are impacting the case and you can then address more specifically how to fix them.

However, you are right to try and avoid being too generic and memorising standard structures. Remember though, that this should not mean that you shouldn't use simple structures if they make sense. The most important thing if you do use them is to ensure that you have understood the key issues / levers that matter to the case in question and bring them out in the second and third levels of your structure. That is how you avoid appearing to have memorised structures. For example, in a profitability tree, avoiding a generic Fixed vs Variable cost breakdown and instead identifying the key cost buckets that really matter for the client in question - these will be different if considering manufacturing vs pharma vs oil and gas.

Let me know if you have any more questions.

Best,

James

Hi Frank,

quoting a previous answer, theoretically you can use the BCG matrix in every interview (it’s public domain), however:

1. It would be better to focus on the content of the framework without mentioning the name. If you refer to a specific name such as “BCG matrix”, the interviewer will think you have just memorized something and repeated it.
2. You should personalize the framework connecting it to the specific goal of the case. The best way to do so would be to specify WHY you would like to use that particular framework.

As an example:

• Bad: I would like to apply the BCG matrix here
• Good: In order to understand better our client portfolio and how to generate additional €5M in revenues, I would like to analyse the positioning of each segment considering the growth rate and market share.

Hope this helps,
Francesco