If you had to do the sizing of Apple's revenues in its store in a random locationg (e.g. Boylston Street in MA), how would you go about it?
Hey there,
A great example for learning how to approach any market sizing question step by step. Let‘s get to work!
General comments
In this case, I would propose a supply side estimation.
Going over the demand side would be difficult since only a small share of Apple users of the region around the store would actually purchase apple products from that store (versus from the Apple online store, Amazon, other retail stores etc.). And there is no good way of estimating that fraction.
Step 1: Equation
Coming from the supply side, you could build an equation incorporating the following elements:
Revenue per time interval
=
Number of products sold per time interval
1. Number of employees on shift in the store at the same time
×
2. Opening hours of the store (hrs open)
×
3. Customers served by one employee per hour
×
4. Share of consulted customers that buys a product
×
Average price per sold product
5. Product mix (i.e. share of products and their respective prices - a matrix)
Make sure to explain your logic by grouping your elements, e.g. calculating the products sold in the time interval first from 1-4 and then combining it with the average price from 5 to estimate the revenues. You would write that up and explain it as 2-level structure.
Step 2: Data
Fill in the data with assumptions.
1. Number of employees on shift in the store at the same time
You can plausibly estimate this based on your experience as customer or passer-by
2. Opening hours of the store
You could assume this to be the regular hours of a store in that area, perhaps 9am-8pm
3. Customers served by one employee per hour
You can estimate this with the average duration of a consultation, perhaps 20min
4. Share of consulted customers that buys a product
Here you should approach it from your experience. Some customers bring products for repair, some want to get informed, some want to return a product. Something plausible would be to assess that information takes the highest share (e.g., 50%) and the rest is split between repair-seekers, returners and buyers. This is the most uncertain part of your sizing. You should highlight this and suggest analyzing steps such as benchmarks from tech stores to harden the number.
5. Product mix (i.e. share of products and their respective prices)
Here again you could tell from experience. More people have iphones than ipads or macs.
Step 3: Calculate
Make sure to get the calculations right. Make sure to round numbers as this is not about precision. Also, be sure to make numerically smart assumptions to calculate with.
E.g.: ⅓ of customers buy an ipad at $750, ⅓ buy an iphone at $1,000, ⅓ buy a mac at $1,250. Magically, your average price is $1,000 while the derivation is reasonably substantiated.
Step 4: Robustness
1) Check your number from the demand side. E.g., you could compare the estimated revenue with the city population to say how many $ a citizen spends in this store per annum on average. If this number is very high, you likely overshot
2) Point out again where your weakest areas are (in this case the % of customers that buys) and how you would improve this with benchmarks and further analyses
Hope that helps, and all the best for your further sizing adventures!
Best, Gero
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:
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:
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
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