Paragraphs highlighted in green indicate diagrams or tables that can be shared in the “Information to share” section.
Paragraphs highlighted in blue can be verbally communicated to the interviewee.
Paragraphs highlighted in orange indicate hints for you how to guide the interviewee through the case.
Suggested case structure:
The information gathering on the revenue side is rather straightforward.
If the interviewee asks for revenue information, first ask them to estimate possible revenue streams.
Then share Table 1 with an overview of the revenue.
Market information that can be share if inquired:
People above the age of 60 usually occupy the homes for long periods of time.
We do not have information on our competitors.
The new Munich homes generate much more revenue per apartment and are better utilized than those in Berlin (Munich’s occupancy rate is 90%. Berlin’s is 75%.)
The cost side is more important to better understand the profitability issue.
The interviewee should inquire about cost information.
This information should NOT be directly given away!
The interviewee should brainstorm the main cost segments.
Then share Table 2 with an overview of the costs.
The empty cells shall be filled by calculations of the interviewee!
Table 3 contains the fully calculated version.
Market information that can be shared if inquired:
The company itself has almost no employees (apart from administrative and customer relationship positions). Every on-site service is outsourced to other companies.
The SG&A costs for the Berlin home did not decrease after the Munich home was launched.
Costs per apartment are higher in Munich. (Higher-end offerings; the city is relatively more expensive.
Munich has an additional cost - the entertainment center.
The interviewee can now use the following formula to calculate the profit for both facilities.
Profit = Revenue - Cost
If the interviewee gets stuck, the interviewer can give the interviewee some hints.
Table 4 contains a complete calculation of the profits. It should only be shared after the interviewee has completed his/her own calculations.
The new business in Munich is profitable. Although its absolute profit is lower than Berlin’s absolute profit, its profit margin is slightly higher (17% versus 16%).
If the client is satisfied with the performance of his Berlin retirement home, he should also be satisfied with the performance of his Munich retirement home.
The interviewee should summarize his or her findings and give the client a solid recommendation.
The client was concerned about the profitability of his new retirement home in Munich. However, after calculating the profits of both the Munich and Berlin homes, we see that the Munich home has a higher profit margin than the Berlin home.
There are a few ways that client could improve the retirement home’s profitability (the interviewee could suggest other ways).
- Increase the Berlin’s home’s occupancy rate:
25% of apartments are not occupied. If the client can increase occupancy rate by 10%, the client’s profit will increase by €10,000 (= (800 - 300) * 10% * 200).
The client should try to make the Berlin home more attractive to customers. The client could build an entertainment center (similar to the one in the Munich home) or by conducting an aggressive advertising campaign targeted towards people with parents who are above the age of 60.
- Reduce costs through synergies:
SG&A costs in Berlin did not decrease after the Munich home was launched. SG&A costs in both cities are similar. (€8,000 in Munich and €10,000 in Berlin).
The client could centralize departments such as customer support, HR, purchasing, and sales.
- Create new revenue streams:
Currently, the only revenue stream is apartment rental. The client could partner with companies who provide products and services for elderly people.
Since the rent does not include breakfast or dinner, there could be small shops and restaurants built near the homes. Coaches could train people in sports.