A case is easier when you already know how the client's kind of business works: what it sells, what it costs, where the margin comes from and what can go wrong. This deck walks through the models that come up most, from retailers and subscription businesses to marketplaces, airlines and banks, and the unit economics behind each one: the profit on a single customer, a single seat, a single store. With that in your head you ask better questions in the first two minutes of a case and spot the problem faster in the last ten.
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Card 1 of 15
What is a business model, and why does a consultant start by asking about it?
How a company creates value for customers and captures some of it as profit; every case problem sits somewhere in that chain.
A business model is the answer to four questions: who the customer is, what they get, how the company delivers it, and how it gets paid. Ferrow Retail sells clothes to shoppers through stores and a website and earns the gap between what it pays suppliers and what customers pay. A subscription software firm sells access to a tool to businesses through a sales team and earns recurring monthly fees. Consultants ask first because the diagnosis depends on it: falling profit means something different at a retailer, where it is usually margin or footfall, than at a software company, where it is usually churn or sales cost.
Card 2 of 15
What are unit economics, and why do investors and consultants obsess over them?
The profit or loss on one unit of the business, a customer, an order, a store, which tells you whether growth helps or hurts.
Unit economics are the revenue and cost of one unit: one customer over their lifetime, one delivery, one seat on one flight, one shop. If a unit makes money, the company can grow by adding units and each one adds profit. If a unit loses money, growth makes the losses bigger, and the company is buying revenue. Total profit can hide this, because a business can show growing revenue and shrinking losses while each new customer still costs more to win than they ever pay. Asking for the numbers on one unit is the fastest way to see whether a business is fundamentally sound.
Card 3 of 15
What are customer acquisition cost and lifetime value, and what ratio between them is healthy?
CAC is what it costs to win a customer; LTV is the profit they generate before they leave; LTV should be about three times CAC.
Customer acquisition cost is total sales and marketing spend divided by the number of new customers won. Lifetime value is the profit a customer generates over their time with the company: contribution per period, times how long they stay. If a subscription costs £10 a month with £7 of contribution and the average customer stays 20 months, LTV is £140. If it cost £50 to win them, LTV to CAC is about 3, which is the usual benchmark for a healthy business. Below 1 the company loses money on every customer; a very high ratio suggests it is underinvesting in growth.
Card 4 of 15
What is churn, and why does a small change in it move a subscription business so much?
Churn is the share of customers who leave each period; because lifetime is one over churn, halving churn doubles lifetime value.
Churn is the percentage of customers lost in a period. A monthly churn of 5% means one in twenty customers leaves each month, so the average customer stays about 20 months. Cut churn to 2.5% and the average customer stays 40 months, doubling revenue per customer without winning anyone new. That is why subscription companies spend so heavily on retention, and why a case about a struggling streaming service or gym is almost always about churn before it is about acquisition. Always ask for churn early in any recurring-revenue case.
Card 5 of 15
How does a retailer make money, and what are the two numbers that decide it?
Gross margin on what it sells, and sales per square foot or per store, against a largely fixed cost of stores and staff.
A retailer buys goods and sells them for more; the gap is gross margin, typically 30% to 60% depending on the category. Against that sit costs that barely move with sales: rent, staff, energy, the website. So profit depends on pushing enough sales through each store to cover its fixed cost, which is why sales per square foot and like-for-like growth are the metrics retailers live by. A store with falling footfall goes from profitable to loss-making quickly because its costs do not fall with it. In a retail case, ask for margin and store-level sales before anything else.
Card 6 of 15
How does a marketplace like an app connecting drivers and riders make money, and what is the chicken-and-egg problem?
A marketplace takes a cut of each transaction between two sides, and it only works once both sides are big enough to attract each other.
A marketplace does not own the product; it connects buyers and sellers and takes a percentage of each deal, the take rate, usually 10% to 30%. Its cost is mainly technology and the marketing to bring both sides in. The difficulty is that riders only come if there are drivers, and drivers only come if there are riders, so a new marketplace has to subsidise one side, often heavily, until the other arrives. Once it works, it is hard to dislodge, because everyone is where everyone else is. Cases about marketplaces are usually about take rate, subsidies, or whether a market is big enough to reach that tipping point.
Card 7 of 15
Why is software so profitable once it works, and what does that do to how the company grows?
The product costs almost nothing to copy, so gross margins are 80% or more and most spending goes on winning customers.
Writing software is expensive; serving one more customer is nearly free, because it is the same code. That gives gross margins of 70% to 90%, compared with 30% to 50% for a company that makes physical things. So a software firm's cost base is people, mostly engineers building the product and salespeople selling it. Early on, it spends far more on sales and marketing than it earns, betting that each customer's lifetime value repays the acquisition cost many times over. A software case is usually about that bet: is CAC falling, is churn low, is the sales team productive, and when does the company stop needing outside money.
Card 8 of 15
How does an airline make money, and why are its economics so brutal?
It sells seats on flights whose cost is almost entirely fixed once they take off, so a few empty seats decide the profit.
The cost of a flight, the aircraft, the crew, the fuel, the landing fees, is nearly the same whether the plane is full or half empty. Revenue depends on how many seats are sold and at what price. So the whole business comes down to load factor, the share of seats filled, and yield, revenue per seat. A plane that breaks even at 80% full makes all its profit from the last 20% of seats, which is why airlines cut prices at the last minute rather than fly empty. Add fuel prices they cannot control and fierce competition on every route, and you have an industry that loses money in most downturns.
Card 9 of 15
How does a bank make money?
Mostly from the gap between what it pays depositors and what it charges borrowers, plus fees; its risk is that borrowers do not pay back.
A bank takes deposits, paying savers a low rate, and lends the money out at a higher rate. The difference is net interest income, and the gap as a percentage of assets is the net interest margin, usually one to three per cent. On top sit fees, for accounts, cards, advice and transactions. The costs are branches, staff and technology, and the big variable is credit losses: loans that are not repaid. That is why banks do well when rates rise, because the margin widens, and badly in recessions, because defaults rise. A bank case is usually about margin, cost-to-income ratio, or bad loans.
Card 10 of 15
What is a franchise model, and why do companies like fast-food chains use it?
The company licenses its brand and system to local operators who put up the capital and take the operating risk, in return for a royalty.
In a franchise, the parent owns the brand, the recipes and the rules, and a franchisee owns the individual outlet, pays for the fit-out, hires the staff and keeps most of the profit. The parent earns an upfront fee and a royalty, typically 4% to 8% of sales, plus rent if it owns the property. The parent grows fast without spending its own capital and earns a high-margin, steady income; the franchisee gets a proven format. The tension is control: the parent cannot manage every outlet, so quality can slip. Cases about franchise chains usually turn on the split of economics between the two sides.
Card 11 of 15
What is the difference between a high-volume, low-margin business and a low-volume, high-margin one, and how does a case differ for each?
The first lives on efficiency and scale, the second on pricing and brand; the levers you pull are different.
A supermarket makes two or three pence on every pound of sales and survives by selling enormous volumes efficiently: logistics, buying power, store productivity. A luxury brand makes fifty pence on every pound and survives by protecting the price: brand, scarcity, control of distribution. In a case about the first, look at costs, throughput and scale; in a case about the second, look at pricing, positioning and whether growth is diluting the brand. Applying the wrong lens is a common error, like recommending a luxury house cut prices to win volume, which would destroy the thing it sells.
Card 12 of 15
Calder Foods sells through supermarkets, which take a 35% margin, and is considering selling direct online. What changes in the economics?
Direct sales keep the retailer's margin but add the costs the retailer used to bear: marketing, delivery, returns and customer service.
Selling direct means Calder keeps the full retail price instead of 65% of it, which looks like a huge gain. But the supermarket was doing work for that margin: putting the product in front of millions of shoppers, holding stock, handling the sale and delivery. Direct, Calder must win customers itself, which costs marketing; ship small orders, which costs more per unit than pallets to a warehouse; and handle returns and queries. For a £3 jar of sauce, delivery alone can exceed the margin gained. Direct works for high-value, repeat-purchase products and as a way to learn about customers; for cheap groceries it rarely does.
Card 13 of 15
What is a two-sided subsidy, like a free service paid for by advertisers, and what is its weakness?
Users get the product free and advertisers pay for access to them; the model depends on attention that competitors can steal.
Many media and internet businesses charge the user nothing and sell the user's attention to advertisers. Revenue is audience size times the price advertisers pay per thousand views. The costs are content and technology. It scales well, because a bigger audience commands both more views and a higher price. The weakness is that attention is fickle and advertisers follow it; a rival with a better product takes users, and revenue follows immediately. It also ties the company's fortunes to the advertising market, which collapses in recessions. Cases here are about audience growth, engagement, and whether to add a paid tier.
Card 14 of 15
How do you work out whether a new store, route or product is worth opening, in a case?
Estimate its unit economics, revenue against its own costs, then compare the return on the investment with what the client could do instead.
Build the case for one unit. For a new Ferrow store: expected sales, from footfall or comparable stores, times gross margin, minus the store's own costs, rent, staff, energy, gives store-level profit. Compare it with the upfront investment for a payback or return. Then ask three questions: is the forecast sales figure plausible against nearby stores; does the new store steal sales from existing ones, called cannibalisation; and could the money earn more elsewhere. A recommendation that covers those, with a number and the biggest risk named, is a complete answer.
Card 15 of 15
An interviewer asks how a company you admire makes money. How do you answer in under a minute?
Customer, product, channel, revenue model, cost structure, and the one number that drives it.
Use a fixed order. Who buys it and why. What they get. How it reaches them. How the company is paid: per unit, subscription, commission, advertising. What its main costs are and whether they are fixed or variable. Then the single metric that decides success: load factor for an airline, churn for a subscription, sales per square foot for a retailer, net interest margin for a bank. Finish with what could go wrong. That is six sentences, it works for any company, and it shows the interviewer that you think about businesses as systems rather than brands.
Reading is not the same as remembering. Study this deck with scheduled review so the cards come back before you forget them.