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Pedal Pals' Financial Fitness Challenge: Cost Optimization Consultancy
300+
Times solved
Intermediate
Difficulty
Pedal Pals is an interactive fitness platform with millions of members, offering connected, technology-enabled fitness classes that utilize its proprietary hardware, the Pedal Pal stationary bicycle. Pedal Pals generates strong recurring revenue from its members, who pay subscription fees to access Pedal Pal's Connected Fitness products. Additionally, they have strong sales of the hardware product. Pedal Pals has an admired brand for high quality and sustainability.
Recently the company has been challenged by a large, activist investor. The activist investor is citing the plummeting stock price impacting shareholder returns. The activist has attributed the issue directly to poor cost control throughout Pedal Pals. Pedal Pals CEO has hired your organization to determine how to manage its cost issue.
Q2.) Given the Exhibit 1 financial trend, what cost decrease does Pedal Pals require to achieve a 5% profit target in 2024 and where should the cost cut focus?
There has not been a material growth of revenue or cost in 2024 .
Q3.) There are 2 approaches to cost cuts: an alternative manufacturer and reducing head count/ office space. From Exhibit 2, what percent of workforce should be cut to achieve cost savings target?
Q4.) What concerns, specifically in regard to layoffs, do you believe Pedal Pals should consider before moving forward with the cost cutting strategy?
Q5.) We are meeting with Pedal Pal’s CEO shortly regarding our findings, what should we recommend?
300+
Times solved
Intermediate
Difficulty
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Clarifying Information:
1. Does Pedal Pals have a goal for their cost restructuring?
If Pedal Pals CEO cannot decrease their costs to start obtaining an annual profit again, there is a high risk that the investor will engage in a leveraged buyout. Currently the CEO would like to cut costs enough to achieve a 5% profit target.
2. What is Pedal Pals current business model?
Pedal Pals earns its revenue through the subscription revenue of its members, hardware sales of its stationary bicycle, and branded fitness gear.
3. What is the timeline for Pedal Pals to perform the cost restructuring?
Investors are demanding cost decreases in the next two quarters to meet year end corporate goals.
4. How is Pedal Pals supply chain structured?
Pedal Pals has an international supply chain made of up suppliers across multiple countries to source parts for their bicycle. For distribution, they distribute online through their own website as well as offline through retail locations owned by the company.