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Market size using costs?

Do we ever use cost to produce an item in estimating market size? Isn’t it typically the sales price of the item that’s used for these calculations?

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Top answer
on Aug 12, 2021
#1 Coach for Sessions (4.500+) | 1.500+ 5-Star Reviews | Proven Success: ➡ interviewoffers.com | Ex BCG | 10Y+ Coaching

Hi there,

It is not common to have to estimate costs in estimations/market sizing. 

However you may have to estimate costs in the following cases:

  • Estimate a price: you may have to estimate the costs of the product/service and add an estimated markup to identify the price if there is no way for you to estimate the price directly
  • Estimate profits: you may have to estimate costs for, say, a shop to calculate the profits, if the interviewer doesn’t want that you apply an estimated profit margin to revenues

Best,

Francesco

Agrim
Coach
on Aug 12, 2021
Top Awarded Coach | BCG Dubai Project Leader | Master Casing in only 3 Hours | 10y in Consulting | Free Intro Call

At the crux of it - market sizing is about the units.

If you want to estimate sales - you factor the price

If you want to estimate costs - you factor the costs

That said - it would be good to provide some more context so that we can answer the question better. Currently the question is a bit vague/generic.

Deleted user
on Aug 12, 2021

Hi,

This is a very general question, and it would definitely depend on the specific case. Generally speaking, cost would not be of utmost importance - you would think about sales price, geography, customer type, competition, etc. However, cost could be an influencing factor - for instance, perhaps your sales price needs to be set at a certain number to cover some unusually high production cost, which would limit your potential market. So I would say it is unusual, but I wouldn't take it off the table altogether. If there is a specific market sizing question you are thinking about, feel free to message me with more details and we can go through it.

9
Ian
Coach
on Aug 12, 2021
Top US BCG / MBB Coach - 5,000 sessions |Tech, Platinion, Big 4 | 9/9 personal interviews passed | 95% candidate success

Hi there,

Honestly, I'd never say never with market sizing! I suppose I could see a use or two for using cost in order to calculate price, though I haven't really seen a case yet where this applies!

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