How to spot the type of market sizing approach

Question

Hi

I found this great video here. What I was wondering is, how to detect when to use the Top-Down, Bottom-Up or Hybrid approach? Do you have any tips/thoughts on this? https://www.youtube.com/watch?v=MWndKXMJ6Xo

Thanks :)

Answer 1

Hi,

Thanks for the question! The video you shared does a great job of laying out the different market sizing approaches, particularly around the 1:22 mark, where it explains the Top-Down, Bottom-Up, and Hybrid methods. Here’s how I recommend determining which approach to use:

Top-Down: This is most appropriate when you have reliable macro-level data or are estimating the size of an industry. For example, when sizing the fast-food market in the US or estimating the revenue of a large market leader like McDonald’s.
Bottom-Up: Use this when you have detailed, unit-level data available. It’s effective for estimating smaller, specific units and then scaling. For instance, calculating the revenue of a single McDonald’s restaurant and extrapolating from there.
Hybrid: A blend of both methods. This works when you need to combine top-level industry data with granular unit-level estimates. For example, determining the number of McDonald's restaurants and then multiplying by average revenue per unit.

The approach depends on the data you have: Top-Down for broader data, Bottom-Up for detailed unit data, and Hybrid for a combination of both.

Best,
Stefan

Answer 2

In the context of a case interview, I think you need to think about which way requires the least amount of 'hoops' to jump through to justify the assumptions.

Many sizings could be done through both ways, but one would make alot more intuitive logical sense than the other.