Hi there,

You'll learn a lot more from this by trying it out yourself first! Why don't you post your approach here and we can provide commentary?

Here's some additional practice with answers:

https://www.preplounge.com/en/management-consulting-cases/candidate-led-usual-style/intermediate/market-sizing-with-solution-coffee-shop-revenue-318

https://www.preplounge.com/en/management-consulting-cases/candidate-led-usual-style/intermediate/market-sizing-with-solution-coffee-shop-revenue-318

https://www.preplounge.com/en/management-consulting-cases/candidate-led-usual-style/beginner/market-sizing-with-solution-number-of-taxis-317

How to approach market sizing

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

He's a Q&A for a great market sizing question here 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.

Take a look here for additional practice! https://www.preplounge.com/en/management-consulting-cases/brain-teaser/intermediate/taxis-in-manhattan-market-sizing-229

Hey there,

As always with market sizing, I would not overthink this and approach it in the simplest way possible.

1. Contextualize the problem

How? You need to come up with one defining assumption that simplifies the problem:

If you have ever been to an Apple Store, you know that they are always packed and the checkout counters are usually at 100% capacity. Communicate this to the interviewer and then build your approach around the capacity of checkout counters.

2. Build your approach

Variables you need:

a. Number of transactions in a day

1. Number of checkout counters
2. Average duration of a transaction
3. Opening hours

b. The average value of a transaction

This will allow you to get to the Revenue per day, which you can then easily multiply for whatever the desired time period is

3. Ask the interviewer for data and make assumptions

Before making assumptions, it is fair to ask if the interviewer has any data on the proposed variables. If not, assume them yourself and defend your assumptions logically (e.g., the average value for an Apple Product is north of USD 1,200 given the iPhone prices as the most sold product. There are a few cheaper accessory products, and some like iMacs are more expensive, blah, blah).

Make sure to choose numbers that are easy to calculate. You want a directionally correct result.

4. Plug in the numbers and calculate

5. Contextualize the result

Does it make sense? Number too high/low? What assumption would you change? You can also recalibrate a bit and assume an 80% capacity utilization of cashiers, etc.

Using this approach, you can solve the question in less than 5 minutes. The most important step is to find a way to simplify it from the very beginning.

Hope this helps!

Cheers,

Florian

Hi!

I see you have already received lots of great answers below. 

One point to add - market sizing questions are all about showing your thinking. They have nothing to do with the actual number that you arrive at. 

In your approach, think about it along the following steps:

1. Clarify what needs to be done - what needs to be sized, in what units should it be expressed, etc. 

2. Take time and come up with an approach - start top down or bottom up and come up with several filters or an issue tree that lead you to the answer

3. Discuss that approach with the interviewer, seek their feedback and integrate it

4. Do the computations on your own and then share them with the interviewer.

5. Interpret the result or comment on some of the assumptions you took and why your analysis is sensitive to them (i.e., if they were to turn out differently, they would significantly affect the final result of your calculations). 

Best,
Cristian

Hey,

The supply-based approach works best here. Basically:

Revenue = # of transactions * average spent.

# of transactions = actual working time / average time per transaction.

Average spent - make some assumptions based on the Apple's product mix.

Hope this helps,
Nick

(editiert)