Hi guys, I was wondering do you have some good aproach which could be used to establish the number of businesses in any given country? Sure its not hard to get to the number of households, but how do you do it for businesses?

Thanks, Martin!

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# Estimation of number of businesses

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Hi guys, I was wondering do you have some good aproach which could be used to establish the number of businesses in any given country? Sure its not hard to get to the number of households, but how do you do it for businesses?

Thanks, Martin!

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Martin,

An approach I have used in the past is to make an assumption as to what portion of a complete businesses sales are for the household channels, and then size the non-residential portion accordingly. Granted, this is not very accurate but if you assumed that the majority of TV sales were to households (based on positioning as a consumer electronic after all) then if 70% of sales were to households, and you already have the number sold to households, then you can scale up for the other users.

I understood your earlier question to be how many businesses regardless of industry would be in a prticular country and my approach would be to either tackle this bottoms up from number of households, average earnings per household and average spend so much - basically get the size of the economy in some manner, and then assuming an average revenue per business, then you have the numbe rof businesses. This requires a restriction or assumption on foreign investment etc and implies that household spend is entirely directed to local business only, but at least it is a start.

Kevin

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Hey Martin,

That's the main case to find a good approach :D

I always try to find sth similar to the product or business about which we are talking. Than I can put both businesses into relation and compare which one is bigger or not.

Another way would be to think about the product this business is developing. Then you can again try to estimate the market of the product and thus that of the business.

Cheers from Rotterdam ;),

Mark

Hi Mark,

thanks for your input! What I am thinking is more like some general approach. For example we know that US has 300 million people, 3 people per household so 100 million households (Most intreviewers should be fine with this). Then lets say every household has on average 1 TV, thus he have 100 million TVs. But now comes the tricky part, how many TVs are outside of these households? So businesses, clubs, fancy golden cars of celebs etc. And again we need some very reasonable assumption such as 3 people per household. So thats where I struggle.

Cheers, Martin!

Hi Kevin, thank you for your thoughts. I like the total sales apporoach that makes a lot of sense. Maybe the interviewer will be fine with that if you say a reasonable percentage of what could go to households and thus what is left for the other markets - but again that will be tough one :/

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Market Sizing

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If you perform these calculations quickly, the conversation with the client stays fluid, leaving a good impression.You can receive the question about market size as a standalone case (although this is less common) or as part of a more comprehensive problem, such as market entry. The good news: There's no right or wrong answer when it comes to the question of market size 🙂 The interviewer is less concerned about the specific number you come up with for the market than the approach you took to arrive at that number. Why Are Market Sizing Cases Commonly Used in Consulting Interviews?Market Sizing Cases are used to test your quantitative and logical abilities. The interviewer wants to ascertain whether you work well with numbers and if you can make informed assumptions and deal with ambiguities. Questions about market size aren't just about the size of markets; they also involve other types of estimations, such as the number of golf balls in a jumbo jet. As you may have noticed, math is crucial in tackling these questions since you don't have a calculator to rely on. Most importantly, you need to be comfortable dealing with large numbers like millions and billions as well as percentages. More on that later. How Do You Best Approach Market Sizing Cases?Now that we understand the theory behind Market Sizing Cases and their relevance to your case interview, let's take a closer look at the process.Segmentation – The Key to Market Sizing CasesIf you've done some reading on case interviews before delving into market sizing questions, you might have come across areas where segmentation is necessary. Segmenting data is a crucial skill you must master as both a candidate in a case interview and in your later career as a consultant. Segmentation generally refers to dividing a larger whole into smaller parts or segments. The principle you need to understand to do this correctly is the MECE principle.MECE stands for "mutually exclusive, collectively exhaustive." Simply put, segmenting a group of data according to the MECE principle means forming subgroups that do not overlap but collectively cover the entirety of the data, meaning no data is missing. An example useful for market sizing questions is dividing a country's population into age groups (as different age groups often behave differently).Below is a breakdown into Group 1 in the age range 0 to 14, Group 2 in the age range 15 to 64, and Group 3 for everyone over 65:Note that none of the groups overlap, so no age is counted twice, but also no age is overlooked. Now that the population is correctly segmented, we can treat each group differently. If we had divided the population of the United Kingdom into the aforementioned groups, we could estimate clothing expenditures per person in these groups in online retail. Common sense suggests that expenditures per person in the 0-14 age group are lower than in the 15-64 age group. We can justify this estimation by noting that the majority of 0-14-year-olds do not purchase their clothing online.💡 Prep Tip: Practice the MECE principle as well as other important frameworks with our drills. There are Two Essential Frameworks for Market Sizing CasesThe two frameworks most commonly used to answer questions about market size are the issue tree and the table. With either of these, you can typically find an answer to your question. So, if you're short on time, you should only learn one of them. However, mastering both will definitely make your life easier. 1. Issue TreesAn issue tree (sometimes also referred to as a logic tree or driver tree) is the visual breakdown of a question into its individual components.Dividing the process into two steps, first the structure and then the calculation, significantly simplifies the problem. Why is this the case? Because your brain has two separate hemispheres: the right (creative) and the left (rational). While the right side is good at conceptually assembling all the factors needed for estimation, the left side is adept at computation.If you mix up structure and calculations, you can't focus on one of the brain hemispheres, and you can't fully utilize your brain. That's why you should first create and validate a tree structure before focusing on computation.As you begin to further break down the question, it continues in the same format to the right or possibly downwards, ultimately leading to a single answer. If you were asked to estimate how many refrigerators there are in India, you could use an issue tree like the following: Once you've cross-checked the structure with your interview partner(s), you can input and calculate the data from right to left. 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Here, you can start with the data at the bottom or right since these are usually the ones closest to everyday life and for which you can make plausible hypotheses.Stuck? Communication is key. Ask your counterpart if they can help you fill in gaps for data you don't know.Fill in the remaining gaps with reasonable estimations of your own and justify them to your conversation partner.Calculate the required tasks. Again, it's important to stay within the structure and calculate one branch at a time. Once you've completed the first main branch, move on to the second, and so on until you reach a final result.Review your answer with common sense and conduct a sanity check. Put your result into a broader context and consider whether it seems plausible. Don't panic if it doesn't. Proactively communicate your assessment and go through your issue tree step by step to check where you might have made false assumptions or incorrect calculations. 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In this case, it's advantageous to use a table to treat each group differently.For example, if you're asked to estimate how many people in the UK go swimming every week, we can estimate the answer using the following table:Each row of the table represents a different age group, and each column represents a different logical step.It's helpful to use landscape-oriented lined paper so that the rows remain clear and readable. For the table framework, we recommend following the same steps as for the issue tree, with a slight change in structure:Start with the general structure of your table and begin without inserting specific numbers or values. In the initial step, focus on ensuring that the logic and approach are clear before conducting concrete calculations.Show your structure to your interviewer and ensure that your approach is logical.Fill in the data you know.Stuck? Communication is key. 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Convince them by making assumptions that are as reasonable as possible – based on all the facts you know.👉 Prep Tip: Use your intuition and apply logic. "Moderate" your thoughts and talk to your counterpart about how you arrive at certain assumptions.Finding the Right BalanceFind the right balance between being concise but not skipping any steps in the solution process. Time in the case interview is precious and passes quicker than you think.👉 Prep Tip: Practice your cases with like-minded individuals and arrange meetings on our meeting board to learn how to articulate your thoughts without digressing. Follow the "Answer-first" principle.To master the many challenges of a Market Sizing Case, we strongly recommend following our three golden rules of Market Sizing. The Three Golden Rules of Market SizingThe three golden rules of Market Sizing help you structure and present your approach, prevent calculation errors, and verify whether you are correct in the end.The three golden rules of Market Sizing are:Use the appropriate framework to structure your problem.Find the balance between pragmatism and accuracy.Verify your (interim) results with a sanity check. Examples of Market Sizing Cases1. How many diapers are sold per day in the USA?If you want to estimate the number of diapers sold in the USA per year, the assumptions for the first level might look something like this:# Number of babies in the USA on a given day multiplied by# Number of diapers a baby needs per day multiplied by# Number of days on average in a yearAs you can imagine, the tree can have a different number of levels for each of its branches. While you can estimate the average number of days in a year fairly accurately, you may need to further break down this box to estimate the number of babies in the USA.2. How many gas stations are there in Paris?The following illustration shows how we can draw a tree to estimate the number of gas stations in Paris.Also, here you should proceed in two steps: First, sketch the structure of the tree, and then enter and calculate the data. Always remember to discuss your intermediate steps with your counterpart.👉 Practice the full case in our case library. Market Sizing – Key Insights:Market Sizing Cases showcase your quantitative skills and logical thinking. Seize the opportunity to convince your interviewer of your abilities! You can train these skills excellently, for example, with our Mental Math Tool. Additionally, when collecting numerical data, always ask if rounding is allowed. Remember the three golden rules of Market Sizing: structuring the problem using a tree diagram or table, finding a balance between pragmatism and accuracy, and continually verifying the correctness of the estimates. Are You Looking for More Market Sizing Cases to Practice?Check out our recommended practice materials or search our case library for more cases on this topic.👉 Corporate Case by EY Parthenon: Horse MRI Machines👉 Expert Case by Thomas: Market Sizing Case Music Streaming👉 PrepLounge Case: Nutripremium

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