"Our client's profits have declined 20% year-over-year. How would you diagnose the issue?"
Profitability cases are the most common case type. They test your ability to systematically diagnose business problems using a structured framework.
Start with the profit equation: Profit = Revenue - Costs.
Branch into revenue (price × volume) and costs (fixed + variable).
Ask clarifying questions to narrow the focus.
Drill into the specific area causing the decline.
I would start with the profit equation and systematically identify where the decline is coming from. First, is it a revenue problem, a cost problem, or both? On the revenue side: has volume decreased, or have prices dropped? If volume, is it across all products/segments or specific ones? Is the overall market shrinking or are we losing share? On the cost side: have fixed costs increased (rent, salaries)? Have variable costs risen (raw materials, distribution)? I would also check if this is industry-wide or company-specific. Let me start by asking: has the client's revenue changed year-over-year?
Always start with clarifying questions — do not jump into analysis.
Use the profit tree but adapt it to the specific case.
Be hypothesis-driven: form a hypothesis early, then test it with data.
Know them but do not mechanically apply them. The best candidates adapt frameworks to each specific case and show genuine business thinking, not framework regurgitation.
In practice, it is usually a combination. Common causes: pricing pressure from competitors, rising input costs, volume loss from market shifts, or operational inefficiency. The answer depends on the industry context.
Go deep in one area rather than shallow across everything. Once you identify the likely cause, drill into it with specific questions. Show prioritization.
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