Market sizing: Top-down and Bottom-up vs. Demand side and Supply side

estimation market sizing Market sizing MBB
New answer on May 29, 2023
4 Answers
Anonymous A asked on May 25, 2023

Hi all, I am new to market sizing and would like to understand the difference between the two different set of terms that people use - 

1. Top-down and Bottom-up

2. Demand side and Supply side

Are these the same, and which ones to use when?

Overview of answers

  • Upvotes
  • Date ascending
  • Date descending
Best answer
replied on May 25, 2023
300+ coached cases | Former McKinsey interviewer + recruiting lead| End-to-end prep in 2 weeks

Great question, and it's important to know the difference between these terms in market sizing. I'd be happy to provide some clarity on these concepts.

Top-down and Bottom-up:

  • Top-down approach: This method involves starting with a broad market size estimate and then breaking it down into smaller segments. It relies on existing industry data, market research reports, and macroeconomic indicators. For instance, if you want to estimate the market size of smartphones in a specific region, you might begin with the total population, determine the percentage of smartphone users, and then multiply it by an average selling price to derive the market size.
  • Bottom-up approach: In contrast, the bottom-up approach involves aggregating individual data points or customer segments to arrive at a comprehensive market size. This method requires gathering data from various sources, such as customer surveys, interviews, or financial reports. Using the smartphone example, you might collect data on the number of smartphone users from different age groups or income brackets, and then sum up these figures to estimate the market size.

Demand side and Supply side:

  • Demand side: This perspective focuses on the customers and their consumption patterns. It examines factors such as customer preferences, buying behavior, and demand drivers. To understand the demand side, you might analyze consumer surveys, market research reports, or conduct focus groups to identify customer needs and desires. This information helps estimate the potential market size and target the right customer segments effectively.
  • Supply side: The supply side approach, on the other hand, centers around the producers or suppliers in the market. It explores factors such as production capacity, distribution channels, and supply chain dynamics. Understanding the supply side is crucial to assess the market's ability to meet customer demand. For example, you might examine the production capacity of smartphone manufacturers or the distribution networks available to deliver smartphones to customers.

Now, to address your second question about when to use these terms:

Top-down and bottom-up approaches are both valuable and can be used in different situations:

  • Top-down approaches are useful when:
    • Limited data is available or time is a constraint.
    • Estimating the market size of a large industry or an entire market segment.
    • Assessing the market potential at a high level before delving into more detailed analysis.
  • Bottom-up approaches are advantageous when:
    • Sufficient data can be collected from various sources.
    • Analyzing specific customer segments or niche markets.
    • Understanding the granular details of market dynamics, such as customer preferences or behavior.

Demand side and supply side analyses serve different purposes:

  • Demand side analysis is helpful when:
    • Assessing customer needs, preferences, and purchasing power.
    • Identifying market opportunities and potential target segments.
    • Developing customer-centric strategies and value propositions.
  • Supply side analysis is beneficial when:
    • Evaluating production capacity, scalability, and potential constraints.
    • Assessing the competitive landscape and barriers to entry.
    • Understanding the distribution channels and logistics involved.

In conclusion, understanding the differences between top-down and bottom-up approaches, as well as demand side and supply side perspectives, can significantly enhance your market sizing efforts. The choice of approach depends on the specific context and available data, and combining multiple methods can provide a more comprehensive analysis. I hope this explanation clarifies these terms for you!

Was this answer helpful?
Anonymous A on May 25, 2023

This is really insightful, thank you.

Content Creator
replied on May 26, 2023
#1 McKinsey Coach by rating & recommendation rate

Hi there, 

These are great questions!

You can understand the difference between top down and bottom up by reading the following article where I explain this methodology as applied to brainstorming exercises (it's super similar to sizing):


Was this answer helpful?
Content Creator
replied on May 26, 2023
MBB | 100% personal interview success rate (8/8) and 95% candidate success rate | Personalized interview prep

Hi there,

Emily nailed it! Exactly right in here description.

Now, please try not to get too caught up in all the definitions…because they don't matter much (and you can take a hybrid approach to them as well)

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!

Was this answer helpful?
replied on May 29, 2023
Bain | EY-Parthenon | Roland Berger |Former Head Recruiter | Market Sizing

Already great answers, so I'll just add a thumbs rule.

Top down and demand are usually the same thing. You are (usually) estimating frequency of consumption within the population. Please note that “population” means the relevant population to the specific estimate at hand. I.e. may be the country, the city, the “footfall” of a retail location, or the “hinterland” of a certain site.

Bottom up and supply are usually the same thing. You are usually estimating the capacity of the providers multiplied by a certain utilization rate (and possibly by the number of potential providers). This is more frequent when you are estimating the revenue or demand for a single site/business.

Was this answer helpful?
Emily gave the best answer


300+ coached cases | Former McKinsey interviewer + recruiting lead| End-to-end prep in 2 weeks
Q&A Upvotes
0 Reviews
How likely are you to recommend us to a friend or fellow student?
0 = Not likely
10 = Very likely