Should a test-prep firm open in Lucknow?
Before the decision
Online trial attendance is high, but learners ask for classroom doubt sessions. The academic team wants to rotate its best teachers across centres. The partner says local teachers know the schools and exam calendars better, and expects authority to build its own roster.
The problem
Should the team choose Company centre or Licensed classroom for the next 12 months?
Decision owner: The business unit lead.
The licence grants room access but limits control over instructor substitutions.
Option economics
Scroll the table to see all figures.
| Option | Volume (enrolments) | ₹ per unit | Fixed cost | Net contribution |
|---|---|---|---|---|
| Company centre | 1,800 | 4400 | ₹54 lakh | ₹25.2 lakh |
| Licensed classroom | 2,400 | 2100 | ₹8.5 lakh | ₹41.9 lakh |
Make the call
- Calculate net contribution for Company centre and Licensed classroom. Which assumption makes the comparison most fragile?
- If the leading option delivers 10% fewer enrolments, does your recommendation change?
- What evidence would you ask for before the team makes an irreversible commitment?
Reveal the worked solution
Start by validating Licensed classroom. It contributes ₹41.9 lakh after fixed costs and leads by ₹16.7 lakh. Treat that gap as the amount of unmodelled cost or lost contribution the option can absorb before the ranking reverses.
- Frame the decision
Separate demand you can reach from demand you can serve reliably. Test reorder behaviour before using the full-year forecast.
- Calculate both options
Company centre: 1,800 enrolments × ₹4,400 less ₹54 lakh in fixed costs gives ₹25.2 lakh. Licensed classroom: 2,400 enrolments × ₹2,100 less ₹8.5 lakh in fixed costs gives ₹41.9 lakh.
- Stress-test the forecast
Licensed classroom leads by ₹16.7 lakh in the base case. If Licensed classroom delivers 10% fewer enrolments (2,160) at the same margin and fixed cost, it contributes ₹36.86 lakh. Holding the other option constant, the stressed result still leads. This isolates volume risk. Check whether both options would respond to the same change in demand.
- Set a decision threshold
Holding the other option’s result fixed, Licensed classroom needs at least 1,605 enrolments to match or beat it under the model. Run the same diagnostic lesson with both instructor pools and track paid renewals.
The licence grants room access but limits control over instructor substitutions. Compare the cost of a limited test with the loss the business would face if the full commitment failed. Ask the team to agree the decision criterion before collecting more evidence.
Check whether your answer names the trade-off, cites a number from the exhibit and specifies a reversal condition.
What if the whole market moves?
The worked solution tests a change to one option at a time. Here, both options gain or lose the same percentage of volume. Unit contribution and fixed costs stay constant.
| Volume scenario | Company centre | Licensed classroom | Higher contribution |
|---|---|---|---|
| Both lose 10% of volume | ₹17.28 lakh | ₹36.86 lakh | Licensed classroom |
| Base assumptions | ₹25.2 lakh | ₹41.9 lakh | Licensed classroom |
| Both gain 10% of volume | ₹33.12 lakh | ₹46.94 lakh | Licensed classroom |
Explain which option you would take forward. Check whether capacity, price or customer mix would also change as the market moves.