How to answer the “lemonade stand” model question in strategic finance interviews

3 min readApr 26, 2020

Tips and a template to answer this all-too-common strategic finance question

I was somewhat surprised to get two “lemonade stand” model questions while interviewing for strategic finance roles at late stage tech firms in San Francisco. In each case I was asked to build a functioning excel model of a lemonade stand, with a separate memo supporting my assumptions.

I don’t love this question from an interviewee standpoint— it doesn’t help me as a candidate learn about the company’s business or the types of problems I will be facing. That said, nailing this question should be easy if you prepare beforehand. A strong model and case response can really differentiate you from the other candidates.

Below is a list of steps for how I built the model in an actual 3-hour interview at a large tech company (I was passed through to the next round and received positive feedback). The link to the model is here, the supporting memo here, and screenshots of select outputs are below.

How to build the lemonade stand model

Start by building up the per unit costs. Variable costs are a good place to start as they are “knowable” variables (e.g., cost of lemons, sugar, water, cups, etc.) and can be sourced from the internet.
Move to fixed costs. Fixed costs include capital costs like table, sign, permitting, etc. and labor costs (also “knowable” as pricing for these items can be sourced online).
Build revenue per unit and per day. For a basic stand, revenue will be cups per day * price per cup. What’s really important in the revenue section is to contextualize the assumptions you make. For example, describe how you came up with price per unit (e.g., value-based, cost-based, or competitive pricing). When modeling cups sold per day, describe the factors that will inform this figure (e.g., people passing by your stand * sell rate). Showing you can break the revenue model down into its component drivers is a great way to show the interviewer your skill at breaking down a problems.
Create annual P&L and Cash Flow Statement. Once the per day cost and revenues are built up, create a summary annual P&L and cash flow statement so you know what variables you have and which you are missing (e.g., taxes, D&A, etc.).
Create a second case and/or sensitivity analysis. If you have extra time, build a second case that you might propose as an alternative to the original. This might include sales of additional products, multiple stands, or higher per day volume based on location. Sensitivity analyses can also be great to show the impact of key variables on your metrics.

Other tips

Assumptions tracking. Keep a running note of key assumptions as you make them. That way, you won’t have to go back through and note them all down.
Formatting. Best practice is to put inputs in blue and formulas in black font. I like to build my schedules on separate tabs (e.g., unit econs, capex, NWC, taxes), but it’s a matter of personal preference.
Using case frameworks. When you speak to the model in a live session, consider using frameworks like the profitability framework, and Business Situation framework from Victor Cheng (link here). These frameworks are really powerful to know for interview case questions in general.