Alle Fragen zum Tag Market sizing - Consulting Q&A - PrepLounge.com

Hi Anonymous,

I love interview questions like these because they're seemingly simple, but we can still be organized and thoughtful in our analysis. There's no single correct way to approach this question, but here's how I might think about it:

First, I'd start by asking the interviewer a few clarifying questions. This demonstrates that you're carefully considering the question and the different possible interpretations. Some of these could have a big effect on the solution:

• What do you mean when you say "New York?" Is that Manhattan? New York City? New York State? It's important that we set the appropriate baseline, as there is a big difference is population.
• Do you want me to estimate how many people are wearing a red t-shirt this very moment, or how many people wore or will wear a red t-shirt any time today? This could change the number significantly depending on the time of day, and if we consider that many people change outfits during the day (e.g., going to the gym, getting home from work, etc.)
• When we say t-shirts, I will assume that we are not counting dress shirts, polos, blouses, and other styles of red tops. Does that sound ok?

For the sake of this example, let's assume the interviewer tells us we're looking at New York City, at this very moment, and t-shirts only.

I might set up this equation to start, with three variables we can analyze separately:

# people currently wearing a red t-shirt in NYC =

Number of people currently in NYC * % of people wearing a t-shirt * % of t-shirts that are red

Let's start with the first one: How many people are in NYC right now?

You might ask the interviewer if they happen to know to population of NYC. I'm going to guess that it's approximately 8 million. It's currently 2 PM on a weekday, and I think many people commute into the city from outlying areas (New Jersey, Long Island, Westchester...). NYC is also a popular tourist destination. I'm going to assume there are an additional 2 million non-residents in the city currently. 10 million people total.

Second, what percentage of people in NYC are currently wearing a t-shirt?

I can think of many factors that affect what a person wears:

• Time of day
• Weather (If it's a warm sunny day, more people will probably wear t-shirts)
• Gender (Maybe we think women have more fashion options than men -- dresses, blouses, etc. -- so we might guess that men wear more t-shirts than women)
• Age (Perhaps we think kids wear t-shirts more than working age adults or the elderly)
• Occasion (Many people would wear a t-shirt on their day off, but fewer would wear one to work)

As the candidate, you'll want to demonstrate some analytical thinking here but also your ability to prioritize and not make things overly complicated. It's 2 PM on a late summer weekday, so let's assume the weather is good and a t-shirt would be appropriate and comfortable. Let's use "occasion" to structure our calculation, as that might be the variable with the clearest differences in t-shirt-wearing.

I'm going to estimate the mix of people currently in NYC as follows. I don't know if these are even remotely correct, but the point is to make educated assumptions and explain them:

• Locals who are working today: 60%
• Locals who are not working today: 30%
• Tourists: 10%

I chose these categories because I think there is a sigificant difference in t-shirt-wearing between them. I'm going to estimate that the percentage of people wearing a t-shirt are: 5% of working locals (not very many jobs in NY are that casual), 40% of non-working locals (t-shirts are probably a popular choice on people's days off), and 70% of tourists (practically every tourist I see is dressed very casually).

0.6 * 0.05 + 0.3 * 0.4 + 0.1 * 0.7 = 0.22

By my estimate, 22% of people currently in NYC are wearing a t-shirt.

Third, what percentage of these t-shirts are red?

There are many ways we could approach this question:

• What are the major color categories of t-shirts? (Red, Blue, Green, Black, White, Orange, Yellow, Purple, Pink, Brown, Gray...) Are any of them more popular than others? What percentage do we think are red?
• If I picture the display of t-shirts at a clothing store, what percentage of them are red?
• If I use my own wardrobe of t-shirts as a benchmark, what percentage of my own t-shirts are red? (Be careful using yourself as a sample for the whole population, but this is another data point we can consider.)
• Is there anything that would affect the color of a t-shirt a person chooses to wear today (e.g., is it Valentine's Day? Heart Walk? Are a bunch of Red Sox fans in town for a baseball game?)

This is a great place to demonstrate that you can triangulate to an answer using multiple data points and approaches. Let's assume it's just an ordinary day. My best guess for each of these questions is around 10%.

Finally, putting it all together:

10M people * 22% in t-shirts * 10% red = 220,000 people currently in NYC wearing a red t-shirt

Once you have your answer, I'd suggest doing a few things:

• "Sanity check" the answer. Based on our calculation, 2.2% of people in NYC are wearing a red t-shirt. Does that seem "in the ballpark?" Seems reasonable to me: If we walked through a busy subway station right now, I could imagine 1 in 50 people would be in a red t-shirt.
• Comment on sensitivities: What are the most impactful estimates we made that could significantly affect our answer? Of course, the baseline population is a big one. I've also assumed that only 5% of the largest group of people (working locals) wear t-shirts. That might be low when you consider that some parts of the retail workforce wear t-shirts or that casual offices are becoming more common.

I hope that's helpful! Of course, there are a million other ways you could approach solving this, but the most important thing is to lay out a logical approach, develop reasonable assumptions, and explain your thinking as you build your answer.

-Matt

Hi,

Step 1: ask to define "good idea". In general it will be some king of IRR / payback period. So you will have to analyse investment, revenue and cost.

Step 2: calculate revenue
Rev= % of FM using mobile printing * 300 *kiosk per FM * # of transaction per kiosk (here you can break down hourly) * revenue per transaction

Step 3: calculating cost
Variable cost = operating cost (maintenance) + fee to the FM

Fixed cost = mainly SG&A here

Step 4: upfront investment

Cost of 1 kiosk * # of kiosk you buy

Step 5: calculate IRR and payback period

Hi Anonym,

there are many different ways to calculate that. Depending on whether the question is used as a whole case or is only part of a case, you can solve it in different levels of detail.

A pragmatic solution could be the following:
Market size of ATMs = Number of ATMs / Lifetime of an ATM * Price of an ATM

Number of ATMs: Number of ATMs in your district * (inhabitants of your country / inhabitants of your district)

Lifetime of an ATM: Make an educated guess and explain it well. For example, you could explain that ATMs should always meet the latest security standards and thus only last 7 years due to rapid technology development.

Price of an ATM: Make an educated guess and explain it well. For example, you could explain that ATMs should always meet the highest technical standards and thus cost as much as a small car.

If you have further questions, do not hesitate to contact me.

Best regards
Marco-Alexander

This is a typical market sizing question. You should clarify if the goal is to find only the number of sim cards sold or value from the number of sim cards sold. You can answer by the following approach

1. Start with the population of Saudi Arabia

2. Segment the population by age (0-15yrs, 15-30, 30-45,45-60,60+)

3. Make assumptions on which segments will need a sim (e.g. 15+), how many devices (one for phone, one for tablet etc.)

4. Make assumptions on how many in the segment will need a new sim (either additional device, or get a new one). Multiply these percentages to the segment volumes.

5. Add the numbers to get the total number of sim cards sold.

If the goal is to find a $ value from the sim cards sold then multiply the number with an average cost of a sim.

Got a similar case at McKinsey some time ago - I actually asked the same question here : https://www.preplounge.com/en/consulting-forum/atypical-case-4501

Hi Firas,

An interesting question. If I were to receive such a question in an interview, I would start by clarifying a few things:

1. Should I estimate the number of hot dogs sold, or the number of hot dog eaters?
2. How is "hot dog eater in NYC" defined?

Once I have those two questions answer, I would start with the NYC population, and apply (some if not all of) the following filters:

1. Remove people who cannot eat hot dogs (e.g. new-born babies, terminally-ill elderlies, people under specific health conditions, religious reasons, etc.)
2. Filter by age: assumption here is that certain generations are more likely to consume hot dogs.
3. Filter by weight: assumption here is that heavier people are more likely to consume hot dogs.
4. Filter by district/location: assumption here is that people from certain parts of NYC are more likely to consume hot dogs.
5. Filter by nationality: assumption here is that people from certain countries are more likely to consume hot dogs.

Each of these filters apply a certain percentage number to the NYC population, and the result would be my answer to the question. In a real interview, I would probably use only 2-3 of the filters mentioned above, instead of all of them.

A few thoughts on this:

• Price differs by airline: full service carrier vs. low cost airline
• Price differs by flight duration: short flight vs. long-haul flight
• Price differs by booking class: first class, business class, coach
• Price is dependent from available alternatives (trains etc.) and geography
• Price is connected to free disposable income and willingness-to-pay

Calculation scheme:

• Let's assume any European country.
• Price indicated as round-trip tickets.
• European flights:
  • Coach:
    • 50 EUR for low-cost airlines (Ryanair)
    • 150 EUR for full service carriers (Lufthansa, BA)
  • Business:
    • Let's assume low-cost airlines do not have business class.
    • 300 EUR
  • No first class on European flights
• Medium/long-haul flights:
  • Coach:
    • Low-cost airlines: 600 EUR
    • Full service carriers: 1,200 EUR
  • Business:
    • Full service carriers: 5,000 EUR
  • First:
    • Full service carriers: 10,000 EUR
• Let's talk about proportions:
  • Percentages by Coach/business/first:
    • European flights: Assume an average jumbo jet has 40 rows, 5-6 rows are dedicated for business travellers. Which leads to:
      • Economy: 85%
      • Business 15%
      • First 0%
    • Medium flights:
      • same as above
    • Long-haul flights: Consider 777,787,A380: 600 passengeer seat capacity on average per flight. 40-60 passengers in the business class (10%). 5% in the first class. Which leads to:
      • Economy: 85%
      • Business 10%
      • First 5%

• European flights are dominated by low-cost airlines, therefore:
  • Average coach price will slightly above the price for the low-cost airlines, e.g. 80 EUR
  • Low cost carriers provide no business class, therefore the business class ticket will cost on average 300 EUR
  • The average price on European flights will be therefore: 80 * 0.85 + 300 * 0.15 = 68 + 45 = 113 EUR
  • Sanity check: average price on German railways is between 50-200 EUR
• Medium and long-term flights are more dominated by full service carriers
  • Average coach price will be somewhere between 600 and 1,200 EUR. More on the upper bound: 1000 EUR
  • Business class ticket will cost on average 5000 EUR
  • First class: 10000 EUR
  • Which leads to 1000 * 0.85 + 5000 * 0.1 + 10000* 0.05 = 850 + 500 + 500 = 1850 EUR
• Consider now the split between European and medium/long-haul flights. Local flights have significantly higher frequency at the airports, therefore we assume 70% of flights are European flights. Which leads to 113 * 0.7 + 1850 * 0.3 = 79.1 + 555 = 634.1 EUR

Hi,

Both of your approaches are correct since you can calculate the things from the supply and demand sides. For example for the hospitals, you can calculate the number of hospitals per certain area (You can use your town as a proxy. E.g. I have 3 hospitals per 500k people in my hometown) and then assume a certain number of beds, turnover, and utilization.

There are certain tools that you need to understand:

1) First of all, there are two ways to calculate market size:

• From supply side (e.g. vending machines spots)
• From demand side (e.g. vending products consumption)

2) There are 2 ways to structure market sizing:

• Formula - basically a math formula to come up with a solution. The problem with the formula is that it is easy to forget something or get lost.
• Tree - same as with regular cases you build a tree. A very simple example: you need to calculate the number of dogs on manhattan. A number of dogs = share of households having a dog * # of households. # of households = population / average household size. In the end, you'll have a pyramid where you have to fill the numbers on the base of the pyramid. This approach is much easier and helpyou track all the numbers

3) You should learn the key market sizing techniques:

• Making assumptions based on personal experiences (Use the example of your house where out of 100 apt-s 10 have dogs)
• Adjusting numbers (NY is a busy city thus fewer people have dogs)
• Sanity check - try to apply your calculations to realenvironment
• etc.

4) You should learn the key tools:

• Using age even age split (suppose life expectancy is 80 years. Assuming even age split we have 4 mln people in USof each age group)
• Using 80/20 split (suppose 20%people earn 80% wealth and the average salary is xx...)
• Using approximations (Length of NY-SF flight and plane speed to calculate US length)
• etc.

5) Learn key numbers: populations, gas price, gas consumption, Boeing speed and nmber of seats, average salary, # of gates in the airport, GDP growth rate, inflation, etc.

6) Practice 10-15 cases and you'll be fine

Good Luck!

Hi Kiga,

one possible approach (top down approach - you can also go bottom up).

First clarify the perimeter of the market sizing e.g.

- Only privately-owned cars vs. taxis, professional vehicle included

Then

1) Estimate population of the city in question

2) Estimate the number of families in the city using an hypothesis about the avg. number of people per family in the relevant country (is car-sharing between family members is significant in the country at hand - behaviours can change a lot across the world)

3) Now use an hypothesis about the % of families who own a car, two cars, three cars etc..

4) Then sum up the # of cars that you obtain

First level approach, can be further "deep-dived", if need be.

Hope it helps.

Paolo

This question has very limited information so will do my best based on it. There are multiple approaches - one of them outline below

I assume this is the market in one country

1. Estimate country population

2. Estimate number of couples (in relationship or married) - here you can take some broad assumptions based on observations - e.g., 60% of population above 25 is in some form of a committed couples relationship

3. Estimate demand for those couples for trips dedicated to the types of vacations you are estimating (will have to deduce based on your best estimates). Let's say 10% of couples would consider it

4. Use 10% to get potential market size. Then account for factors such as costs, location, duration, appeal etc. to get to actual market size - say 4%

5. Estimate avg. price for such vacation (usually $2k and up)

Now you have one way to calculate it

Note that you can add complications such as accounting for people coming from other countries, no kids vacations vs ones with kids, specialized markets e.g., those targeting younger couples etc.

Hope this helps

Population approach:

1. Number of inhabitants in the country

2. Segment them according to age

3. Differentiate the segments based on their defining characteristics, e.g. people beween 0-10 typically do not fly, between 30-40 fly let's say 5 times a year on average, i.e. 10 flights per person

4. Add them up and devide by number of days?

5. Define how many people fit into a plane

6. Define uage capacity

7. Define non-flight hours of airports, e.g. 0-6am

TADAA :)

Hi,

You should make the following assumptions:

• Peak, non-peak hours and total operational hours
• # of planes landing and taking off during peaks and non-peaks
• Max # of passengers per plane and avg occupancy rate

Best

Hi Firas,

first of all I would ask the interviewer to clarify whether the market size is in

- Dollar term

- Number of house sold (volume term)

Also when we say real estate, I would ask whether this include only new houses sold around the country or also the rent market.

Let us assume no rent market included

One approach ("top down") could be

- Start from US population

- Come up with a # of people x household

- # of houses = US population / # of people x household * (I am assuming a tiny percentage of people lives under a bridge etc... not uber precise)

- Now you should make an hypothesis about the % of house ownership in the US (lower than europe I guess) to segment the market of people that have a house

- YOu can now use the "useful lifetime" rule and come up with an avg. number of years in which people stick with the same house (you can segment population if a single number is too rough)

- House sold / bought every year = Total House owned in US (see above) / avg. # of years people stick with the same house

This is just the "real estate - buy a house" market. I think you can now imagine how to size the rent part

Alternative possibility is to start with population, segment by age and assing a # of house per age bracket (e.g. no age below 18) and the once again go through the house ownership / house renting % to get to the market size.

Hope this helps.

Write me if not super clear.

Regards,

Paul

Hi,

• Segment UK area into cities / rural
• Calculate the number of active digging per 1km in both based on personal experience / observations.
• Calculate each segment
• Assume some utilization rate (e.g. there are diggers that are idle)

Best!

Hi,

1) First of all, there are two ways to calculate market size:

• From supply side (e.g. vending machines spots)
• From demand side (e.g. vending products consumption)

2) There are 2 ways to structure market sizing:

• Formula - basically a math formula to come up with a solution. The problem with the formula is that it is easy to forget something or get lost.
• Tree - same as with regular cases you build a tree. A very simple example: you need to calculate the number of dogs on manhattan. A number of dogs = share of households having a dog * # of households. # of households = population / average household size. In the end, you'll have a pyramid where you have to fill the numbers on the base of the pyramid. This approach is much easier and help you track all the numbers

3) You should learn the key market sizing techniques:

• Making assumptions based on personal experiences (Use the example of your house where out of 100 apt-s 10 have dogs)
• Adjusting numbers (NY is a busy city thus fewer people have dogs)
• Sanity check - try to apply your calculations to real environment
• etc.

4) You should learn the key tools:

• Using age even age split (suppose life expectancy is 80 years. Assuming even age split we have 4 mln people in US of each age group)
• Using 80/20 split (suppose 20% people earn 80% wealth and the average salary is xx...)
• Using approximations (Length of NY-SF flight and plane speed to calculate US length)
• etc.

5) Learn key numbers: populations, gas price, gas consumption, Boeing speed and nmber of seats, average salary, # of gates in the airport, GDP growth rate, inflation, etc.

6) Practice 10-15 cases and you'll be fine

Good Luck!

Hi,

It should not be calculated with the replacement theory.

First of all, you can always ask in clarifying questions if we are taking into account the commercial usage.

The approach case by case is different:

For example, once you calculate the household cars you can use your personal experience and mention that every 5th car on the street is commercial and divide the households cars number by 80%

For the Malls and hospitals, you need to calculate the commercial vs non-commercial real estate areas and then apply a different number of fo bulbs per sqm

Best

Plenty of good options below.

Another way to think of this is to think from a population perspective and not split it upfront but start with overall usage for those that do not have access to personal machines

So calculate # of household and % of population with access to laundry at home - like you have already done

Then population that does not have indiviual access at home (live in apartments without laundry in unit so use building laundry etc.) Make assumptions on number of laundry machines per 100 people and calculate laundry machines needed here

Then look at special population needs - e.g., students, hospitals, laundromats, hotels. and make individual assumptions - e.g., students you can use the same number as what you calculate for population without individual machines, for hospitals and hotels you might need different assumptions and maybe even the same one.

Hope this helps

Udayan

Hi,

There are 2 ways to structure market sizing:

• Formula - basically a math formula to come up with a solution. The problem with the formula is that it is easy to forget something or get lost.
• Tree - same as with regular cases you build a tree. A very simple example: you need to calculate the number of dogs on manhattan. A number of dogs = share of households having a dog * # of households. # of households = population / average household size. In the end, you'll have a pyramid where you have to fill the numbers on the base of the pyramid. This approach is much easier and help you track all the numbers so I personally recommend using this one.

Additional things that can be helpful:

2) You should learn the key market sizing techniques:

• Making assumptions based on personal experiences (Use the example of your house where out of 100 apt-s 10 have dogs)
• Adjusting numbers (NY is a busy city thus fewer people have dogs)
• Sanity check - try to apply your calculations to the real environment
• etc.

3) You should learn the key tools:

• Using age even age split (suppose life expectancy is 80 years. Assuming even age split we have 4 mln people in US of each age)
• Using 80/20 split (suppose 20% people earn 80% wealth and the average salary is xx...)
• Using approximations (Length of NY-SF flight and plane speed to calculate US length)
• etc.

4) Learn key numbers: populations, gas price, gas consumption, Boeing speed and number of seats, average salary, # of gates in the airport, GDP growth rate, inflation, etc.

5) Practice 10-15 cases and you'll be fine. Almost all casebooks have good market sizing examples and the solutions

Feel free to PM for clarifications

Good Luck!