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Market size estimation question:


Hi everyone,

I have been practicing cases a lot recently and am recently having some trouble with the best way to approach these problems. For example, "How many vending machines are there in the United States?" I have seen several different approaches to such types of questions and I was wondering what the best one might be.

Thanks in advance everyone.


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Vlad replied on 11/16/2017
McKinsey / Accenture / Got all BIG3 offers / More than 300 real MBB cases / Harvard Business School


1) First of all, there are two ways to calculate market size:

  • From supply side (e.g. vending machines spots)
  • From demand side (e.g. vending products consumption)

2) There are 2 ways to structure market sizing:

  • Formula - basically a math formula to come up with a solution. The problem with the formula is that it is easy to forget something or get lost.
  • Tree - same as with regular cases you build a tree. A very simple example: you need to calculate the number of dogs on manhattan. A number of dogs = share of households having a dog * # of households. # of households = population / average household size. In the end, you'll have a pyramid where you have to fill the numbers on the base of the pyramid. This approach is much easier and help you track all the numbers

3) You should learn the key market sizing techniques:

  • Making assumptions based on personal experiences (Use the example of your house where out of 100 apt-s 10 have dogs)
  • Adjusting numbers (NY is a busy city thus fewer people have dogs)
  • Sanity check - try to apply your calculations to real environment
  • etc.

4) You should learn the key tools:

  • Using age even age split (suppose life expectancy is 80 years. Assuming even age split we have 4 mln people in US of each age group)
  • Using 80/20 split (suppose 20% people earn 80% wealth and the average salary is xx...)
  • Using approximations (Length of NY-SF flight and plane speed to calculate US length)
  • etc.

5) Learn key numbers: populations, gas price, gas consumption, Boeing speed and nmber of seats, average salary, # of gates in the airport, GDP growth rate, inflation, etc.

6) Practice 10-15 cases and you'll be fine

Good Luck!

Odeh replied on 11/16/2017

My 2 cents on market sizing questions is the following: it's not the answer but how you approach the question. Interviewers are trying to assess the way you think - how comprehensive are you? How creative are you? Are you MECE?

There is an infinite number of ways of approximating the size of a market - but is the way you approach the questoin logical and practical? Can you support your reasoning as to why you've segmented the market the way you did? What are the assumptions you're making?

Not quite the answer you were hoping for but I hope it's helpful nonetheless.

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