Book on China — Practice Case

Client goal

A senior consultant at your firm is thinking about writing a book on “Business in China” and retiring from the consulting business. He wants to know if it is a good idea and if he will make enough money to retire. 

Helpful hints

  • Identify and write out the objective
  • Feel free to ask the interviewers for clarification
  • Structure a plan for approaching the problem before diving in
  • Write out clearly the assumptions you make throughout the case

How do you think you should go about this problem?

Reveal Approach

A possible approach to the problem:

The main objective is to identify how much money the senior consultant will make from selling his book on “Business in China” and to evaluate if the amount of money made is enough to retire on.

We want to answer three main questions:

  1. How big is the market for business books on China?
  2. How much of the market value does the author actually receive?
  3. How much does this consultant require in order to retire?

Question 1: How big is the market for books in China?

Helpful hints:

  • Write out and explain your assumptions verbally before diving into calculations
  • Walk your interviewer through the logic and calculations

Reveal Answer

A possible approach to the problem:

Start with the total population of the United States and estimate the subset that would buy this consultant’s book on “Business in China.”

Estimated total population in the United States: 300 million

Of the total population, assume that only people ages 20-60 are interested in academic books.

Estimated population interested in academic books: 300 million x 40% = 120 million

Of those interested in academic books, assume that 20% are interested in business-related books. (A reasonable rationale for the 20% assumption is to draw on personal experience by examining how many students on campus are pursuing business-related majors).

Estimated population interested in business books: 120 million x 20% = 24 million

Of those interested in business books, assume that 5% are interested in books on China. (A reasonable rationale is to consider that there are many different topics in business, but China is a relatively big topic right now. This assumption does not have the strongest logic and is subject to questioning from the interviewer. Depending on the interviewer’s intentions, 1-15% is a reasonable assumption, but 50% is most likely not).

Estimated population interested in business books on China: 24 million x 5% = 1.2 million

Is this the final answer? As a gut check, ask yourself: do you think the consultant can sell over a million copies of his book? Most likely not.

An additional assumption to include could be that of those interested in books on China, only 10% will actually buy his book. (A reasonable rationale is to think about how many books you are interested in and how many you actually buy).

Estimated population interested in buying his business book on China: 1.2 million x 10% = 120,000

The final answer to our first question is 120,000 people will buy the consultant’s book “Business in China.”

Question 2: How much of the market value does the author actually receive?

Helpful hints:

  • Challenge yourself to draw upon outside knowledge to support your assumptions
  • Ask your interviewer directed questions if you are unsure with your assumptions

Reveal Answer

A possible approach to the problem:

Instead of estimating what percentage of the total market value the author receives, which may be a bit arbitrary, we start by breaking down the value chain of a book. We identify how much an author makes per book, then extrapolate to total market value.

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The logic for this breakdown comes predominately from personal intuition. We believe that publisher costs, manufacturing costs, and marketing costs make up most of the value of the book. We also assert that authors usually make a small cut of the total value of the book, so $1.50, or 10% of the book value, is reasonable to us, whereas $12 is not.

Using our answer from question 1, we can estimate how much of the total market value the author actually receives.

Estimated amount the author receives: 120,000 x $1.50 = $180,000

The final answer to our second question is the author receives $180,000 from selling his book “Business in China,” which is 10% of the total market value of the book.

Question 3: How much does the consultant need to retire?

Helpful hints:

  • Be cognizant of how much time you have – make sure your structure is not too complex so that you can come to an answer within the timeframe
  • Present your recommendation

Final Answer

The final answer with this approach:

Assuming we don’t have much time left, we take a look at the total amount the consultant can make from this book and decide if it is enough money to retire or not. This is a much simpler approach than trying to analyze how much this consultant needs to retire, as this requires many more difficult assumptions.

The consultant most likely will require more than $180,000 to retire. Therefore, it is not a good idea for the consultant to retire on this book alone.

Ending notes:

This is a relatively straightforward quantitative case, if you lay out the structure well in the beginning. The interviewer may state that she believes the consultant can make at least $250,000 from selling the book and may ask you to refine you assumptions to reflect this assertion. In this case, you can start from the weakest assumptions, adjust, and recalculate if requested.