Market Sizing Approach

In bottom up market sizing, you start by considering:

1. Capacity of the store, considering the relevant constraint: seats, workers, pumping stations, coffee machines, …
2. Capacity Utilization of the store (i.e. how much idle time/seats in a show, during lunch time, …)
3. Number of rotations per period: (meals per day, shows per day, flights per day
4. The relevant working period e.g. month, year, week, but considering that (e.g. no shows on Monday, closed during the weekend, etc.) - and convert it to yearly basis
5. Price
6. Optional: how many of those stores are out there (only if this is whole market analysis and not single store analysis)

Think about this: if you were going to setup a store yourself as an entrepreneur, how would you size it? How would you estimate its revenue potential? You would not consider the whole market size - instead you would consider your own capacity and then try to figure out how much of that capacity you would be able to use.

Ok, so I want to take a step back here. All the other coaches are talking about taking a supply-constraint approach.

I absolutely agree…for the 4 questions you listed.

However, you're also asking about “non-top down” market sizings which won't always be supply/constraint-based.

General Tips

Remember that there's rarely a "best" answer with market sizing. What's important is that you break down the problem the way it makes sense to you. Importantly, break it down so that the assumptions you make are the ones you're most comfortable in.

For example, do you know all the major brands? Great go with that. Do you understand all the segments of that country's population (either age or wealth or job breakdown)? Go with that. Do you know the total market size of a similar industry? Then break it down that way.

It's very simple: Do the approach the is the easiest for you given the question.

Are they asking you to estimate something where you don't even know where to begin from the top (maybe you have 0 clue as to the market size of the industry, the GDP of that country, etc. etc.)? Then do bottom-up!

Alternatively, does it seem impossible to do a realistic from-the-ground-up estimation of something (perhaps it requires just far too many steps and assumptions)? Then do top-down!

Fundamentally, you need to take the approach that just makes the most sense in that circumstance. Quickly think about the key assumptions / numbers required and whether you 1) Know them or 2) Can reasonably estimate them. If you can, go ahead!

An Example

Here is a good Q&A great market sizing question asking to estimate # of electric charging stations in a city in 10 years:

https://www.preplounge.com/en/consulting-forum/how-would-you-solve-this-market-sizing-question-from-roland-berger-7631

This one could be answered top-down (as I did) by estimating population of the city, # of drivers/ cars, etc. etc.

OR, it could be answered bottom-up by estimating # of stations you see per block (or # of gas/petrol tanks), % increase this might be over time (or # of EV stations that would be needed per gas tank given EV stations take 10 times as long), and # of blocks you'd estimate the city to have.

Here's another market sizing (with answers + explanations) to get you started:

https://www.preplounge.com/en/management-consulting-cases/brain-teaser/intermediate/taxis-in-manhattan-market-sizing-229

The question types you are answering require a supply constraint approach. What does that mean? Think of limiting factors here to get to an answer

Take the Broadway show as an example - what are the limitations here?

• No of seats (capacity)
• No of shows a day
• Price per show

So if you say the theater has a capacity of 250, it does 10 shows a week and the avg price is $100 you can calculate a maximum revenue of $250,000 a week. Assuming that the actual tickets sold is 70% on average you can cut this number by 30% to get to an approximate answer of $175K a week or $9M a year.

This is one example of how to approach such problems.

Udayan

Hi there,

This is indeed an interesting question which is probably relevant for quite a lot of users, so I am happy to provide my perspective on it:

• Generally speaking, to my own experience and the ones of my coachees, the sole difference is that you might have more/ different limitating factors for the market sizing.
• For instance, for the revenues of a mid-sized theatre on Broadway, I would advise you to approach the estimation from a supply side, i.e. you need to consider the specific capacity, frequency of shows aso. in your estimation. In contrast to this, to estimate revenues of the theatre industry as a whole, you might rather approach the estimation from a demand side (i.e. “How often and at what price do different household segments visit the theatre?”).

In case you want a more detailed discussion on how to best approach market sizing questions, please feel free to contact me directly.

I hope this helps,

Hagen

Hello!

I would always recommend you to give it a shot and then post it here, this would help you the most. 

Given that market sizing cases were the topic of many questions in this Forum, I developped a market sizing case, that you can find for free in PrepL´s library

https://www.preplounge.com/en/management-consulting-cases/candidate-led-usual-style/intermediate/market-sizing-new-startup-launch-baby-strollers-in-the-us-244

Let me know if you have any doubts with it, it contains a detailed explanation and methodology about how to solve this specific example, but you can extrapolate to many other market sizings!

Hope it helps!

Cheers, 

Clara