Post by @julietmackayy

Price. Every time. Explanation: Both give you the same 10% bump in revenue. They do very different things to profit. A 10% volume increase means you sold more units. More units means more cost of goods sold. COGS goes up 10% too, gross profit goes up 10%, and gross margin stays exactly where it was. A 10% price increase adds zero units. COGS doesn’t move at all. The entire 10% of new revenue drops straight to gross profit, so gross profit grows by more than 10% and margin expands. Quick math. 100 units at $10, $6 of variable cost per unit, $300 of fixed costs: Base: $1,000 revenue - $600 variable - $300 fixed = $100 operating profit 10% price: $1,100 - $600 - $300 = $200 10% volume: $1,100 - $660 - $300 = $140 Price doubles operating profit. Volume gets you less than half of that. The part most people miss: Volume also eats cash. More units means more inventory and more receivables, and if you’re near capacity, more capex. Price costs you nothing to produce. The one caveat to say out loud: This assumes demand holds at the higher price. If the product is elastic, a 10% price increase can kill enough volume to leave you worse off. Interviewers want to hear that you know the assumption is doing work. Follow for more! The next one’s harder. 👀 #investmentbanking #valuation #technicalinterview #privateequity #wallstreetmath