Initially, most of my peers approached guestimates using the "general to particular" approach. For example, estimating the market size of Lipsticks in Country A will require to start with the number of women in the country, and then break it down by age, purchasing power, preferences, and so on. In each level of your tree, you will "plug-in" assumptions which will be used to make the calculations and arrive to a final answer.
This approach tends to be very safe since it makes easier to structure the information and allows you to start with some information you might now (population of your country or city, distribution in terms of genre and purchasing power, etc.). The problem is that it usually takes a lot of time and will require you to do a lot of calculations.
Later during my preparation, I had the chance to tackle guestimates with one of my McKinsey buddies and he gave me the following recommendations:
- Focus on the drivers: Instead of going from the general to the particular, try to understand what would be the 2-3 factors that could determine the 80% of your answer (remember the 80/20 principle) and start breaking down from there. In the lipsticks example, the drivers could be the number of women between 15-60 years old, the average number of lipstick purchase per year per women (this is usually driven by culture, not by income), and the distribution and average price between mass, mass-premium, masstige, and premium lipsticks.
- Close enough is more than good enough: Remember that you don't need to provide an exact number. Usually, you have a margin of error that can go up to a few orders of magnitude (2x-3x). The key in here is to showcase your thinking process and your mathematical abilities, not how good you are at memorizing numbers. These are the skills you will use in your day-to-day as a consultant.
- Leverage your interviewer: Some interviewers play the bad cop and do not give any feedback during the interview. Nevertheless, most of the interviewers will respond to your rhythm. Share your thinking process and the logic behind your assumptions. If you are on the right path, the interviewer can give you a little push to refine your assumptions or can even give you the concise information.
Once you start approaching guestimates keeping these three things in mind, you will find yourself solving guestimates with ease and precision. I hope it helps and let me know if you want to practice some!
All the best,