Will GST be profitable in a business?

Fashion shipping


Paragraphs highlighted in green indicate diagrams / tables that can be shared with the interviewee. You can find them under "Case Exhibits".
Passages highlighted in blue indicate information that can be communicated verbally to the interviewee.
Paragraphs highlighted in orange indicate tips that will help you guide the interviewee through the case.

The core problem is about checking the profitability of the current business model with a new cost structure (40 cents per catalog).

The proposed structure is based on the profitability formula:

Profit = sales - costs

  • aim: Find out whether sales cover all costs, including shipping costs, and whether a profit can be generated.

To do this, the following solution scheme should be used:

I. Sales

The first thing to do is sales because no information about costs is known.

Information that can be shared if requested
  • The Profit margin on catalog orders is 15% (excluding shipping charges).

After the sales have been calculated, we can calculate the costs, which are 85% (sales - profit margin). However, there are still no Shipping costs included.

If the Shippinggreater as the Profit margin the business is not profitable.

Parts Diagram 2 with an overview of the Calculation tree.

First, we should create the structure for calculating sales without inserting values:


Average order value For Reorders (further orders placed after the first order) equal the value of Initial orders.

Now we become the individual node of the tree calculated.
In order to do that, we have to go from the lowest node start and then calculate the nodes above it until we get to the top:

Parts Table 1 with the Sales data upon request.


The Total sales Per Catalog lies by 2,5$.

II. Cost

Total costs are the sum of all costs excluding shipping costs plus shipping costs:


The total cost be 2,525$.

III. recommendation

  • A business model with the new cost structure is not profitable.
  • For every catalog that is sent, the customer loses 2.5 cents.

Since the customer does not want to give up his business, the candidate should now go after his Proposed solutions being asked.

If the interviewee wants to reduce costs or increase sales, share the following information:

Information that can be communicated if the candidate does reduce costs or the Increase sales would like to. The mail order company mainly sells very cheap clothes in a wide range. That is their unique selling point.
Therefore, along the entireValue chain already all Minimized costs! All in one European market, in which the customer operates, are in particular the Catalog orders over the last few years decreased. The Price elasticity has been checked: One increase the price would become a strong customer waste to lead. The sales would sink!

Since neither Europe nor catalogs look like a very profitable business, the candidate can use the hint and a 2x2 matrix design with Markets and sales channels as variables. It has similarities with the Ansoff matrix, although in this case a product change makes little sense.

Parts Diagram 3 to steer the interviewee in this direction.

The candidate can now present a lot of solutions. Challenge him and ask him about many possible channels and potential new markets


Guide him to a new market entry. This could be justified as follows:

  • The current market is going to shrink and one expensive market penetration would not be profitable in the long term.
  • Other types of distribution are already available in Europe strong competitors occupied.
  • New growth markets in emerging countries are on increasing populationwho can afford cheap clothes.

Possible sales channels

Lastly, the candidate can choose possible channels for market entry rate:

  • You can also do this in new markets Catalog orders easily through in the future Internet ordersthreatened become. Since the Core competency the company's continuing shipping could be a Internet sales respectively.
  • Thanks to the overall growth in the new markets would be a consolidated market share in the Online delivery in new markets more realistic than in Europe.
  • Our customer could also use it as a Middlemen act. Since they have a large selection, it would be possible big amount of at smaller sellers for sale