Tessellate: Profits Down Despite Flat Revenue

Consulting

hard45 min0 submissions

Bain

Scenario

Tessellate is a developer tools business in US. The CEO has asked for help understanding a sharp fall in profitability.

Revenue moved from $982 M to $1041 M over the past year, while operating margin fell from 17% to 13% — a drop of 4 percentage points and roughly $32 M of operating profit.

What the finance team has established so far:

Sales volume changed by +5%
Average realised price changed by 0%
Input costs per unit rose 14%
Fixed overhead rose 12%

The COO believes the problem is "the sales team discounting too aggressively". The Head of Sales believes it is "procurement failing to control input costs". The CEO wants an evidence-based answer, not an argument.

Supporting data

drivers

volume change pct: 5
fixed overhead change pct: 12
realised price change pct: 0
input cost per unit change pct: 14

profit bridge

revenue last year m: 982
revenue this year m: 1041
operating margin last pct: 17
operating margin this pct: 13

Your task

Diagnose the profit decline and recommend a response. Provide:

Analysis — structure the problem and isolate what actually drove the margin fall.
Risks — what your recommendation depends on.
Recommendation — prioritised actions with expected impact.

Show the arithmetic behind your conclusion.

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How you'll be graded

100 points, 60% to pass.

root cause25
recommendation25
problem structuring25
quantitative analysis25

Hint

Reveal suggested structure

Profit = (Price × Volume) − (Variable cost × Volume) − Fixed cost

Decompose the change: how much of the margin fall is price, how much volume, how much unit cost, how much overhead?
Size each driver before forming a hypothesis.
Test the two stakeholder claims against the numbers.
Prioritise by size of impact and speed of fix.