Practice cases: Europe and UK
Four full cases set in Europe and the UK: convenience-store profit, a grid battery, industrial service growth, and a home insurer's sales channels.
Key takeaways
- Where the structure comes from: it is built from the goal of this exact question (Store profit = revenue x gross margin - staff - rent), not taken from a list.
- Where the structure comes from: it is built from the goal of this exact question (Yearly income versus the EUR 20 million cost), not taken from a list.
- Where the structure comes from: it is built from the goal of this exact question (Profit = equipment profit + service profit), not taken from a list.
Four full cases set in Europe and the UK: convenience-store profit, a grid battery, industrial service growth, and a home insurer's sales channels.
Cover the solution and run each case out loud, ideally with a partner playing the interviewer. Ask your own clarifying questions, state a hypothesis, build a structure from the maths of the goal (not from a memorised list), and do the math on paper before you look. Then compare your synthesis with the one given, and read the strong and weak candidate notes. Each case is labeled Starter, Standard, or Stretch.
Case 1: Corner & Co: store profit halved while sales grew
Where the structure comes from: it is built from the goal of this exact question (Store profit = revenue x gross margin - staff - rent), not taken from a list. Each branch is one driver of that goal, and the hypothesis above says which branch to test first.
Worked case
Starter: Corner & Co: store profit halved while sales grew
The prompt
Corner & Co runs 300 convenience stores in the UK. Sales per store grew, but profit per store halved. The exhibit shows the average store. Why, and what should it do?
Difficulty: Starter. Format: interviewer-led, with an exhibit. Industry: Retail. Region: UK. Interview length: about 25 minutes. The company is fictional and all figures are illustrative.
Clarifying questions, with the interviewer's answers
- Is this one store or the average?Answer: The average store; all stores look similar.
- Did the store count change?Answer: No.
- What changed in the market?Answer: Shoppers are more price-conscious; promotions have grown.
A hypothesis to say out loud: Revenue rose, so my hypothesis is that margin or cost moved: probably a lower gross margin from more promotions, plus higher staff costs.
The structure
- Store profit = revenue x gross margin - staff - rent
- Revenue
- Key: Gross margin
- Staff costs
- Rent and rates
The exhibit
| Measure | Last year | This year |
|---|---|---|
| Revenue | 2,000 | 2,100 |
| Gross margin (%) | 25 | 22 |
| Staff costs | 250 | 280 |
| Rent and rates | 120 | 120 |
Working it through
1. Gross profit last year
GBP 2,000 thousand of revenue at a 25 percent margin.
Gross profit last year (GBP thousands):2,000 × 0.25 = 5002. Gross profit this year
GBP 2,100 thousand at 22 percent.
Gross profit this year (GBP thousands):2,100 × 0.22 = 4623. Store profit last year
Minus staff and rent.
Profit last year (GBP thousands):2,000 × 0.25 - 250 - 120 = 1304. Store profit this year
Staff costs rose to GBP 280 thousand.
Profit this year (GBP thousands):2,100 × 0.22 - 280 - 120 = 625. Profit bridge
Revenue growth at the old margin, minus the margin drop, minus higher staff costs.
Change in profit (GBP thousands):(2,100 - 2,000) × 0.25 - 2,100 × (0.25 - 0.22) - (280 - 250) = -686. Staff cost rise
Mostly the higher minimum wage, the interviewer confirms.
Staff cost rise (%):(280 - 250) ÷ 250 × 100 = 127. Curveball: why the margin fell
Interviewer: "Promotions now make up 40 percent of sales, up from 25 percent. Promoted items earn a 10 percent margin; full-price items earn 30 percent." The blended margin this year:
Blended margin this year (%):0.4 × 10 + 0.6 × 30 = 22
What the exhibit shows
Sales grew 5 percent, but a 3-point margin drop and higher staff costs more than cancelled it out.
The recommendation
Profit per store fell GBP 68 thousand, mainly because promotions grew. First, the margin drop from 25 to 22 percent cost GBP 63 thousand per store, and it comes from promotions rising from 25 to 40 percent of sales. Second, staff costs rose 12 percent, mostly from the minimum wage, costing GBP 30 thousand. Third, sales growth added only GBP 25 thousand of gross profit. Cut promotions that do not bring extra shoppers, keep the ones that do, and offset wage costs with self-checkouts and better staff scheduling at quiet times.
Risks: Fewer promotions may lose price-sensitive shoppers; Self-checkouts can raise theft.
Next steps: Rank promotions by extra profit, not extra sales; Pilot new staff schedules in 20 stores.
A strong candidate
Built a profit bridge, found that the margin drop was the biggest driver, and used the curveball to explain it through promotion mix.
A weak candidate
Celebrated the sales growth and blamed "rising costs" in general.
Case 2: Rijnstroom Energie: should it build a grid battery?
Where the structure comes from: it is built from the goal of this exact question (Yearly income versus the EUR 20 million cost), not taken from a list. Each branch is one driver of that goal, and the hypothesis above says which branch to test first.
Worked case
Standard: Rijnstroom Energie: should it build a grid battery?
The prompt
Rijnstroom Energie, a Dutch utility, is considering a 100 MWh grid battery. Should it invest?
Difficulty: Standard. Format: candidate-led, with interviewer dialogue. Industry: Energy. Region: Netherlands. Interview length: about 30 minutes. The company is fictional and all figures are illustrative.
Clarifying questions, with the interviewer's answers
- How big is the battery and how is it used?Answer: 100 MWh; it can charge and discharge fully about 300 times a year.
- How does it earn money?Answer: By buying power when prices are low and selling when high (an average spread of EUR 60 per MWh), with 85 percent round-trip efficiency, plus about EUR 2 million a year for grid-balancing services.
- Cost, life, and cost of capital?Answer: EUR 20 million to build, 12 years of life, 8 percent cost of capital.
A hypothesis to say out loud: Battery returns depend on price spreads that shrink as more batteries are built. My hypothesis is that the project pays today, but the grid-services income and future spreads decide whether it is a good investment.
The structure
- Yearly income versus the EUR 20 million cost
- Trading income: size x cycles x spread x efficiency
- Key: Grid-services income
- Payback and NPV
- Sensitivity to spreads and service prices
Working it through
1. Trading income
Candidate: "100 MWh, 300 cycles, EUR 60 spread, 85 percent efficiency." (A simplification: applying the efficiency to the spread is close enough for a first estimate.)
Trading income (EUR a year):100 × 300 × 60 × 0.85 = 1,530,0002. Total income
Plus EUR 2 million from grid services.
Total income (EUR a year):100 × 300 × 60 × 0.85 + 2,000,000 = 3,530,0003. Payback
Cost divided by yearly income.
Payback (years):20,000,000 ÷ 3,530,000 = 5.674. NPV
Interviewer: "At 8 percent over 12 years, each EUR 1 a year is worth about EUR 7.54 today." Candidate: "Then NPV is:"
NPV (EUR):3,530,000 × 7.54 - 20,000,000 = 6,616,2005. Curveball: spreads narrow
Interviewer: "Many batteries are being built. Spreads may fall to EUR 40." Candidate: "NPV becomes:"
NPV at a EUR 40 spread (EUR):(100 × 300 × 40 × 0.85 + 2,000,000) × 7.54 - 20,000,000 = 2,770,8006. And if grid-service prices also fall
Candidate: "If grid-service income also falls 30 percent, the project loses value."
NPV with both falls (EUR):(100 × 300 × 40 × 0.85 + 2,000,000 × 0.7) × 7.54 - 20,000,000 = -1,753,200
The recommendation
Invest, but only after locking in part of the grid-services income. First, at today's prices the battery pays back in under six years with an NPV of about EUR 6.6 million. Second, it still creates value if spreads fall to EUR 40, but not if grid-service prices also fall 30 percent, when NPV turns negative. Third, grid services are the most uncertain and the largest part of income, so a multi-year contract with the grid operator for part of the capacity would remove the main risk. Build if such a contract covers at least half of the grid-services income.
Risks: Battery capacity fades over time; Market rules for grid services may change; Grid connection fees and operating and maintenance costs, left out here, lower the return.
Next steps: Negotiate a multi-year service contract with the grid operator; Get fixed-price quotes and warranties from two battery suppliers.
A strong candidate
Asked for the drivers, built income from them, used the given annuity factor for NPV, and tested the two uncertain prices.
A weak candidate
Called batteries "the future of energy" and approved the project without checking what happens when spreads fall.
Case 3: Nordmark Pumps: 20 percent more profit from service
Where the structure comes from: it is built from the goal of this exact question (Profit = equipment profit + service profit), not taken from a list. Each branch is one driver of that goal, and the hypothesis above says which branch to test first.
Worked case
Stretch: Nordmark Pumps: 20 percent more profit from service
The prompt
Nordmark Pumps, a Swedish maker of industrial pumps, wants 20 percent more profit in three years. The exhibit shows the share of installed pumps covered by a Nordmark service contract, by region. Where should it focus?
Difficulty: Stretch. Format: interviewer-led, with an exhibit. Industry: Industrials. Region: Europe. Interview length: about 40 minutes. The company is fictional and all figures are illustrative.
Clarifying questions, with the interviewer's answers
- What are the two businesses?Answer: New pumps (about 4,000 a year at EUR 15,000 each, 20 percent margin) and service contracts on installed pumps (EUR 1,200 a year each, 40 percent margin).
- How big is the installed base, and where?Answer: About 50,000 pumps: 10,000 in the Nordics, 15,000 in Germany, 10,000 in the UK, and 15,000 in Southern Europe. About 2,500 old pumps are retired each year.
- What is the goal?Answer: 20 percent more profit within three years.
A hypothesis to say out loud: Service earns twice the margin of new pumps and many customers have no contract. My hypothesis is that raising the share of pumps under service contract in weak regions is the fastest route to the target.
The structure
- Profit = equipment profit + service profit
- Equipment: units x price x margin
- Key: Service: installed base x share under contract x price x margin
- Levers: share under contract by region, base growth, service price
The exhibit
Bar chart: Share of installed pumps under a Nordmark service contract, by region (illustrative). Nordics: 50 percent; Germany: 35 percent; UK: 25 percent; Southern Europe: 15 percent.
Working it through
1. Equipment profit
4,000 pumps a year at EUR 15,000 and a 20 percent margin.
Equipment profit (EUR a year):4,000 × 15,000 × 0.2 = 12,000,0002. Service profit
50,000 pumps, 30 percent under contract, EUR 1,200 a year at 40 percent margin.
Service profit (EUR a year):50,000 × 0.3 × 1,200 × 0.4 = 7,200,0003. Target
20 percent more than today's total.
Extra profit needed (EUR a year):(12,000,000 + 7,200,000) × 0.2 = 3,840,0004. Extra contracts from weak regions
Raise Southern Europe (15 percent) and the UK (25 percent) to Germany's 35 percent, and Germany to 45 percent with remote monitoring.
Extra contracts:15,000 × (0.35 - 0.15) + 10,000 × (0.35 - 0.25) + 15,000 × (0.45 - 0.35) = 5,5005. Profit from those contracts
At EUR 1,200 a year and 40 percent margin.
Extra service profit (EUR a year):5,500 × 1,200 × 0.4 = 2,640,0006. Growth of the installed base
About 4,000 pumps sold and 2,500 retired each year adds 4,500 pumps over three years, at a 35 percent contract share.
Profit from base growth (EUR a year):4,500 × 0.35 × 1,200 × 0.4 = 756,0007. All levers
Adding a 5 percent service price rise, justified by remote monitoring and applied to today's contracts only, to be conservative (50,000 x 30 percent x EUR 1,200 x 5 percent).
Total extra profit (EUR a year):2,640,000 + 756,000 + 50,000 × 0.3 × 1,200 × 0.05 = 4,296,0008. Curveball: cheap independent service firms
Interviewer: "Independent service firms charge 25 percent less in Southern Europe. Suppose we only reach 25 percent there, not 35." The total becomes:
Total with weaker Southern Europe (EUR a year):4,296,000 - 15,000 × 0.1 × 1,200 × 0.4 = 3,576,000
What the exhibit shows
Contract share falls sharply from north to south. Southern Europe has the largest gap and the most pumps without a contract.
The recommendation
Focus on service, starting with Southern Europe and the UK. First, service earns 40 percent margins against 20 percent for new pumps, and 70 percent of installed pumps have no contract. Second, closing regional gaps, growing the base, and a modest price rise add about EUR 4.3 million, above the EUR 3.84 million target. Third, low-cost independent firms threaten the plan: if Southern Europe reaches only 25 percent, the total falls to about EUR 3.6 million, short of target by about EUR 264,000, which equals about 550 more contracts at EUR 480 of profit each (EUR 1,200 x 40 percent). So offer a basic contract tier priced to compete with independents, sell contracts with every new pump, and use remote monitoring to show value that independents cannot.
Risks: Independents may cut prices further; Remote monitoring needs investment and customer consent to share data.
Next steps: Design a basic and a premium service tier; Make a contract offer part of every new pump sale.
A strong candidate
Split profit into equipment and service, sized each lever against the target, and showed the curveball could make the plan fall short, then adjusted it.
A weak candidate
Proposed selling more new pumps, the lower-margin business, and ignored the regional gaps.
Case 4: Wrenfield Home Insurance: which channel loses money?
Where the structure comes from: it is built from the goal of this exact question (Combined ratio by channel), not taken from a list. Each branch is one driver of that goal, and the hypothesis above says which branch to test first.
Worked case
Standard: Wrenfield Home Insurance: which channel loses money?
The prompt
Written case: Wrenfield Home Insurance is a UK insurer whose home-insurance profit has shrunk, and management suspects one sales channel loses money. Using the data pack below, prepare a short written answer: where is the loss coming from, and what should Wrenfield do?
Difficulty: Standard. Format: written case, with a data pack. Industry: Insurance. Region: UK. Interview length: about 45 minutes. The company is fictional and all figures are illustrative. In a written case, lead with the answer on the first page, then show the numbers that support it.
Clarifying questions, with the interviewer's answers
- What is the goal?Answer: Make every channel profitable at underwriting level next year, and keep it profitable if claims inflation continues.
- Do the ratios include all costs?Answer: The expense ratio includes commissions paid to price comparison websites.
- Can we change prices freely?Answer: No. UK rules in force since 2022 (FCA ICOBS 6B) say a renewal price must not exceed the equivalent new-business price for the same risk sold through the same channel, so plan within that.
A hypothesis to say out loud: Policies sold through price comparison websites usually carry high acquisition costs and attract price-sensitive customers. My hypothesis is that this channel makes the loss.
The structure
- Combined ratio by channel
- Premiums by channel
- Key: Loss ratio and expense ratio by channel
- Underwriting result by channel
- Sensitivity to claims inflation
The exhibit
| Channel | Policies | Average premium (GBP) | Loss ratio (%) | Expense ratio (%) |
|---|---|---|---|---|
| Price comparison websites | 300,000 | 250 | 72 | 30 |
| Direct | 200,000 | 300 | 60 | 20 |
Working it through
1. Premiums: comparison websites
300,000 policies at GBP 250.
Premiums (GBP a year):300,000 × 250 = 75,000,0002. Premiums: direct
200,000 policies at GBP 300.
Premiums (GBP a year):200,000 × 300 = 60,000,0003. Combined ratio: comparison websites
Loss ratio plus expense ratio.
Combined ratio (%):72 + 30 = 1024. Combined ratio: direct
Loss ratio plus expense ratio.
Combined ratio (%):60 + 20 = 805. Result: comparison websites
Premiums times (1 minus the combined ratio).
Underwriting result (GBP a year):300,000 × 250 × (1 - 1.02) = -1,500,0006. Result: direct
The direct channel is strongly profitable.
Underwriting result (GBP a year):200,000 × 300 × (1 - 0.8) = 12,000,0007. The whole book
Both channels together still earn a profit, which hides the loss-making channel.
Whole-book underwriting result (GBP a year):300,000 × 250 × (1 - 1.02) + 200,000 × 300 × (1 - 0.8) = 10,500,0008. Curveball: claims inflation
Interviewer: "Repair and building costs are rising; assume claims rise 10 percent next year." The comparison channel's combined ratio becomes 72 x 1.1 + 30 = 109.2 percent and direct's 60 x 1.1 + 20 = 86 percent. The whole book then earns:
Whole-book result after inflation (GBP a year):300,000 × 250 × (1 - (0.72 × 1.1 + 0.3)) + 200,000 × 300 × (1 - (0.6 × 1.1 + 0.2)) = 1,500,000
What the exhibit shows
Comparison-website policies lose money on both claims and costs; direct policies are profitable.
The recommendation
The loss comes from policies sold through price comparison websites, and Wrenfield should reprice that channel by risk before claims inflation erodes the whole book. First, the comparison channel brings GBP 75 million of premiums from 300,000 policies but runs a combined ratio of 102 percent, a loss ratio of 72 plus an expense ratio of 30, so it loses about GBP 1.5 million a year. Second, direct brings GBP 60 million from 200,000 policies at a combined ratio of 80 percent and earns about GBP 12 million, so the whole book still earns about GBP 10.5 million, which hides the problem. Third, the gap comes from both claims and costs: the comparison channel's loss ratio is 12 points higher and its expense ratio 10 points higher. The problem will grow: if claims rise 10 percent, the comparison channel reaches about 109 percent while direct stays near 86 percent, and the whole book's result falls to about GBP 1.5 million. Wrenfield should price comparison-website policies more closely by risk (property type, location, claims history), stop bidding for the highest-risk segments, and shift marketing toward direct sales, while making sure renewal prices never exceed new-business prices for the same risk in the same channel, as the rules require. The main risk is that higher prices lose comparison-website volume and spread fixed costs over fewer policies. As a next step, analyze loss ratio by property type and postcode for the comparison channel and test price changes on a sample of quotes.
Risks: Higher prices will lose some comparison-website volume; Fixed costs spread over fewer policies.
Next steps: Analyze loss ratio by property type and postcode for the comparison channel; Test price changes on a sample of quotes.
A strong candidate
Led with the answer, computed combined ratios by channel, and tested claims inflation before recommending risk-based pricing within the rules.
A weak candidate
Averaged both channels together, found an overall profit, and missed the loss-making channel.
Sources for this lesson (1)
- Recognized public explanations of case-interview concepts and terms
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