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Why start with the revenue side?

Anonymous A asked on Sep 17, 2018

Hi everybody,

I recently had a profit and loss case as an interviewee and was asked where I'd like to start. I think I recall having read once that one should always start with the revenue side to diagnose a problem and do the cost side thereafter. I was asked if I knew why it makes sense to start with the revenue side but couldn't come up with a reason. It didn't matter in the end and I still got the offer but I was curious what are good reasons for this approach?

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Alessandro
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replied on Sep 19, 2018
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Agree with the reasons given by other experts.

To provide a simple, uncontroversial answer - Profits = Revenues MINUS costs.

You start to look at the revenues, then you subtract the costs, and you arrive at profits.

Figuring out the costs first, then figuring out the revenue, then taking the first number and subtracting it from the second number, just seems unnatural and confusing. There is a reason why on an income statement, it's always revenue at the top and cost at the bottom.

Vlad replied on Sep 17, 2018
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Hi,

There is no definite answer here and you can start with the costs and solve the case successfully. However starting with the revenues will help you understand the big picture first (Revenue streams, competition, etc). Thus you will switch to the cost side haviing this knowledge.

Elias
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replied on Sep 17, 2018
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Well, one reason could be that some costs may be related directly to revenues (i.e. payment transaction costs) or to revenue drivers (number of customers, number of orders).

It also just seems more natural.

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