Mini-case: Why a growing gym chain is less profitable
A daily consulting case drill on a growing gym chain with shrinking profit, walking through a profitability issue tree, a profit bridge, and a synthesis-ready recommendation.
A regional gym chain just learned that profit fell from $9.6 million to $6.2 million over the past year, even though total members grew slightly. The CEO wants to know what changed and what to fix first.
This is a fictional mini-case for practice. Treat it like the business scenario portion of a consulting interview: McKinsey describes its problem-solving interview as a discussion of a typical client scenario used to evaluate analytical thinking and approach to complex problems.1
Mini-case prompt
Client: FitCo, a 42-location regional gym chain.
Situation: Membership grew from 120,000 to 126,000 this year, but annual profit dropped from $9.6 million to $6.2 million.
Question: What is driving the profit decline, and what should FitCo do first?
Ask the interviewer two clarifying questions before building your structure. Bain explicitly recommends clarifying the objective before diving in and using a clear framework while walking the interviewer through your approach.2
A good opening could sound like this:
"I want to confirm the objective. Are we solving for profit recovery over the next 12 months, and should I assume FitCo wants to protect member experience rather than simply cut costs?"
Then state the structure before calculating.
Guided framework walkthrough
Start with profit, then split it into revenue and cost. IGotAnOffer's issue-tree guide gives the classic profitability split: revenue and costs, with revenue further broken into price times units and costs split into fixed and variable costs.3
For this case, use a four-branch issue tree:
- Revenue per member: membership dues, personal training, classes, merchandise, and cancellation fees.
- Member volume and mix: new joins, churn, plan tiers, and location-level utilization.
- Variable costs: instructor hours, utilities tied to usage, payment processing, towels, cleaning, and consumables.
- Fixed costs: rent, salaried staff, equipment leases, insurance, and central overhead.
Do not stop at the tree. A framework is only useful if it points to a testable first move. Bain also tells candidates to think aloud, share calculations, listen to interviewer cues, and highlight important numbers or insights for easy reference.2
Practice data
The interviewer gives you this year-over-year data:
| Metric | Last year | This year |
|---|---|---|
| Members | 120,000 | 126,000 |
| Average annual revenue per member | $420 | $405 |
| Total fixed costs | $22.8M | $25.1M |
| Variable cost per member | $150 | $157 |
Take 60 seconds and calculate the profit bridge.
Walkthrough answer
Last year:
- Revenue = 120,000 members x $420 = $50.4M
- Variable cost = 120,000 x $150 = $18.0M
- Fixed cost = $22.8M
- Profit = $50.4M - $18.0M - $22.8M = $9.6M
This year:
- Revenue = 126,000 x $405 = $51.03M
- Variable cost = 126,000 x $157 = $19.78M
- Fixed cost = $25.1M
- Profit = $51.03M - $19.78M - $25.1M = $6.15M, which rounds to the reported $6.2M
Now isolate the drivers:
| Driver | Profit impact | What it means |
|---|---|---|
| More members | +$1.62M | 6,000 additional members at last year's $270 contribution per member before fixed costs |
| Lower revenue per member | -$1.89M | Revenue per member fell by $15 across 126,000 members |
| Higher variable cost per member | -$0.88M | Variable cost rose by $7 across 126,000 members |
| Higher fixed costs | -$2.30M | Rent, salaried labor, equipment, or overhead increased |
| Net change | -$3.45M | Profit falls from $9.6M to about $6.15M; the two largest visible issues are fixed costs and revenue per member |
The conclusion should not be "costs went up." That is too broad. A stronger synthesis is:
"FitCo's membership growth is masking two problems. The biggest visible pressure is fixed cost growth, followed by lower revenue per member. I would first test whether new or renovated locations added fixed cost without enough premium-plan uptake, then check whether discounting or mix shift reduced average revenue per member."
Highlighted skill: build a MECE issue tree, then prioritize
An issue tree is useful because it breaks a large question into smaller questions and helps keep analysis tied to the original problem.3 The same guide says strong issue trees should be MECE: mutually exclusive and collectively exhaustive.3 In plain English: branches should not overlap, and together they should cover the major ways the answer could be true.
For profitability cases, the first split is naturally MECE because profit is revenue minus cost. But the second layer still needs judgment. If you list "pricing," "discounts," and "revenue per member" as separate top-level branches, you may double-count the same issue. Put them under revenue per member instead.
Use this checklist during practice:
- Start with the objective, not the framework.
- Split profit into revenue and cost before listing random business factors.
- Keep the first layer MECE; make the second layer practical.
- Calculate the bridge before recommending action.
- Lead with the largest driver, then name the next test.
Key takeaways
FitCo is not a pure demand problem. Members increased, so the first hypothesis should not be "the market is shrinking." The visible problem is unit economics: each member is generating slightly less revenue, costing more to serve, and sitting on a higher fixed-cost base.
A candidate-ready answer would be:
"I would focus the next analysis on fixed-cost growth and revenue per member. Specifically, I would compare old versus new locations, premium versus basic plan mix, and discount levels by cohort. If the new locations are underutilized, FitCo should slow expansion and lift utilization before adding more capacity. If discounting is the issue, the first move is to tighten promotions and push upgrades rather than cut service quality."
For tomorrow's practice, reuse the same habit: clarify the objective, build the tree, calculate the bridge, then synthesize the next test.
References
- 1Interviewing at McKinsey
mckinsey.com
- 2Preparing for the Case Interview
bain.com
- 3Issue trees: how to use them in case interviews?
igotanoffer.com
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