Market sizing of an Online Classifieds Ads platform (Quikr, Craigslist, etc)

BCG Bain McKinsey MBB UK
New answer on Jul 14, 2020
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Anonymous A asked on Jul 13, 2020

Hey guys,

I was asked a market sizing question for an online classifieds Ads platform. I am a bit confused here since there will be multiple revenue channels here: 3rd party advertisments, premium listing and For business revenue. Can you please help me?

Thank you!

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Clara
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replied on Jul 13, 2020
McKinsey | Awarded professor at Master in Management @ IE | MBA at MIT |+180 students coached | Integrated FIT Guide aut

Hello!

Precisely the key is to separate the different revenue streams (in this case, with channels)

For each one, first, find out which KPI you must focus on (e.g., revenues, clicks, viewers, etc.). Then perform the classical analysis of total market, % of the market you assume for this particular company, revenues, etc.

Hope it helps!

Cheers,

Clara

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Axel
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replied on Jul 13, 2020
Bain Consultant | Interviewer for 3 years at Bain |Passionate about coaching |I will make you a case interview Rockstar

Hi,

First, you would need to descope the question and understand which of the revenue streams that are in scope for the market sizing. Once you have done this you can start to figure out the approach you want to use for each stream.

Maybe you can share your approach and then we can provide feedback on your thinking?

-A

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Anton
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replied on Jul 14, 2020
FREE 1st session in November | From Lawyer to MBB | Top in FIT | 10x your structuring skills | Message to get Free Prep Checklist

Hi,

You should definitely separate revenue streams.

If you want to master your market sizing skills I suggest that you should focus on segmentations patterns.

You can use the following segmentation for market sizes:

B2C:
- Demographics (Age, education, income, family size, race, gender, occupation, nationality)
- Behavioral (Purchasing behavior, customer journey stage, occasion & timing,
customer loyalty & interest, risk tolerance, user status)
- Psychographic (Lifestyle, personality traits, values, opinions, interests of consumers)
- Geographic (Geographical boundaries)

B2B:
- Company characteristics (Industry, company size, number of employees)
- Geography (Geographical boundaries)
- Purchasing Approach (Occasion & timing, customer capabilities, nature of existing relationship)
- Personal Characteristics (Loyalty, risk attitude, user status)

B2G:
- Demographics (Type of agency, size of budget, the amount of autonomy)
- Geographic (Geographical boundaries)
- Government Tier (Federal , State, Local, Quasi-governmental, International)
- Bid type (Closed, Open)

But sometimes you don’t need to segmentation. Here is an example of case that could be solved with high level top down approach - estimate the size of credit card market in the US:

In this case you should follow demand-driven approach to market sizing. By market size I would assume value of credit card debt in the U.S. (not the number of Credit Cards issued).

First of all you can start by outlying an algorithm which would consist of 3 big steps:

1. Total addressable market

X

2. Product penetration

X

3. Average ticket size

Now let’s see how to calculate each of these blocks:

1) Total addressable market = US population X % bankable population

2) Product penetration = number of credit cards per capita in US X % of active cards

3) Average ticket size = average credit card limit X %limit usage

  • average credit card limit is usually estimated though debt-to-income ratio. In case of credit cards it is 5 monthly salaries on average
  • limit usage could be derived from your personal experience but on average it is 20%

Let’s plug-in the data:

1. Total addressable market = 330 mln x 80% bankable population = 264 mln

X

2. Product penetration = 2 X 50%

X

3. Average ticket size = 4k USD X 5 X 20% = 4k USD

Thus credit card market size is 264 mln X 1 X 4k USD ~ 1tn USD

Let’s double check with official statistics. STATISTA.COM provides the following data: Value of credit card debt in the U.S is 0,93 tr USD. Thus our answer is super close

You can also make your calculations a bit more sophisticated if you add segments (e.g. by income or credit score). In this case you would have to provide detailed assumptions on product penetration and average ticket size for each segment.

As for the sources for your assumptions you can use:

  • Input from interviewer, well known facts
  • Statistical data
  • Personal experience, e.g. from casual everyday situations
  • Workplace experience, e.g. from working on projects in the industry
  • An educated guess

Best,

Anton

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Clara gave the best answer

Clara

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