This is one of the shortest management consulting case studies in our library, and one of the most useful. It takes a single hiring decision and turns it into a clean revenue-minus-cost analysis that you can reuse in almost any profitability case.
Case Scenario
Think about a law firm. At a salary of $100,000 per year, it employs associates fresh out of law school. Is this a decent offer for the firm?
Suggested Approach
A profit = revenue minus cost analysis is appropriate in this situation. First, consider the marginal revenue that comes with hiring a new attorney. Begin simply by asking whether the firm has any work for the new attorneys to perform. Assuming yes, determine the new associate's hourly rate, the number of hours billed per day, and the number of days worked per year to obtain an approximate revenue total.
Now consider the additional expenses. Alongside salary you should also consider taxes, overhead, training, benefits, and any other costs you can think of. Do not ignore the expense of hiring: amortise it over the average length of time a new associate stays with the firm.
Going Deeper
Once you have this fundamental foundation in place, you can add more detail if you have the time. Other potential issues include the quality of the attorneys you get for your $100K (are they above or below market quality?), the need to give raises in the following years, and the choice between hiring more affordable legal assistants or more seasoned attorneys instead.
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Practise More Consulting Case Studies
- Airline extra passenger – marginal revenue and cost
- Health insurance profitability case
- Downtown lawn and gardening
- Timed prep cases for full interview practice
