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Why is purchase price not included in total revenue?

Bain Case: BeautyCo – Where Did the Profits Go?
New answer on Nov 10, 2023
4 Answers
583 Views
Ben asked on Oct 11, 2023
Learning on PrepLounge

We calculate the company's total revenue as 1B euros. If the sample product has a purchase price of 30 euros out of a sale price of 60 euros, does that not mean that overall, 500M euros of the company's revenue goes towards purchasing the products for sale? And if so, then the speculated overhead costs of 920M would surpass the remaining 500M of revenue that needs to cover overheads and profit. 

In general, do market charts like Exhibit 1 exclude purchase price? This would be odd, given that different companies have different purchase prices, and that is part of their internal operations

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Cristian
Expert
Content Creator
replied on Oct 12, 2023
#1 rated MBB & McKinsey Coach

Hi Ben!

I see you received clarifying answers already. 

Sharing with you a few other cases that are highly rated and which are based on recent interviews (plus, they contain interviewer notes):
 

Best,
Cristian

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Benjamin
Expert
Content Creator
replied on Oct 11, 2023
Ex-BCG Principal | 8+ years consulting experience in SEA | BCG top interviewer & top performer

Hi,

I took a quick look at the case. Indeed it is quite confusing and probably that's why its not a high rated case. If 8% is the overall net margin for our client, than that margin has to include total variable costs as well (which t case doesn't in this in the first average margin calculation).

In general, market charts like Exhibit 1 (the variwide graph) will not include purchase price:

  1. The charts are normally meant to express revenue / sales for which you do not need purchase price 
  2. In reality, purchase price would be confidential as well so hard to get this

All the best!

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Ben on Oct 16, 2023

Ok, thank you Benjamin!

Ian
Expert
Content Creator
replied on Oct 12, 2023
#1 BCG coach | MBB | Tier 2 | Digital, Tech, Platinion | 100% personal success rate (8/8) | 95% candidate success rate

Hi there,

Benjamin is exactly right! I've aim for cases that are 4-star and above as it's a good indicator of the quality of the case!

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Charlotte
Premium
Skilled
replied on Nov 10, 2023
Coaching Program Manager at PrepLounge

Thank you for your question. We have reviewed and adjusted the case. We hope it is more clear now, and let us know if you have further feedback. Your PrepLounge team 

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Cristian gave the best answer

Cristian

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