Cloud finance: buy growth or protect contribution?
A fictional cloud business is considering a discounted enterprise contract. The CFO wants to know whether the deal creates incremental contribution and whether the team has identified the right missing data.
Original Finance Circle cloud-business scenario. Every operating input is illustrative, not Alphabet results, prices, targets or an actual Google interview question.
Independent Finance Circle learning material. The source organisation does not sponsor, author or endorse this exercise.
Clarify. Structure. Calculate. Defend.
Take 2 minutes to clarify the decision and definitions, 3 minutes to structure the analysis, then work the exhibits. Finish with a concise recommendation and answer a follow-up. The time is a suggested practice format, not an employer requirement.
Clarify before solving
What are the data basis and reporting boundary?
Original Finance Circle cloud-business scenario. Every operating input is illustrative, not Alphabet results, prices, targets or an actual Google interview question.
Which assumptions can I use without requesting more data?
USD millions except unit prices. Existing annual cloud consumption is 10 million units at $2 each; variable servicing cost is $0.80 per unit. Fixed operating cost is 8. New contract adds 4 million units at $1.50 per unit. Variable cost stays $0.80 and incremental fixed support is 1.2. No cannibalisation in the base case.
What decision am I expected to support?
Under the director downside, calculate lost existing contribution and net incremental profit. Find the maximum cannibalised units that reduce incremental profit to zero.
Build your structure
- Existing versus incremental contract economics
- Service capacity and additional support cost
- Cannibalisation of full-price contribution
- Contract terms, collections and pricing governance
Use the branches that matter to this decision. A memorised framework is less useful than explaining why each analysis could change your recommendation.
Everything you need to work the case.
Assumptions & boundaries
- USD millions except unit prices. Existing annual cloud consumption is 10 million units at $2 each; variable servicing cost is $0.80 per unit. Fixed operating cost is 8.
- New contract adds 4 million units at $1.50 per unit. Variable cost stays $0.80 and incremental fixed support is 1.2. No cannibalisation in the base case.
- Director downside: 1 million of the new units replace existing full-price units. Only the remaining 3 million units are incremental volume. New contract still invoices 4 million units at $1.50. No tax or capex.
Illustrative consumption and cost model
| Metric | Existing business | New contract |
|---|---|---|
| Units, million | 10 | 4 |
| Price / unit | $2.00 | $1.50 |
| Variable cost / unit | $0.80 | $0.80 |
| Annual fixed cost, USD million | 8 | 1.2 incremental |
Choose the responsibility. Solve the decision.
Each level uses the exhibits above and asks a different question. Your entries stay in this open page only; copy your work before leaving.
Build the base contribution model.
Calculate existing revenue, contribution before fixed costs and operating profit.
Which cost matters for the incremental deal?
Numerical checks compare your arithmetic with the case model. Written recommendations are self-practice and are not automatically graded.
03 · Reveal worked solution & decision guide
Expected numerical answers
- Existing revenue
- 20 USD million
- Existing contribution
- 12 USD million
- Existing operating profit
- 4 USD million
Work through the calculation
- Revenue = 10 × 2 = 20. Variable cost = 10 × 0.80 = 8; contribution = 12.
- Operating profit = 12 − 8 = 4. Units are millions throughout.
A strong concise response
My calculation shows that existing revenue is 20 USD million; existing contribution is 12 USD million; existing operating profit is 4 USD million. Clarify consumption timing, net price, service cost and fixed versus incremental costs before using a generic growth framework.
Answer the interviewer follow-up
Which cost matters for the incremental deal?
Include the contract’s incremental variable servicing and support costs. Do not allocate existing fixed cost as if it automatically changes, but check whether capacity triggers additional fixed spending.
Assessment rubric · 20 points
For self-review or mentor discussion. This rubric is not an automated written-answer grade or an employer scoring system.
Correctly derives all 3 numerical results for this level, keeps signs and units consistent, and explains the method.
Explains the objective: Build the base contribution model. States the supplied scope, timing and metric definitions before calculating.
Clarify consumption timing, net price, service cost and fixed versus incremental costs before using a generic growth framework. Addresses the interviewer follow-up without contradicting the facts.
Leads with a clear conclusion, distinguishes facts from assumptions, and identifies the next evidence needed. Does not claim the source company asked or endorsed this question.
Use full precision until the final rounding. Alternative written recommendations may be reasonable if they respect the facts and explain assumptions. This is Finance Circle’s guide, not an official source-company answer.
Source & attribution
The references below identify the public reporting, hiring guidance, research or mock-interview material used for context. Finance Circle wrote the exercise and its answers. Illustrative figures are explicitly identified; they are not company results or findings.
Company business context only. The questions, figures and answers are authored by Finance Circle.
Employer interview resource; the cloud exercise and answers are Finance Circle originals.
Source reviewed 30 October 2026. No external page is needed to answer this exercise. Company names and logos identify sources only. All trademarks belong to their respective owners.