Profitability cases

Intuition

Profitability cases are the bread and butter of consulting interviews, and they're the most learnable because they're the most structured. "Profits are down, why, and what do we do?" Every one of them yields to the same opening move: profit is revenue minus costs, so figure out which side broke. It's diagnosis before treatment, the way a doctor isolates the symptom before prescribing.

The candidates who struggle are the ones who jump to solutions ("cut costs!") before diagnosing. The ones who shine walk the tree calmly until the single driver pops out.

Framework

• Start with the profit equation. Profit = Revenue − Costs. Establish whether profit fell from the revenue side, the cost side, or both.
• Drill the broken side. Revenue = Price × Volume (then segment by product, region, channel, customer). Costs = Fixed + Variable (then find the line item that moved).
• Quantify and isolate. Use the data to pin the change to one branch, "the entire drop is variable cost, specifically shipping."
• Then prescribe. Only after the driver is isolated do you recommend, and tie the fix to the diagnosed cause.

Worked Example

A meal-kit company's profit fell 20% on flat revenue. Revenue flat → it's a cost problem. Split costs: fixed (kitchens, salaries) is steady; variable costs rose. Within variable, ingredient cost per box jumped after a supplier change. Diagnosis: a procurement problem, not a demand problem. Recommendation: renegotiate or re-source the contract, hedge key inputs, and check whether the prior supplier's quality justified the lower price. Notice the answer came from the tree, you didn't guess "cut costs" up front.

Contrast a weaker run: a regional airline's profit fell 15%, and the candidate opened with "fuel is expensive, hedge it." The strong run walked the tree instead: revenue down 8% on flat prices, so volume fell; segmenting by route showed the loss concentrated on the five routes where a low-cost carrier had just entered. Diagnosis: competitive pressure on specific routes, not a cost problem at all. "Hedge fuel" would have treated the wrong disease. Same opening equation, opposite conclusion, because the data led.

In the room

After the prompt, take ten seconds, then open with the equation: "Profit is revenue minus costs, so my first step is to establish which side is driving the decline. On revenue I'd decompose into price and volume and segment by product and region; on costs, fixed versus variable, looking for the line that moved." Then ask for your first number: "Could I see how revenue has trended over the same period?" The question interviewers ask next is nearly always a steer, "revenue is flat; where do you go?" Don't treat it as a trick. Prune out loud: "Flat revenue rules out the demand side, so I'm going to the cost branch, fixed versus variable first." Killing a branch with one number is exactly the behavior the case is designed to test.

Pitfalls

• Jumping to recommendations before isolating the driver.
• Stopping at "it's a cost problem" without finding the specific line item.
• Forgetting to segment revenue, the drop is often hidden in one region or product while the total looks mild.