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Everything MBA!

Agenda

1. Quick operational check

2. Disclaimer
3. Let's question our fundamentals. What is Profit?
4. Structure of a P&L
5. Types of profitability issues
6. Case time!
7. Q&A

ATL

BTL

TTL
our fundamentals. What is Profit?

ability issues

Medium

Above the line TV, Newspapers, Mag, ...

Below the line Emails, Performance Marketing, Coupo

Through the line Events, Fairs...

 Objective

apers, Mag, ... To build brand awareness

formance Marketing, Coupo

Get some sort of an action by a potential customer
20000
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Everything MBA!

Section
1. Revenue

2. Variable Costs

1 (minus) 2

3. Semi-variable / Step Costs

4. Fixed Operating Costs (O

5. Depreciation & Amortizatio

6. Non-Operating Items

7. Financial Charges

8. Income Tax

9. Post-Tax Adjustments
 Line Item
Gross Revenue / Sales
Less: Sales Returns / Discounts / Rebates
= Net Revenue (what comes to my bank)
Cost of Goods Sold (COGS) / Cost of Services
Direct Selling Expenses
= Total Variable Costs
Note: Net Revenue - COGS = Gross Profit
= Contribution Margin
Contribution Margin (%)
Warehousing, Distribution Logistics (partially fixed)
Customer Support, Service Infrastructure
= Adjusted Contribution Margin (Optional Layer)
Salaries & Wages (non-production staff)
Rent, Utilities, Admin Overheads
Marketing (Branding, ATL)
IT, Software Subscriptions
Depreciation & Amortization
= EBITDA (Earnings Before Interest, Taxes, D&A)
Depreciation
Amortization
= EBIT (Operating Profit)
Other Income
Non-operating Expenses
= Profit Before Interest & Taxes (PBIT)
Interest Expense
= Profit Before Tax (PBT)
Tax Expense
= Net Profit / PAT
Minority Interest / Share of JV
Exceptional Items
= Net Income (After MI & Exceptionals)
 Explanation
Total invoiced sales before returns or discounts
Deductions to get to net revenue
Actual revenue recognized
Direct costs associated with producing goods/services (e.g., RM, packaging, direct labor)
Variable sales commissions, transaction fees, delivery costs (in D2C), etc.
All costs that vary directly with volume

Net Revenue - Total Variable Costs

Contribution Margin ÷ Net Revenue
Costs that increase with scale but not linearly
E.g., call center ops, tech infra costs that scale step-wise
Contribution margin - semi-variable costs
Management, admin, back-office teams
Fixed infrastructure costs
Not tied to each unit sold, long-term impact
Fixed tool costs used across functions
Accounting charge for long-term assets
Core operating profit before non-cash and financial charges
Tangible asset cost allocation
Intangible asset cost allocation
EBITDA - Depreciation & Amortization
Interest on deposits, asset sale gain, etc.
Write-offs, legal fines, one-time expenses
EBIT + Non-operating items
On loans and other borrowings
PBIT - Interest Expense
Current and deferred tax provision
PBT - Tax Expense
Only if part of consolidated entity
Non-recurring events (e.g., restructuring)
Final line item attributable to shareholders
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Bucket Type of Profitability Case

Volume Decline

Revenue Decline Price Realization Drop

Product/Segment Mix Shift

Variable Cost Increase

Cost Increase Fixed Cost Increase

Inefficient Operations

Capacity Underutilization
Others >>

One-Time / Structural Issues Business Model Disruption

Regulatory / External Shocks

Profitability of a New Product /

BU

Segment-Specific Cases Regional Profitability Disparities

Channel Profitability
 Description / Trigger Common Levers Explored
Drop in units sold due to demand, Market share, customer segments, pricing
competition, or supply issues strategy, GTM, channel performance
Lower prices due to discounts, pricing Pricing power, competitor pricing, product mix,
pressure, or poor positioning discounting, value proposition
Shift to lower-margin products or Contribution by product line/geography,
geographies portfolio optimization
Raw material, freight, packaging, or Procurement, sourcing, vendor renegotiation,
labor costs rising manufacturing efficiencies
Overheads, rent, SG&A expenses Cost control, process automation, org
rising faster than revenue restructuring
Poor supply chain, high returns, Productivity, process mapping, lean ops,
process bottlenecks wastage
High fixed cost structure not matched Break-even point, plant productivity,
by volume outsourcing decision
Digital disruption, platform-based
Model pivot, strategic investment, capability
competitors, change in consumer
building
behavior
GST impact, price caps, import duties,
Policy response, lobbying, hedging strategies
geopolitical tensions
Low ROI or margin from a new Cost-to-serve, product-market fit,
initiative cannibalization
High variance in profitability across
Logistics costs, local pricing, demand density
geographies
Certain sales channels yielding lower Channel cost structures, D2C vs retail,
margins commissions
 Frameworks / Tools Used

Market segmentation, 4Ps, Porter’s 5 Forces

Pricing waterfall, competitor benchmarking,

BCG matrix
Contribution margin analysis, product mix
variance
Cost structure breakdown, procurement
benchmarking
SG&A benchmarking, zero-based budgeting
(ZBB)

Value chain analysis, lean six sigma tools

Break-even analysis, fixed vs. variable cost

diagnostics
Business model canvas, SWOT, scenario
planning

PESTEL analysis, sensitivity analysis

NPV/IRR analysis, unit economics, cohort

analysis
Regional P&L comparison, density economics,
heatmaps
Channel margin tree, cost-to-serve, customer
acquisition cost
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Sugar Cosmetics

Case statement: Sugar Cosmetics has built a strong omnichannel business s

bottomline. Traditionally, the company has grown through
marketing (refer data below). Evaluate the feasibility of ach

Case facts: No price increase is planned/ possible

Same product range (No new additions/ removal); No chan
There are no supply chain constraints/ challenges
PAN- India operations

Market Size 125000

Market Share 10%
Particulars UOM LY/ CY E
Revenue INR Mn 12500
-offline 9375
-online 3125
Marketing INR Mn 2500
20%

ATL Spend INR Mn 1000

BTL Spend INR Mn 1500

Revenue share New customers % 55%

Repeat customers % 45%

Company level ARPU INR 2703

New customers ARPU INR 2500
Repeat customers ARPU INR 3000

Total # of customers # 4625000

# of new customers # 2750000
# of repeat customers # 1875000
 ARPU (Company) INR 2703

# of offline customers # 3468750

# of online customers # 1156250

Conversion rates
Online 3%
Offline 30%

Footfall/ Traffic
Online 38541667
Offline 11562500

Objective CAC (BTL Spend/ # of new customers) 545.5

Fully loaded CAC (Total marketing spend/ # of new custom 909.1

OFFLINE
Offline number of stores 250
Footfall per store per day 126.7

At least 83 new stores operating at full e

Underlying assumption: I start with 83 n

250
126.7

Dec Jan-March

19% shortfall at best; worst case scena

as built a strong omnichannel business selling BPC products on the back of excellent marketing efforts and product quality. It is now a matu
onally, the company has grown through aggressive spend on marketing and investors have been pushing for cutting down this spend. The
ata below). Evaluate the feasibility of achieving such an aggressive target and detail out a roadmap.

s planned/ possible
e (No new additions/ removal); No changes to product portfolio
y chain constraints/ challenges

140000
18%
NY YoY Growth
25000 100%
18250 18250
6750 5451
2500 0%
10%

750
1750

60%
40%

2946
2750
3300

8484848 83%
5454545 98%
3030303 62%
 2946

6193939
2290909 1850000

Best case scenario

4% 4%
35%

57272727 49% 46250000

17696970 53%

320.8
458.3

333
145.7 15%

least 83 new stores operating at full efficiency (at the same level as old stores) to get to this level of target revenue

derlying assumption: I start with 83 new stores with same level of efficiency as that of an average old store to get to this revenu

150 footfalls

% shortfall at best; worst case scenario: 29%

orts and product quality. It is now a mature brand and intends to cut down on marketing spend % to improve its
pushing for cutting down this spend. The CEO intends to 2X the revenue in 1 year while not increasing the spend on
p.

Country/ Macro environment

Questions 1. What was your prev growth rate like?
2. How fast is the market growing?
3. What is the structure of the market? (Lakme: xx%, ....:yy%, S

2. How fast is the market growing? Market is growing by 12% yoy (secondary research)

Questions Answers/ Assumptions

1. How has prev growth rates looked like for the companyWe have grown at roughly 15-20% yoy over
What is the growth rate?
What is the growth rate? 25% of our revenue comes from online cha
Estimate that Online channel will contribute to +2-3% mor
Are we looking at some sort of reallocation? Yes, want to increase performance marketing because w

Where do you see this number to go to? Esp since you're increasing BTL spend

What is the ARPU? Expected ARPU Better marketing efficiency, effort, this is likely to increase

Hey Vineeta do you want to stop here? This seems unrealiYes, I'm very well aware that this is an aggressive target.
 For simplicity, can we assume that ARPU is the same acroYES

1299.107143

Are there ways to increase conversion rates significantly?In the industry, even the best players operate at 4% conv

Previously, what was the trend in terms of online traffic? Previously, we saw roughly 20% growth in online traffic yo
Conversion rate = # of customers/ Traffic

Vineeta, why do you think this will happen? Nidhi, at best, I think it will stay at the same level or max i

his level of target revenue

average old store to get to this revenue target

 Company
1. What is the business model like? How much is
2. What is typically the share of revenue from new

ket? (Lakme: xx%, ....:yy%, Sugar is the 3rd largest player)

secondary research)

Learnings
Omnichannel = Offline (Own Stores EBO + MBO (SS) + SiS) + Online (D2C + 3P Platforms)
TAM = Target Addressable Market
Market Share = Revenue/ Market Size
ll contribute to +2-3% more in terms of revenue share
nce marketing because we feel that brand awareness is now quite good/ high

ARPU (Average Revenue Per User) = AOV * Number of orders per year

rt, this is likely to increase by 10% at max. Even companies like Lakme, ....have seen roughly such similar growth in ARPU at b

s is an aggressive target. Can you help me understand what would it take to achieve this?
 ayers operate at 4% conversion rate online, 35-40% in the offline channel

% growth in online traffic yoy. However, we expect this to increase at best to 30% because of my increasing social media presen

at the same level or max increase by 5-10%

siness model like? How much is offline? How much is online? How much of sales is offline?
ly the share of revenue from new/ repeat customers?

Assume that within offline - Everything is same

Assume that within online - Everything is the same

uch similar growth in ARPU at best

y increasing social media presence, shark tank activity, ....
 Scenario 1 Scenario 2

# of offline stores req

online metrics req

Assumptions .. ..
.. ..
.. ..
Scenario 3

..
..
..