The Profit Matrix: A Consultant’s Guide to Structuring Profitability in Case Interviews
If you're preparing for a consulting interview, you’ll likely come across profitability cases. The Profit Matrix is a powerful framework to break down the core drivers of profit and structure your analysis logically. Whether you’re tackling a case about a struggling business or identifying revenue opportunities for a client, this method will help you craft a clear, data-driven response.
The Simple Profit Formula: A Consultant’s Go-To Approach
At its core, profit is simply:
Profit = Revenue - Costs
In an interview, structuring your approach properly is key. Let’s break it down into its two main components: Revenue(money coming in) and Costs (money going out), and understand where optimizations can be made.
1. Revenue: The Growth Lever
Revenue is the total income a business generates. The basic formula:
Revenue = Price per Unit x Nr of Units Sold
How to Approach Revenue in a Case Interview
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Ask about pricing strategy: Can the company increase prices without losing customers?
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Assess volume growth: Are there opportunities to increase sales through marketing, expansion, or partnerships?
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Explore new revenue streams: Can the company introduce complementary products or services?
Example: Consulting Interview Question
Client: A red-light therapy studio is experiencing declining profits. How would you analyze its revenue streams?
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Current price per session = 22$
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Number of sessions booked per month = 500
Total Revenue = 22 x 500 = 11 000$
Possible solutions:
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Introduce premium-priced packages
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Upsell memberships or bundle services
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Improve marketing to increase session bookings
2. Cost Analysis: Finding Efficiency Gains
Costs are divided into Fixed Costs and Variable Costs.
Fixed Costs: The Baseline Expenses
These don’t change with output and need to be optimized carefully.
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Rent
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Staff salaries
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Marketing
For the therapy studio:
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Rent = 2,000$
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Staff salary = 3,000$
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Marketing = 500$
Total Fixed Costs = 5,500$
Consulting Considerations:
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Can we renegotiate rent or relocate to a lower-cost space?
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Is staff utilization optimized?
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Can marketing be shifted to more cost-effective digital strategies?
Variable Costs: Expenses That Scale with Sales
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Electricity per session
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Supplies per session
Example:
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Electricity per session = 2$
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Total sessions = 500
Total Variable Cost = 2 x 500 = 1 000$
Consulting Considerations:
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Are there supplier contracts that can be renegotiated?
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Can process efficiencies reduce waste?
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Can the business switch to lower-cost materials or utilities?
Structuring a Profitability Case in an Interview
When faced with a profitability case, structure your approach as follows:
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Clarify the Problem: What specific aspect of profitability is declining—revenue, costs, or both?
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Break Down Revenue: Assess price, volume, and possible new revenue streams.
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Analyze Costs: Identify fixed vs. variable costs and look for optimization opportunities.
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Synthesize Insights: Recommend solutions based on the biggest impact areas.
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Prioritize Execution: Identify quick wins and long-term strategies.
Final Thoughts: Nail Your Consulting Interview
The Profit Matrix isn’t just a theoretical framework—it’s an essential consulting tool. By mastering this breakdown, you can confidently approach profitability cases with a structured and logical mindset.
Next time you get a case about declining profits, take a deep breath and walk through this matrix step by step. That’s how consultants think, and that’s how you’ll impress your interviewers.