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Bottom Up Market Analysis

Market analysis Market sizing
New answer on Feb 01, 2023
4 Answers
874 Views
Adam asked on Jan 31, 2023

Hi Community,

 

Im practising my skills in Bottom-up market analysis and was wondering if someone could provide a real-world worked example. 

I'm struggling to get any starter numbers on a number of companies or know how to estimate the number of businesses to start the process.

I'm particularly interested in the digital twin market applied to the energy industry.

I'm trying to ascertain the TAM for the total energy companies worldwide.
SAM within the US EU and Middle east
SOM of the number of renewable energy companies 

Any help would be great.

Kind regards 

Adam


 

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Best answer
Hagen
Expert
Content Creator
replied on Feb 01, 2023
#1 Bain coach | >95% success rate | interviewer for 8+ years | mentor and coach for 7+ years

Hi Adam,

I think this is an interesting question that may be relevant for many people. I would be happy to share my thoughts on it:

  • Unfortunately, a bottom-up approach may not be the most appropriate method for this specific market size estimation.
  • The bottom-up approach is best suited for cases where there are equal or similar units that can be multiplied to arrive at a total market size. With discrete companies, however, it can be challenging to use this approach.
  • Lastly, it's worth noting that market size estimations are becoming increasingly rare in strategy consulting interviews as there is limited opportunity for the interviewer to assess the candidate's performance.

If you would like a more detailed discussion on how to best prepare your upcoming interviews, please don't hesitate to contact me directly.

Best,

Hagen

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Benjamin
Expert
Content Creator
replied on Feb 01, 2023
Ex-BCG Principal | 8+ years consulting experience in SEA | BCG top interviewer & top performer

Hello,

  • One way to generalize/think of ‘bottom-up’ is ‘multiplying' as opposed to top-down which is ‘dividing’
  • For bottom-up, you are starting from one/an anchor variable and multiplying ‘up’ - i.e. # of Customers * Avg price
  • Some types of sizing questions lend themselves to be solved more optimally by one or the other methodology
    • There is no one-rule-fits-all, but if you are struggling to come up with the FIRST variable/assumption then maybe consider using the other approach 
  • In addition to Ian's suggestion on coffee shops, try finding or coming up with estimations that have some sort of constraint (supply, physical locations)
    • e.g. revenue of an Uber driver in a day
    • e.g. revenue of a corn farmer with a 4 acre farm
    • e.g. revenue of an auto-service shop

Hope this helps!

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Ian
Expert
Content Creator
replied on Feb 01, 2023
#1 BCG coach | MBB | Tier 2 | Digital, Tech, Platinion | 100% personal success rate (8/8) | 95% candidate success rate

Hi Adam,

This shouldn't be done bottom up. It just doesn't make sense. This is very much a top-down market sizing.

If you'd like to practice a bottom up, try estimating the daily revenue of your nearest coffee shop.

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Pedro
Expert
replied on Feb 01, 2023
Bain | Roland Berger | EY-Parthenon | Mentoring Approach | 30% off first 10 sessions in May| Market Sizing | DARDEN MBA

To do this using a bottom up method you would need to research some information first. So maybe you would do this in a real consulting assignment, but for the purpose of practicing case interviews, it is not adequate. You really have to go top down here.

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Hagen gave the best answer

Hagen

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