Business Consumption Market Sizing Questions

Question

I am curious as to what the best approach would be if you were given a market sizing question in a case interview related to a product / service whose primary consumer is businesses.

I know that for most market sizing problems it is typically ideal to start with either A) Population or B) Households and to go from there. If the ideal base is businesses, what is the best way to reach this number? How could you estimate the total number of businesses in a country? A thought I had was take an average business size of 20-25 people and divide the population by this amount - would that be a reasonable approach?

For example, how would you approach the problem of the market size for advanced / mega printers (the type only a business would have) in Canada? Would it make sense to start with Canada population (40M), assume 20 people per business = 2M businesses, segment these into estimated # of printers (maybe 3 groups of low, medium, and high # of printers), estimate purchase frequency / replacement rate, then multiply by an average price? Maybe then add on 10% for other organizations not considered by “businesses” (such as government, airports, etc.)? This is just a thought - by no means am I saying this is the way I believe to be correct.

Am very curious to see the various thoughts on this. Thanks! :)

Answer 1

Hi,

Thanks for your question.

The approach is fundamentally same if the consumer was an individual vs. a business. You have to know what is your product, which type of customers does it serve, how many units required per customer or vice versa customers/unit.

For example how many Starbucks coffee machines are sold in US every year? We know your product makes coffee. If you want to calculate how many coffee machines are sold you would need to estimate how many Starbucks are in US based on population, age group, penetration rate per age group, urban population % and other factors, and how many customers each Starbucks caters to. Once you estimate the number of Starbucks stores in the country, you can estimate how many coffee machines per store, replacement rate etc. to get the number of coffee machines sold per year.

In your example of mega printers, you would need to know what is the use of these mega printers, who is the customer (business), how many printers does the customer (business) need and what is the price of each printer. Multiply units by price to get the market size. Since the customer (business) can be of different sizes, then different business will need different number of mega printers where segmentation comes into the picture.

Hope this helps.

Thanks,

Sohini

Answer 2

You are trying to do top-down and that is ok.

But you are missing the fundamental question: what are they used for? Who needs them and why?

If you don't answer this question (and include it as a fundamental part of your answer) you are just running a random calculation with random assumptions (and indeed you are, in your example - who uses low number of printers? why? what is a low number of printers? Will every business have one of those printers or not?).

Once you know why people want the printers, then you should be able to apply a proper / meaningful segmentation.