Better Profitability Cases: 3 Alternative Revenue Models To Impress In Your Case Interviews

If you've found this video helpful, you're gonna LOVE our free course at www.craftingcases.com/freecourse -- click the link for more info.
**
Learning Frameworks is by far the most important part of your case interview preparation, especially if you're focusing on the top firms: McKinsey, BCG and Bain.
Everyone solves profitability cases the same way. As with anything case interview related, there's no inherent problem in that, except when everyone's doing the wrong way. And that's surprisingly common among candidates.
Real consultants from McKinsey, Bain or BCG rarely break down revenues into Price * Quantity. Instead, they break it down using a formula that respects the business model of their client.
And so should you, in your case interviews.
In this video I'm going to show you 3 alternative ways to break down revenues that are really really common in cases. Just by being aware of these and knowing when to use them (as I show in the video), you're going to stand out from other candidates right at the start of the case.
You can use the same kind of reasoning to other types of cases, such as market entry cases, M&A cases and others.
Tell me in the comments if you've liked this video and what you've liked about it.
Table of contents (so you can find stuff later in the future):
01:03 - Understanding P * Q and when to use it
03:18 - Alternative Model #1: The Sales-centric model
06:29 - Alternative Model #2: The Customer-centric model
10:19 - Alternative Model #3: The Subscription model
14:14 - Other alternatives
If you've liked this video, make sure you click the Like button and leave a comment below! (This lets KZbin know this video's good and will make it show it to more people).
If you want to hear more from us, click Subscribe (and click the Alarm Bell button if you want to get notified whenever we release a new video).
If you have any questions, ask it in the comments below - I'll read and answer each one of them and may even make a video about it, who knows!
And if you know someone (or someones) who might benefit from our videos, make sure you share it using the Share button next to the Like button.
Hope the best for your case interview preparation and I'll see you on the next video :)
Bruno

[@CraftingCases]

If you want to see more videos than the ones that are on KZbin, you'll like to know that our free course has 30+ of our BEST videos organized in a way that will help you SYSTEMATICALLY improve your case solving. It's 100% free. You can learn more get instant access to it at www.craftingcases.com/freecourse

[@TheVincedagreat]

0 dislikes. Sounds about right. Well done, Bruno and Julio I've watched you guys so much I feel like I have two genius Brazilian older brothers.

[@carlosguedes1579]

Hi, Bruno! Those models are really useful, great video! I solved a case a few days ago before watching this video, the case was about a computer and communication company selling 5 types of products: supercomputers, satellites, telecom equipment, operating software and custom applications. I broke down the revenue in the traditional way and I got in trouble doing that, even though I was able to crack the case. After watching this video, I believe I could've broken down the problem first into two classes of products: hardware products that pass through manufacturing and have related services (supercomputers, satellites and telecom equipments), and software produtcs with related services (operating system and custom application). I could've used price times quantity for the hardware products (maybe broken by product) and the custumer-centric model for the software products. I believe I would've got more insights doing that. Or I could've used the client-centric model to approach the entire problem without broken into parts. Thanks for sharing this content! All the best!

[@CraftingCases]

Hey Carlos, I hope you didn't get into too much trouble because of that, but I'm really glad you were able to notice that your solution wasn't optimal and what you should've done instead. Sometimes our best learnings come from our own mistakes, as these are situations we rarely forget. In this specific situation, what you could do to choose which among the two approaches you've suggested is to ask a clarifying question: "are the clients for all these 5 types of products the same types of companies?" If so, the client-centric approach for the entire problem seems like the best option, if not, then dividing into hardware and software as you suggested seems like the best idea.

[@anaisbitoun9517]

Great video, especially the part on the subscription model - I had a case like that in an interview but didn't think of it this way, so it's very helpful! Thanks for sharing with us your awesome content

[@CraftingCases]

Well pointed out Anais... My guess is that some interviewers will "prey" on candidates who are fixed in using an off-the-shelf framework, as they already know the tendencies of most people (because they see memorized candidates every day). Would you mind sharing more about your interview? No need to share specifics on which firm or office, but what the case was about and what were the tricky parts.

[@niranjansitapure7752]

This was very insightful. Especially for new cases where subscription models seem pretty common.

[@dellanina88]

Very insightfull and really helpfull ideias!! Thank you very much for sharing it, Bruno. Please keep posting more videos!!!

[@CraftingCases]

Glad to be of help! If I were to do one video to address one of your main concerns, what topic would you like me to cover?

[@bukhtawarwaqar9365]

Super helpful, as always. Thanks Bruno!

[@kangseoyeon7893]

Hi, I found your revenue formulas to be very helpful. I'd like to ask for a video on alternative cost models rather than FC/VC.

[@dinocollins720]

Thanks Bruno these videos are awesome!

[@julianakuhni]

Reaaaaally helpful! Thanks guys

[@tottibrotta4247]

Crafting Cases has helped me so much. I used your free online course. This stuff can't be free! I'd love to donate to your channel. How can I do so?

[@CraftingCases]

Hey Totti, we don't take donations, but glad you like the content so much! How has it helped you so far?

[@aknkocak8588]

Helped a lot. Thank you so much.

[@helenavegalara9832]

Hi Bruno! Great content, thank you so much!

[@miriammenicuccig]

So helpful ! Thanks.

[@PandaMengG]

Brilliant! Excellent your video!

[@juliay3833]

Hi bruno, Just want to add a small branch of revenue breakdown for limited capacity situation. Things like restaurant or cargo shipment where in theory the total capacity is capped. we could then use R = total capacity per operation * occupancy rate * shift of operations. This will acknowledge the business model where maximise occupancy rate and increase shifts turn over rate (restaurant table turn over rate) are important. This approach can even be tweaked for heavy investment industry like mining where the entire project is running 24/7 to max the "shift". In this case, occupancy rate become irrelevant or it can be tweaked as breakdown losing rate where maintenance is occurred to disturb the full capacity. Also, in mining case, the grade of output will be vital for the final revenue. But key of analysis is acknowledge the capacity is limited and business aim to max it. Just small thoughts after went through your course material. cheers!

[@CraftingCases]

Thank you for the contribution Julia! This does make a lot of sense, and it’s a pretty clever approach for capacity-based projects where the demand is somewhat stable, predictable and/or known. Electricity distribution, a Starbucks in a busy comercial district, airports and an “infinite demand” 3 Michelin Stars restaurant are some examples where this model could make sense.

[@rarehuman]

@@CraftingCases For Airports: how about breaking down airport revenues into two streams - Aeronautical (everything related to aircraft movement incl navigation svcs.) and non aeronautical (commercial) and further break it down to a root cause in terms of loss or develop further hypothesis if the question is how to increa profits

[@alexisyates28]

Thank you this is great :) I have called it 'Julia's Capacity-Centric Model'

[@CraftingCases]

Let's do something different, shall we? Share an industry that's interesting to you and try to guess how do they think about their revenues **as a formula** - this will train your mind to think about revenue models and help us build a catalog of revenue models or revenue formulas. I'll go first - here are two potential ways a Broadcast TV Channel may think about their revenues... From a demand/viewership perspective: Revenues = # of viewers * avg. hours watched per viewer * avg. ad revenue per hour watched per viewer. From a supply perspective: Revenues = # of seconds of ad slots * avg. revenue per second of ad slot. Which one do you think is better to describe a TV channel business model? And what other industries with interesting revenue models can you think of?

[@felixyoung9011]

Hi Bruno, thanks for the insights! It really helps me! Whats about a company with different revenue streams? I can for example think of pratt & whitney. They sell jet engines but MRO services and sales of spare parts is also another major revenue stream. How would you break down their revenues?

[@fredosmiles]

Hotel Revenue = # of rooms booked * Price per room * Value Added Purchases (room service) What do you think?

[@orr4jk]

​@@fredosmiles I wonder if you can use a transaction centered revenue: Hotels Revenue = # of bookings * average spend per booking. and average spend per booking = average room rate*average length of stay + average VAS per booking

[@90nikhiljindal]

Hi Bruno I really loved this video. I think its a great idea to customise your framework. Can you also prepare a similar video for cost side as well? Generally, I find solving cost side issues more difficult to solve due to the very nature of multiple cost areas.

[@CraftingCases]

Hey Nikhil! There’s a guide on profit trees in our website that covers that: www.craftingcases.com/profitability-tree-guide/

[@craigk8145]

These are really helpful videos. Where can I get someone to review my issue tree? Thanks.

[@LifeofSol1]

The 🐐 got my MBB offer because of this

[@Mariana-dc9td]

Hi Bruno! I just did one of my two last interviews and it was a profitability case :). Regarding next videos, something that I haven't seen and it may be a great help is a video about being calm / deal with the pressure of a real case. Based on my experience, the interview with a partner is very different from a mock (in terms of pressure mainly).

[@CraftingCases]

That makes sense Mariana, I remember in my McKinsey final rounds how stressful it was when the partner threw 5 different numbers at me and asked me to compute all of them in my head as quickly as I could. This is just one of the ways I've suffered from "partner pressure" when I was interviewing and there are many more that I've heard from other candidates. Will definitely make a video on that as soon as I finish the ones I'm working on right now.

[@rarehuman]

@@CraftingCases hey Bruno, this was an awesome recommendation. I too will be looking forward a video from you guys for this.

[@marxpaulo960]

Very good, tks a lot!

[@CraftingCases]

You're welcome!

[@andreasyordan238]

Hi guys, What do you think about venture capital or investment bank revenue model? which one do you think is more suitable? thank you

[@rishikamalik4752]

Great insights. Please explain what is a ticket. It was referred to in the sales centric approach

[@CraftingCases]

Hi Rishika, A Ticket is a Sale (as in the ticket that finishes the transaction). The avg. ticket size is the average order size, or the avg. dollar amount per sale.

[@rishikamalik4752]

@@CraftingCases ok thanks!

[@rishikamalik4752]

@@CraftingCases thanks for clarifying!

[@guilhermealmeida8779]

Hi guys! Great video! A few doubts: How can I think/discover/study on the specific drivers of the typicals revenues and costs of a given business when I have no idea what it’s like? You said “A company like Apple might want to separate its different revenue streams from each other - Apple Watch has its revenues and costs that are separated from the iPad’s.” Why? Is this idea applies to any business with a huge difference between their product mix?

[@CraftingCases]

Hey Guilherme, The best way to find that out is to read a company's investor's reports. They usually break down their metrics in the way that's most relevant to their industry/their specific company. Once you do enough of that, you'll get an intuition of what's a good way to do so without needing to see such reports.

[@snehabhat4876]

really great content

[@CraftingCases]

Thanks Sneha!

[@Dr.kassemmoustafa]

Thank you for the great content ! I think the customer centric model and the sales centric model overlaps .... you can break Revenues into #sales (get more customer, get more sales from existing customers , eventually to keep the customer coming back we would need to work on their needs and satisfaction), and spending per customer OR Basket Size (in case of a grocery store) which is (purchase more items, selling for more). If the case is about "Growth", don't you think we should address both the sales and the customer and by that we are using both the customer centric model and the sales centric model?

[@desireeskumachan]

Agree with your comment. When problem solving for Growth definitely best to combine whichever models might fit. But if it’s just a simple profitability solve then applying the appropriate Revenue model should be enough (I think). To be fair, to be very MECE and expand it all there should be a 4th Master Model of Revenue = ARPU * #Q (Customer and/or Unit) * Frequency

[@thekevin604]

Hi Bruno, thank you for your great videos. Aren't all the different ways discussed in this video just more specific was of saying R = p*q = (R/q)*q? If I understood right, we just have to find out what the q is in the specific situation and use it in the (R/q)*q part. How to get to the formulas discussed in the video ”The 5 Ways To Be MECE In Case Interviews” then? They don't really follow the formula discussed above. Is there a way of thinking to get this formulas in a quick way, assuming one knowing the business model in that specific case.

[@CraftingCases]

Hey Kevin, Question 1: Yes, if you think of "price" in an abstract way. Technically, price means the price of a product, though, not the "revenue per customer", for example. Question 2: Not sure what formulas you're talking about, but the basic technique is to find one key numerical driver, and find its complement by using dimensional analysis.

[@dang7482]

What about cost "models"? Is it possible to create a video about it?

[@rarehuman]

Bruno, how about you could show us a case study on airport PPP? This is something happening more often these days as it is a major economical driver for developing nations.

[@CraftingCases]

Hey rarehuman, I could! But then I could also do in thousands of other highly relevant industries/situations. Is there any particular reason why you want a case study specifically on this?

[@rarehuman]

@@CraftingCases lol yeah actually I would be really interested in seeing one since I searched a lot regarding it and coldn't find much info even, let alone a case study. I find it to be a really complicated field with a 100 of external factors influencing decision making. I have an interview based on this in the next 2 days actually and was struggling with random info on the actual PPP website.

[@Goldeggyolk]

Hi Bruno! Thank you so much for putting super helpful content out there. I had been solving a case on profitability of a cheese producer (whose customers are wholesalers) and initially tried to come up with #order X size of order ($) for revenue side. I quickly found out that pounds of cheese sold X price per pound was a much better way to break down revenue, as it allowed me an insight into the utilisation rate of machinery employed in production of cheese, an insight that was lacking in my initial break down. Although the success metric of that case aligned well with the initial structure, it was not so insightful. What’s your take on this?

[@CraftingCases]

I’d say pounds is better than orders (without any more context) because wholesaler can buy the same quantity in few or many orders and this has more to do with their own purchasing strategy than with the actual demand for this cheese producer’s products. Also, if you do pounds you can compre to the market size, which you can’t do with orders. Doesn’t mean you don’t get info about orders if the case calls for that as well, but they’re selling pounds of cheese, not orders of cheese (which is different than a restaurant for example, that sells orders of food, not pounds of food).

[@Goldeggyolk]

@@CraftingCases thank you so much. This really helps put things in a better way. I also read your article on profitability issue trees and it was just perfect. It would be great if you could share more of your structures on profit trees, I’ve found them to be incredibly useful!

[@Valentina_Ostapenko]

@@CraftingCases Hey, very interesting conversation. Why do restaurants buy by orders not pounds? What’s difference?

[@CraftingCases]

@@Valentina_Ostapenko they sell by orders, because their customers buy meals, not pounds of food.

[@FM-dm8xj]

How is revenue per sale or avg. Ticket calculated as a formula?And how would u use this formula mathematically to increase avg ticket/avg revenue per sale?

[@CraftingCases]

Total revenue divided by number of sales. But usually you can get detailed info from the company’s databases. Competitors also usually share this in annual reports.

[@FM-dm8xj]

@@CraftingCases Thank you so much for the swift reply. Just wondering if u guys will be doing any more courses or adding more recources (particularly around issue more trees, strucutres and cases in general) to CCases?

[@gankala8]

Have u heard of prime? Isnt that a subscription model?

[@CraftingCases]

Yes, but its main purpose is to increase how much each customer spends with Amazon every year, not for the subscription money per se. Amazon measures Prime’s success by how much it increases # of purchases and spend per purchase for their average customer.

[@soumyabhasin9645]

Doesn't a consultancy firm comes under Customer centric model, they want to cater more needs of the clients , build a long term relationship ? Revenue = No. of clients * Avg Revenue per customer

[@andrewtong9984]

The unhealthy celsius selectively walk because freighter findingsinitially disapprove regarding a plain blouse. orange, enthusiastic law