Profitability is one of the most classic case types in consulting interviews—and for good reason. It’s a foundational problem that tests your ability to break down financial performance, prioritize drivers, and recommend actionable solutions.
Most profitability cases follow the same root structure: Profit = Revenue – Costs. Your job is to figure out which component is underperforming and why, then propose a way to improve the bottom line.
1. Start with the Basic Equation
Profit = Revenue – Costs
This simple formula should be the backbone of your approach. From here, you can break down each component into more detailed branches. Start broad, then drill down where needed.
2. Break Down Revenue
Revenue is generally the product of price × volume. Breaking it down helps you identify whether a drop (or stagnation) in revenue is due to pricing strategy, market demand, customer behavior, or other issues.
- Price per unit: Has the client changed prices recently? Are discounts affecting average selling price?
- Volume sold: Has the number of units or customers decreased? Has market share shifted?
- Customer mix: Are high-value customers churning?
“To analyze the revenue side, I’d like to split it into price and volume. That will help us understand whether we’re facing a demand issue or a pricing challenge.”
3. Break Down Costs
Costs are typically split into fixed and variable components. Fixed costs remain constant regardless of output (e.g., rent, salaries), while variable costs depend on volume (e.g., raw materials, shipping).
- Fixed costs: Are there any large, one-time increases? Can we optimize overhead?
- Variable costs: Are raw material prices rising? Is production inefficient?
- Cost per unit: Has it changed over time? Why?
“On the cost side, I’ll divide expenses into fixed and variable categories. That’ll help us see whether cost structure or operational inefficiencies are impacting profits.”
4. Add a Time Dimension
Once you have the revenue and cost breakdown, look at how they’ve changed over time. Ask for monthly or quarterly data if available. Trends often reveal what snapshots can’t.
- Was there a sudden spike in costs?
- Did sales decline gradually or suddenly?
- Were there external events (seasonality, new competitors, regulation)?
5. Prioritize the Biggest Drivers
After identifying changes in revenue or cost, prioritize based on magnitude and impact. Focus on what matters most.
“It looks like the main driver of profit decline is a 15% drop in volume, specifically among repeat customers. That’s where I’d like to focus.”
This keeps your analysis efficient and shows good business judgment.
6. Recommend Actionable Solutions
Once you’ve diagnosed the problem, suggest concrete steps to address it. Your ideas should target the root cause and reflect real-world feasibility.
- If price is too low: Can we raise it without losing volume?
- If volume is down: Can we increase marketing, enter new segments, or improve loyalty?
- If costs are high: Can we renegotiate supplier contracts, automate processes, or consolidate facilities?
“To improve profitability, I’d recommend investing in customer retention initiatives and reviewing discount policies. At the same time, we could explore renegotiating variable costs with suppliers.”
7. Watch for External Factors
Not all profit changes are internal. External drivers like market trends, competitor moves, or economic shocks can play a big role. Always ask:
- Have new competitors entered the market?
- Is the industry contracting?
- Has customer behavior shifted post-COVID or post-recession?
Final Thoughts
Profitability cases are common—but they’re also full of nuance. A structured breakdown of revenue and cost is just the beginning. The best candidates go beyond the math: they ask smart questions, prioritize clearly, and connect their insights to business reality.
Start with the formula, dig deep into the drivers, and don’t stop until you have a recommendation the CEO could act on.