“Our client’s operating profit has been falling for two years and they want to understand why.” This sentence opens a considerable share of case interviews, in the first round as well as in the final round. The profitability case looks simple, because everyone knows the equation profit = revenue − costs. That is precisely what traps candidates: they state the equation, break it down neatly, then stop at the moment the interviewer expects the real added value, namely the cause and the decision. This article walks through the case step by step, on a worked example with figures, to show what separates a correct breakdown from a consultant’s answer.
Why this case comes up so often
Firms do not choose this format out of laziness. Falling profitability is the problem their clients raise most often, in one form or another: a margin eroding in a division, a plant that no longer covers its costs, a branch network where part of the sites lose money. A candidate who can handle it shows they will be useful from their very first engagement.
The case also tests, in twenty-five minutes, almost every skill a firm evaluates. Boston Consulting Group describes on its case interview preparation page 🔗 what it expects: structuring the approach, asking thoughtful questions, analysing data, doing quick calculations and identifying the most important factors. McKinsey, for its part, stresses on its interviewing page 🔗 a point that directly concerns this case: there is not one logical solution, and the firm prefers an answer tailored to the problem over a standard framework pasted onto the prompt.
In other words, profitability is a field where everyone starts with the same equation. The difference is made afterwards.
The starting equation, and its limits
The classic breakdown has two branches:
- Revenue = volume × price, which can be split by product, by customer, by channel or by region;
- Costs = fixed costs + variable costs (unit cost × volume).
Stating this equation in the first minute is useful: it shows you have a foundation and gives the interviewer a shared starting point. But it has three limits worth keeping in mind.
It does not tell you where to look. A company selling ten product ranges in four countries has dozens of possible combinations. Unrolling every branch amounts to asking the interviewer to do the sorting for you.
It mixes symptoms and causes. “The average price has fallen” is an observation, not an explanation. The average price can fall because the company granted discounts, because a competitor slashed prices, or simply because the sales mix shifted towards cheaper products.
It forgets the market. A fall in profit is always read against something: are competitors also losing margin? Has the market shrunk? Without this comparison, you cannot tell whether the problem is specific to the client.
Good practice is therefore to state the equation, then say straight away how you will make it operational: “I will first check whether the decline comes from revenue or costs, then locate it by segment, and compare it with how the market has moved.”
Isolating the cause by segment
Take a typical prompt. A manufacturer of kitchen equipment for professional catering has seen its operating profit decline over two financial years. At your request, the interviewer gives you the following figures: revenue is stable, at around 200 million euros, but the operating margin has gone from 12% to 8%.
First reflex: since revenue is stable, the decline lies either in costs or in a reshuffling of revenue that hides a deterioration. You ask for the breakdown by business line. The interviewer gives three segments:
| Segment | Share of revenue, year 1 | Share, year 3 | Margin, year 1 | Margin, year 3 | |---|---|---|---|---| | Professional ovens | 50% | 35% | 18% | 17% | | Refrigeration equipment | 30% | 30% | 8% | 7% | | Maintenance contracts | 20% | 35% | 4% | 0% |
The reading happens in two steps. First, the margins of the first two segments barely move: that is not where the bulk of the problem lies. Second, maintenance has almost doubled its weight in revenue while its margin disappeared. The problem therefore combines a mix effect (the least profitable business weighs more) and a margin effect (that business now earns nothing).
This is the moment to say it out loud, before calculating anything else: “The decline seems to come from maintenance, which weighs more and no longer earns anything. I suggest we dig into this segment.”
Moving from figures to an explanation
Once the segment is isolated, the interviewer expects you to form hypotheses about the cause. This is where many candidates set off on a new abstract equation. It is better to reason like a consultant on an engagement, starting from the client’s business.
For a maintenance contract on professional equipment, the natural questions are:
- Revenue side: was the price of contracts cut to support growth? Were new contracts sold with discounts, or bundled free with the sale of ovens?
- Cost side: has the number of call-outs per contract increased? Do technicians drive more kilometres because the customer base has spread geographically? Has the cost of spare parts gone up?
- Organisation side: did the company hire technicians before it had the volume to keep them busy? Does it subcontract some of the call-outs?
Suppose the interviewer tells you that recent contracts were signed with fast-food chains present across the whole country, at a price about 20% lower than historical contracts, and that the number of call-outs per machine is higher there, because the equipment runs more. You have your explanation: the company grew maintenance by signing more demanding customers at a lower price, without adapting its cost model.
One last check is worth making: compare with the market. If the interviewer specifies that competitors have kept their maintenance margins, the hypothesis of general price pressure falls away, and the internal cause is confirmed.
Closing with a quantified recommendation
The end of the case is often rushed for lack of time. Yet it is what stays on the interviewer’s scoring sheet. A good conclusion fits in four sentences: the answer, the two or three pieces of evidence, the recommendation, and what should be checked next.
On our example, that would give: “The margin decline comes mainly from maintenance, which grew from 20% to 35% of revenue while becoming unprofitable. The cause is the signing of large accounts at a lower price, with more call-outs per machine. I recommend renegotiating these contracts when they expire, with per-call-out pricing beyond a flat fee, and grouping technicians’ rounds by area. We would then need to check how price-sensitive these customers are, so as not to lose the volume.”
If you have time, put a figure on the stakes: bringing maintenance back to its historical 4% margin on 35% of 200 million of revenue would represent about 2.8 million euros of profit. This simple calculation shows that the recommendation is worth the effort, and it is the kind of order of magnitude the interviewer writes down.
Corporate finance cases set in banks or finance departments follow another logic, centred more on financial statements and valuation: the page on role plays and practical cases in finance interviews 🔗 shows clearly the difference in tone with a consulting case.
The variants to know
The profitability case comes in several forms, which you would rather have met before the big day:
- The profit decline of a single unit: a plant, a store, a region. Comparison with the group’s other units replaces comparison with the market.
- The profitability of a new product: you must first estimate future revenue, often through market sizing, before reasoning about costs.
- The pure “costs” case: the client wants to cut costs by 10%. The breakdown is the same, but the conclusion is about concrete levers and their feasibility.
- The case with a price effect: the margin falls because raw material prices have risen; the question becomes the client’s ability to pass on the increase.
- The disguised case: the prompt talks about growth or an acquisition, but the question that matters is the target’s profitability.
For each variant, the logic remains the same: locate, explain, compare, recommend. Two cross-cutting skills make the difference: a structure built for the case rather than recited, detailed in our article on case interview frameworks, and accurate calculations talked through out loud, the subject of the article on mental arithmetic in consulting interviews. Vocabulary and questions change with the industry, which rewards candidates who read regularly about how businesses make money.
These cases highlight reflexes you can also show on your CV: a profitability analysis by segment carried out during an internship, in a Junior-Entreprise or on a project. The strategy consulting intern CV template gives a concrete example, with an analysis of a store network presented to the executive committee. To put your own background into shape, the ConseilCV editor takes care of the layout and produces a PDF that firms’ screening software reads without difficulty, which leaves you time to prepare your cases.
Frequently asked questions
Should you always start with the equation profit = revenue − costs?
It is a good starting point, as long as you do not stop there. State it in one sentence, then say how you will locate the decline: by segment, by product or by region, and relative to the market.
How much time should you spend on the structure?
One to two minutes of silent thinking are generally accepted, provided you announce it. The structure should then be presented in under a minute, with the two or three questions you want to investigate first.
What if the interviewer gives no data?
Form a hypothesis and ask to test it: “I assume the decline comes from one particular segment. Do you have the margin breakdown by business line?” An interviewer who gives nothing often expects you to reason qualitatively from the client’s business.
How can you practise this type of case effectively?
By playing cases out loud with a partner, varying industries, and forcing yourself to end each case with a quantified recommendation. The sample cases firms publish on their careers websites are a good starting point.
Sources
- Boston Consulting Group, Case interview preparation 🔗
- McKinsey & Company, Interviewing at McKinsey 🔗