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Market Sizing Questions in Consulting Interviews – The Three Golden Rules

Market sizing questions (sometimes known as guesstimates) are often used in interviews because they require a mix of logic, maths and common sense. They can be asked as a standalone question or as part of a larger case interview. Candidates that are competent with market sizing questions can find them extremely easy to execute and if included in an unstructured interview it can result in the candidate having an extra 20% time to answer other questions.

Market Sizing Questions During Your Case Interview

All the top tier consulting firms are likely to test their candidates with a market sizing question at some stage in the process as it is considered a “back-of-the-envelope” calculation. For instance, you may be sat talking to a UK clothing retailer about their growth strategy and someone may put forward the idea of opening an e-commerce store inviting the question “how much revenue could we expect to generate from an e-commerce store?” and on the back of an envelope (or more likely a piece of paper) you could estimate the size of the UK’s online clothing market and apply a market capture percentage for the client to give them a rough figure. Being quick with these calculations keeps the conversation flowing with the client and maintains a good impression.

You can be given a market sizing question as a standalone case (though less frequent) or as a part of a broader business situation case like “entering a new market”. Market Sizing can be tricky since there is no uniquely correct answer so be prepared beforehand. In general, the interviewer will be less interested in the number you got for the market compared to the approach you used to get to that number.

This case type is used to test your quantitative and reasoning skills. The interviewer wants to evaluate whether you are comfortable working with numbers and whether you are capable of making good assumptions and handle ambiguity. Market sizing questions are not only about sizing markets but also other types of estimations, for instance, estimating the number of golf balls in a Jumbo. As you may have gathered, maths is important when working through these questions as you won’t have a calculator to do the sums. Whilst good long multiplication and long division can be extremely beneficial the most important thing is being able to handle big numbers such as millions and billions as well as percentages. More on this later.

Ideally, your result should be “in the right ballpark”, meaning the answer must not be off by more than 20% compared to the actual answer. But more than the result, the crucial aspect of this problem-solving process is the approach you took, the structure you applied, and the way you thought about the problem. If you fail to share your approach and the thought process, it is unlikely the interviewer will be able to read your mind or give you a pass for the case interview.

Segmentation

If you have been reading into consulting interviews before arriving at market sizing questions you may have already come across some areas where segmentation is required. Segmenting data is a common theme throughout multiple types of consulting questions, and it is no different with market sizing questions. Segmenting is the concept of breaking down large data groups without losing any data in the process. The principle you need to understand in order to do this correctly is the MECE principle.

The MECE principle can be applied to demographics such as populations, used to formulate problem statements and to process data sets. In simple terms breaking down a data group in a MECE way means creating sub groups that do not overlap, and their sum equals the original number i.e no data has gone missing. An example useful to know for market sizing questions is how to segment a country’s population into age groups (as age groups often behave differently):

0-17 = 20%

18-34 = 20%

35-49 = 20%

50-64 = 20%

65+ = 20%

Notice that none of the groups overlap so no ages get counted twice but also no ages are missed. Now that the population is segmented properly, we can treat each group differently. Continuing with the e-commerce clothing example, if we had broken the UK population into the above groups then we could estimate the spend per person in those groups and common sense would suggest it is likely that the spend per person is less in the 0-17 group compared to the 18-34 group. We can reason this judgement as the majority of the 0-17 group will not be buying their own clothes online.​

Two Essential Frameworks

The two frameworks that can be used when answering market sizing questions are an issue tree or a table. Both can usually get you to an answer so if you are short of time then only learn one, but it will definitely make your life easier if you can master them both.

It is really important to sense check your answer during a market sizing question as it is a test of your business acumen, a candidate that states that the global freight market is worth £1 million immediately reveals to the interviewer that they are lacking the level of business judgement a consultant needs.

1. Issue Trees

An issue tree (sometimes referred to as a logic tree) is the visual breakdown of a question into its component parts vertically. Once you start breaking the question down further it continues in the same format to the right eventually leading to a single answer. If the question asked you to estimate how many fridges there were in India you could use an issue tree as follows:

market sizing issue tree

Issue trees are a popular method of answering market sizing questions because the logic applied is easy to trace and so the interviewer can physically see the steps you have made in order to arrive at your answer. They are also easy to extend if necessary, as you can bring in other branches without disrupting the logic and simply changing the calculations required.

When using an issue tree, we recommend that you use as much of the page you have available and start with your first branch(es) on the left-hand side and then follow these steps:

  1. Draw out your tree with only the branch labels
  2. Turn the page round to the interviewer and confirm that your logic is reasonable
  3. Fill in the data that you do know
  4. Ask the interviewer if they are able to fill in any of the blanks (they may refuse to fill in any)
  5. Fill in the remaining blanks with sensible estimations of your own and justify them to the interviewer
  6. Do the required maths
  7. Sense-check your answer (if it seems unreasonable then go back to step 5)
  8. State your answer to the interviewer

Following these 8 steps gives the interviewer chances to course correct if you have missed or overcomplicated something and demonstrates your logic and maths skills clearly.

The limitations of an issue tree are easy to see when there is a lot of segmenting of the data required within the answer. Whilst the logic may be easy to trace still it can make the calculations messy and harder for a reader to understand. For a question that involves a large amount of segmenting it is usually easy to use a table.

2. Tabular

Using a table to construct your answer is a good method to choose if you are likely to be breaking a data set down. The breaking down of a population into age groups as shown in the segmentation section leaves you with five different groups. In this case it is beneficial to use a table in order to treat each group differently. For example, if the question asked you to estimate how many people go swimming each week in the UK we may estimate the answer using the following table:

market sizing table

Each row of the table is a different subgroup whilst each column is a different logical step. Some of the steps use the same figures for each group such as hours in a day and this makes the maths more time consuming. An alternative would be to move into an issue tree at this point meaning you only have to multiply by 24 once.

It is helpful to use lined paper if it is available when using a table to answer market sizing questions as it keeps the rows clear and legible. For the table framework we recommend using the same steps as the issue tree with a slight modification to the setup:

  1. Draw out your table with only your row and column labels
  2. Turn the page round to the interviewer and confirm that your logic is reasonable
  3. Fill in the data that you do know
  4. Ask the interviewer if they are able to fill in any of the blanks (they may refuse to fill in any)
  5. Fill in the remaining blanks with sensible estimations of your own and justify them to the interviewer
  6. Do the required maths
  7. Sense-check your answer (if it seems unreasonable then go back to step 5)
  8. State your answer to the interviewer

Following these steps will allow you to keep organized when working with multiple subgroups. Like the issue tree it is also easy for the interviewer to understand your logic and course correct where necessary.

Market Sizing Questions: Example

Question:​

How many fridges are there in India?​

To ensure a logical answer it is important to apply the MECE framework and physically draw out an issue tree. Always talk through your steps with the interviewer and they may give you hints if they are looking for something specific. A potential answer to the question might be:

Answer:

market sizing questions examples

As the fridges have been segmented into two groups (domestic and commercial) using the issue tree has been straightforward. In this example it would be easy to only consider fridges in homes and households (domestic) but you must always consider any other potential sources. If you miss one, it is likely to be a follow-on question the interviewer asks; “where else might you find fridges in India?” testing your creative thinking and the collectively exhaustive part of the MECE framework.

A common question is estimating the number of passengers that pass through an airport and the type of aircraft that is often overlooked is cargo planes. Whilst they don't carry passengers there is usually a crew of two flying the plane and to be collectively exhaustive these need to be included. Recognising this will show the interviewer you are an exceptional candidate with a great mind.

Following the example through you can see the numbers used are incredibly easy and that isn't by accident, round them where it is appropriate but be mindful that you must also be able to justify the numbers you choose. An average of one fridge per household can be justified as sensible because there will be a wealthy demographic with two fridges but also as a country with high poverty levels there will be many households without fridges in India. An average of two fridges per business could be argued in many ways but things to be considered are restaurants and supermarkets that have many versus the small independent businesses with none. Remember to explain your logic out loud to the interviewer.

Useful Numbers

A stumbling block for many market sizing questions is the starting figure. Often the question is asking you to find a subset of a larger group or a number in relation to the larger group such as weekly swimmers in the UK or fridges in India. In order to do this it is helpful to know the population to start, in these instances the populations of the UK and India respectively. The following numbers are useful to know before answering market sizing questions:​

  • US population = 300 million
  • UK population = 60 million
  • EU population = 500 million
  • Chinese population = 1 billion
  • Indian population = 1 billion
  • Australian population = 25 million
  • People per household (developed countries) = 3
  • People per household (developing countries) = 4

Market Sizing Practice Questions

  1. How many mattresses are sold each year in the US?
  2. How big is the US diapers market?
  3. How many gas stations can be found in Paris?
  4. How big will the market for 3D TVs be?
  5. What is the size of the European Shoe market?
  6. How many fast food meals are served in London each year?
  7. How many people go swimming in the UK each week?
  8. How many phones are lost at music festivals in the UK each year?
  9. How many phones are manufactured in China each week?
  10. How many houses are sold in the UK each year?
  11. What number of pretzels would you need to build a tower as tall as Big Ben?
  12. What is the size of the UK sofa market?
  13. Estimate the revenue generated by ticket sales from all US sports stadiums each year.
  14. How many people wear a tie on a Monday in the state of New York?

Although some of these questions might seem odd, it’s something consultants are often asked by clients in brainstorming sessions or just out of the blue. Having a structured approach and being able to analyze what the drivers are behind such estimation questions is essential for a useful and convincing response.

While the approach you choose to get to the size of the market is much more important than the result itself, you should still be aware that your interviewer might deliberately give you assumptions that lead to a much higher or smaller market size than what would be reasonable. In this case, make an objection saying that the market seems to be much larger/smaller than you would expect. It could be that your Interviewer wants to test your ability to challenge your results (AKA sanity checking).

The Challenges in Market Sizing Questions

  • To come up with a good structure. See examples in the "Replacement Concept" videos below.
  • To calculate accurately without mixing up numbers. This is especially important if you are given numbers with lots of zeros (e.g. $B and $M).
  • To make assumptions that are as defensible as possible. Only use gut feeling if no other options remain.
  • To be quick and accurate while making calculations.
  • To be concise and not missing any steps of the solution.
  • To present the solution in a client-friendly and understandable way without repeating every step of the calculation.
  • To know if you are in the right ballpark by doing a sanity check at the end.

To master the many challenges of a Market Sizing Case, we strongly recommend you to always use our three golden rules of market sizing discussed below.

The Three Golden Rules of Market Sizing

The three golden rules of market sizing will help you to structure and present your approach easily, prevent you from making calculation mistakes, and check whether you are right in the end.

The three golden rules of market sizing are:

  1. Use a tree to structure the problem.
  2. Find the right tradeoff between accuracy and pragmatism.
  3. Sanity-check your results.

In the following sections, we will look at each of these steps in more detail:

1. Always use an issue tree to structure your problem

In most market sizing cases, the interviewer has no clue what the exact solution is. The final answer does not matter as much as how you got there.

Always draw a calculation tree for the solution of a market sizing case: In the first step, lay out your whole structure starting from the top box (your final objective) going down to the leaves (pieces of information that are easier to estimate).

You should go to the second step only after your tree is laid out and has been validated by the interviewer. The second step is when you start making assumptions from the leaves at the bottom and calculating the boxes of your tree towards the top (your final objective).

For example, if the market you are trying to estimate is the number of diapers sold in the US per year, first-level assumptions could look something like this:

  • # of babies in the US at a given day multiplied by
  • # of diapers a baby uses per day multiplied by
  • # of days on average in a year

As you can expect, the tree can have a different number of levels for each of its branches. While you will be able to estimate the average number of days in a year fairly accurately, estimating the number of babies in the US might require you to break down this box further.

The following illustration shows how we can draw a tree to estimate how many gas stations can be found in Paris. You can find the entire case in our Case Library here.

Market Sizing solution tree

Splitting the process into two steps, first structure then calculation, simplifies the problem a lot. Why is that? Because your brain has two separate hemispheres: the right (creative) and the left (rational). While the right side is good at conceptually putting together all the factors that are needed for the estimation, the left side is good at number crunching.

If you mix up structure and calculations, you will fail to focus on one of the hemispheres at a time and will not use your brain to its full potential. Therefore, first, establish and validate a tree structure and only afterwards concentrate on crunching the numbers.

2. Find the trade-off between pragmatism and accuracy

Rounding numbers in a market sizing case is inevitable unless you are a genius or the data is very simple. But do not round them without asking the interviewer if he is fine with it. He might want to assess your accuracy when calculating something.

Always keep an eye on the right balance:

  • Do not round more than 10%.
  • If possible, round some numbers up and some down in order to cancel out your rounding errors.

Make use of averages if you do not have much time left or if the problem is already too complicated. Segment the data otherwise. For example, we took an average of 5 pumps for the Paris gas stations case above. Another option would be to segment gas stations into big, medium, and small gas stations in a further tree level.

In case you decide to segment the data, try to come up with 3 segments, as three is the number that people like most. You'll find it in everyday life: First, business, economy class; children, adult, elderly; etc. Also, never forget to be MECE (mutually exclusive and collectively exhaustive) in your segmentation.

A common question for market sizing cases is 'How deep do I have to go for each of the branches?'. As a rule of thumb, you need to go as deep as you need to be able to make only defensible assumptions.

3. Try to do sanity checks along the way and definitely at the end of the case

You might make mistakes throughout a market sizing case. However, with sanity checks, you may be able to detect them in time. For example, when you have to assess the yearly revenues of a company, compare them to the revenues of a competitor of a similar size.

Further, it is important to know facts like the population numbers or the GDP of different countries! This will help you evaluate the correctness of your numbers. If, for instance, your calculation results in 400 million women wearing red pullovers in the USA, you will know that this is impossible because the population of the US is ~330 million.

Check out the 3 golden rules again in the video with new examples:

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The Replacement Concept

The replacement concept will help you to estimate numbers that are hard to guesstimate. For some case problems, guesstimating the right numbers is even more complicated if you follow the reasoning induced by the interviewer. If, for example, you had to estimate the number of babies being born per year, you would likely get into trouble when you reach the stage where you need to define the number of babies being born per woman per year. To avoid these pitfalls, think instead of the big picture. Think about how many years it takes for the population to be replaced. Watch the following videos in order to see the replacement concept applied in practice.

In this first video, PrepLounge's Co-Founder and Expert Fernando demonstrates how to use the replacement concept on the market-sizing case "How many babies are being born per day in the world".

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For further practice, Fernando uses the replacement concept on the market-sizing case "How many cars are sold in the US per day".

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Finally, see how Fernando applies the replacement concept on a tricky market-sizing case "How many incandescent light bulbs are sold in Germany per year".

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Market Sizing – Key Takeaways:

  • Quantitative and reasoning skills are the key to success. Train them!
  • Make sure to ask the interviewer if you can round the numerical answers.
  • Estimations off by 20% are good enough.
  • When estimating markets of products that need to be replaced on a regular basis (refrigerators, laptops, cars, light bulbs, etc.), use the replacement concept.
  • Always use the three golden rules of market sizing:

1. Always use a tree to structure your problem.

2. Find the trade-off between pragmatism and accuracy.

3. Do sanity checks along the way.

Solve our case nutripremium to practice your market sizing skills.
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Questions on This Article

How to incorporate all possibilities of usage of a product/ service in market sizing by using Replacement Theory?

Market sizing Replacement concept
Most recent answer on Aug 07, 2019
The best answer (on Aug 05, 2019) is from:
Vlad
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McKinsey / Accenture Alum / Got all BIG3 offers / Harvard Business School
Vlad
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gave the best answer on Aug 05, 2019
McKinsey / Accenture Alum / Got all BIG3 offers / Harvard Business School
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: F ... (read entire answer)
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How important is the rule that You cannot be off the answer for more than 20%?

Market sizing
Most recent answer on Feb 01, 2020
The best answer (on Feb 01, 2020) is from:
Udayan
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Top rated MBB coach with many offers /Ex McKinsey EM in New York /6 years McKinsey recruiting experience/Real cases
Udayan
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gave the best answer on Feb 01, 2020
Top rated MBB coach with many offers /Ex McKinsey EM in New York /6 years McKinsey recruiting experience/Real cases
A lot of times when questions like this are asked, the interviewer does not know the answer themself. The aim of market sizing questions is to test your ability to break down ambiguous problems such as number of petrol ... (read entire answer)
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