1. Take notes on the case background information
Capital One case interviews begin with the interviewer giving you the case background information. Let’s say that the interviewer reads you the following information:
Interviewer: As an investment, your friend is considering opening a boutique fitness studio. Should they do it?
As the interviewer reads you the case information, take notes. It is important to understand what the objective is.
2. Synthesize information and verify the objective of the case
After the interviewer finishes giving you the case information, confirm that you understand the situation and objective. Provide a concise synthesis like the following:
You: To make sure I understand correctly, our friend is considering opening a boutique fitness studio as an investment. The goal of this case is to decide whether they should move forward with this investment.
Interviewer: Exactly. That is correct.
3. Ask clarifying questions
Next, you’ll be able to ask clarifying questions. Try to limit your questions to only the most critical questions that you need answers to in order to solve the case.
You: Before I begin structuring a framework, can I ask what our friend’s financial targets are for the investment?
Interviewer: Your friend is hoping to make at least $150,000 in profit in the first year.
4. Create a framework
Next, lay out a framework for how you are going to solve the case. A framework is simply a tool that helps you structure and break down complex problems into simpler, smaller components.
For this Capital One case interview example, your framework may look like the following:
You: To determine whether or not our friend should open a boutique fitness studio, we will need to calculate the expected annual profit. To do this, we need to calculate expected revenues and expected costs.
To calculate revenues, we need to estimate how many members will join the fitness studio and how much they will pay for membership.
To calculate costs, we need to add up all of the different costs associated with running a boutique fitness studio. The major costs that come to mind are:
- Rental costs
- Equipment costs
- Instructor salaries
- General operating expenses such as utilities and marketing
Interviewer: That approach makes sense to me.
5. Data provided by the interviewer
Once you have presented your framework, the interviewer will provide specific data for you to use in your calculations.
Interviewer: Here is some data to help with your calculations:
- The studio expects to have 250 members.
- Each member pays $200 per month for a membership.
- The studio pays $10,000 per month in rent.
- There are 6 full-time instructors, each earning an average salary of $50,000 per year.
- The initial equipment investment is $80,000.
- Additional operating expenses, including utilities and marketing, total $50,000 per year.
6. Perform calculations
Once you have the data, proceed with calculations while walking the interviewer through each step.
You: Let’s calculate revenue first. The studio expects to have 250 members who each pay $200 per month for a membership.
250 members x $200 per month = $50,000 in revenue per month
$50,000 x 12 months = $600,000 in annual revenue
Looking at costs:
- Rent is $10,000 per month or $120,000 per year.
- There are 6 full-time instructors earning an average salary of $50,000 each, totaling $300,000 per year.
- Equipment costs (initial investment) are $80,000.
- Additional operating expenses, including utilities and marketing, total $50,000 per year.
Total first-year costs = $120,000 (rent) + $300,000 (salaries) + $80,000 (equipment) + $50,000 (other expenses) = $550,000
Therefore, profit in the first year is $600,000 – $550,000 = $50,000.
7. Adjusting the business model
Interviewer: Since the profit in year 1 is falling short, you consider changing the business model where you will offer drop-in classes that don’t require a membership. You know you can get 150 monthly customers who will complete 3 classes a week, but you also expect your monthly membership count to drop by 50%. What price will you have to charge for the drop-in classes so that you earn $150,000 in profit in year 1?
New Revenue Calculation
- Updated Membership Revenue:
- Membership count drops by 50%, so there are now 125 members.
- Monthly revenue from memberships: 125 members × $200 = $25,000
- Annual revenue from memberships: $25,000 × 12 = $300,000
- Drop-in Class Revenue:
- 150 customers take 3 classes per week → 150 × 3 = 450 classes per week
- Weekly total classes: 450 classes × 4 weeks = 1,800 classes per month
- Annual total classes: 1,800 × 12 = 21,600 classes per year
- Let P be the price per drop-in class
- Total revenue from drop-in classes: 21,600 × P
- New Total Revenue:
- Membership revenue ($300,000) + Drop-in class revenue (21,600 × P)
Profit Target Calculation
We need to earn $150,000 in profit.
- Total Costs: Still $550,000
- Total Revenue Needed: Profit Target + Total Costs = $150,000 + $550,000 = $700,000
Thus, solving for P in:
$300,000 + 21,600P = 700,000
21,600P = 400,000
P = 400,000 ÷ 21,600
P ≈ $18.52 per class
8. Discuss the implications of your answer
You: To reach the target profit of $150,000, the studio must charge at least $18.52 per drop-in class.
- This price may be reasonable depending on market standards for boutique fitness drop-in rates.
- If $18.52 is too high for the target market, alternative strategies could include reducing instructor costs or increasing member retention efforts.
- The new model diversifies revenue but also introduces risk — member retention may drop more than expected, or drop-in customers may not be as consistent as projected.
9. Deliver a recommendation
You: Given the calculations, I would recommend implementing a hybrid pricing strategy that includes both memberships and drop-in classes, ensuring the drop-in rate remains competitive. Additionally, we should test this model in a pilot phase to confirm demand before fully committing to the pricing change. Would you like me to explore other pricing or cost-reduction strategies?