What is a Profitability Case?
A profitability case is a case interview question type where you analyze why a company's profits have changed - typically declined - using the framework Profit = Revenue - Costs. Profitability cases are the most common case type in consulting interviews, appearing in 30-40% of cases. They test your ability to structure a business problem, analyze data, and recommend actionable solutions.
| Also known as | Profit decline case, margin case, P&L case |
| Frequency | 30-40% of case interviews |
| Core framework | Profit = Revenue - Costs |
| Key skills tested | Structuring, mental math, hypothesis testing, recommendations |
| Typical prompt | "Our client's profits have declined 20%. Why, and what should they do?" |
Definition
A profitability case presents a scenario where a company's profits have changed - usually declined - and asks you to diagnose the cause and recommend solutions. The analysis follows a structured breakdown of profit into its components.
The reason profitability cases are so common: every business cares about profits, and the analysis tests fundamental consulting skills. If you can diagnose a profit problem, you can tackle most business challenges.
Real consulting engagements often start as profitability problems. A CEO calls McKinsey saying "We used to make $100M profit, now we make $80M - help." The profitability case format mirrors this real-world situation.
The Profitability Framework
Profit = Revenue - Costs
Revenue Side
Revenue = Price × Volume
- • Price: Has pricing changed? Discounts? Mix shift to lower-priced products?
- • Volume: Are units sold down? Which products/channels/regions?
Cost Side
Costs = Fixed Costs + Variable Costs
- • Fixed: Rent, salaries, equipment - don't change with volume
- • Variable: Materials, shipping, commissions - scale with volume
The framework is MECE: Revenue and Costs don't overlap, and together they fully explain profit. This makes it a reliable starting point for any profitability problem.
How to Solve a Profitability Case
- Clarify the problem - What exactly changed? By how much? Over what time period? Compared to what (prior year, competitors, budget)?
- Present your structure - State the Profit = Revenue - Costs framework. Say you'll analyze both sides to isolate the problem.
- Diagnose: Revenue or Costs? - Ask for data on revenue and cost trends. Determine which side is the primary issue.
- Drill down - If revenue: Is it price or volume? If costs: Is it fixed or variable? Which specific line item?
- Identify root cause - Why did that specific element change? What's driving it?
- Recommend solutions - Based on root cause, what should the client do? Quantify impact if possible.
Example Profitability Case
Prompt: "Your client is a regional airline. Profits have dropped 30% year-over-year despite stable passenger numbers. Why, and what should they do?"
Diagnosis path:
- • Profit = Revenue - Costs. Passenger numbers stable suggests volume is okay.
- • Check revenue: Average ticket price flat? → Yes. Revenue side likely not the issue.
- • Check costs: Fixed costs (aircraft leases)? → Stable. Variable costs? → Fuel up 40%.
- • Root cause: Jet fuel prices increased 40%, driving cost increase.
Recommendations: (1) Hedge fuel costs for next year, (2) Optimize routes to reduce fuel consumption, (3) Consider fuel surcharge on tickets, (4) Evaluate fleet efficiency - older planes burn more fuel.
Common Profitability Case Variations
| Variation | Example Prompt |
|---|---|
| Profit decline | "Profits dropped 25%. Why?" |
| Margin compression | "Revenue is up but margins are shrinking." |
| Turnaround | "The company is losing money. How do we fix it?" |
| Cost reduction | "The CEO wants to cut costs by 15%." |
| Revenue growth | "How can we increase revenue by 20%?" |
Related Concepts
- Profitability Cases Guide - In-depth strategies and practice cases
- MECE - The principle that makes the profitability framework work
- Case Interview - The interview format where profitability cases appear
Frequently Asked Questions
What is a profitability case?
A profitability case asks you to analyze why a company's profits changed. You use the framework Profit = Revenue - Costs, drill into each component to find the root cause, then recommend solutions.
What's the biggest mistake in profitability cases?
Jumping to solutions before diagnosing the problem. Don't say "cut costs" until you've confirmed costs are the issue. Always diagnose (Revenue or Costs? Which specific item?) before recommending.
How do I practice profitability cases?
Make the framework automatic, practice mental math for percentage calculations, then do full profitability case practice with feedback to build pattern recognition.
Practice Profitability Cases
Work through realistic profitability cases and get feedback on your structure and analysis.
Start PracticingLast updated: January 15, 2026