Profitability cases are among the most common case types you'll encounter. Understanding breakeven analysis is essential for tackling these cases confidently.
The Profitability Framework
At its core, profitability is simple:
Profit = Revenue - Costs
Break it down further:
- Revenue = Price × Volume
- Costs = Fixed Costs + Variable Costs
Breakeven Analysis
What is Breakeven?
The breakeven point is where total revenue equals total costs—the point where you stop losing money and start making profit.
Breakeven Formulas
Units to breakeven:
Breakeven Units = Fixed Costs / (Price - Variable Cost per Unit)Revenue to breakeven:
Breakeven Revenue = Fixed Costs / Contribution Margin %Worked Example
A coffee shop has:
- Fixed costs: $10,000/month (rent, salaries)
- Coffee price: $5
- Variable cost per cup: $2 (coffee, cup, lid)
How many cups must they sell to breakeven?
Contribution margin per cup = $5 - $2 = $3
Breakeven = $10,000 / $3 = 3,333 cups per month
Or about 111 cups per day (assuming 30 days).
Margin Analysis
Gross Margin
Gross Margin = (Revenue - COGS) / Revenue × 100%Operating Margin
Operating Margin = Operating Income / Revenue × 100%Net Margin
Net Margin = Net Income / Revenue × 100%Common Interview Patterns
"The company's profit is declining..."
Always structure your analysis:
- Is it a revenue problem or a cost problem?
- Revenue: Is it price or volume?
- Costs: Is it fixed or variable costs?
"Should they launch this new product?"
Calculate:
- Expected revenue (price × projected volume)
- Total costs (fixed + variable)
- Breakeven analysis
- Compare to investment required
Practice These Concepts
Select "Profitability & Margins" mode to focus on these concepts.
Also read: Growth & CAGR in Case Interviews