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Sounds like the case interview I had "what does the population density of a locality in Dubai need to be for a supermarket to be profitable". No data given but still solvable with lots of assumptions that you validate throughout the interview.
Love those questions. There is no exact answer. But good opportunity to showcase your basic knowledge - margins and drivers for improving margins, your business acumen - make assumptions on customer base, pricing, and cost, and your consulting skills - quick analysis and a final recommendation!
Does anyone care to type out a quick answer for us? Far more interesting than my, "how much mustard does wr grey field use for a baseball game"
Why don't we make this a team exercise where we each contribute. I'll start. P = R - C lol
Assumptions: 1/ fixed costs are $1m per year, 2/ margins are 60%, 3/ 350 customers per day, 4/ average purchase price is $10. Daily break even sales = $1m / 365 / 6 = 456. Since you have 350 customers now, you need to have an additional 106 customers per day to reach profitability. Alternatively, you can set profit margin to "x" and solve for the desired profit margin at currently customer volume (350). This is super a super basic example, sorry!
Why don't you give it a shot of working through it yourselves. All about the process.
Use the MECE analysis method popularized by McKinsey. "Mutually exclusive collectively exhaustive". You make assumptions in a tree diagram, then make sub-assumptions until you go further down the tree. Eventually, an assumption may prove false, so that "branch" of the tree dies, but you still have other branches. Good visual tool.
Interesting. Thanks for the advice A2. Wil Google.
Nope! Thanks E2.
Thanks everyone! E2 that was really helpful as well!
@EY2 in your example why did you say you need an additional 106 customers to reach profitability? If daily break even is $456, you have 350 customers a day, margin 60% at $10 purchase price, isn't 350 x 10 x .60 = 2,100 enough to be profitable per day? By 2,100 - 456 = $1,644 profit per day? If anyone follows this logic please comment to confirm!
Just kidding! I'm an idiot - thank you!