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Sanity Check Methods for Market Sizing

What are some other ways to sanity check your final answer?

It terms of revenue per year, one way is to divide the total revenue by the population to see if its reasonable that everyone would spend X on Y in that year. e.g. £300m buscuit market means everyone in the UK (approx. 60m) spending £5 on biscuits per.

First what are some other ways to check this and second what are some ways to check when its less obvious what to do e.g. for the following questions:

1) How many vet clinics are there in the UK?

2) How many steps did you take to walk here?

Thanks

What are some other ways to sanity check your final answer?

It terms of revenue per year, one way is to divide the total revenue by the population to see if its reasonable that everyone would spend X on Y in that year. e.g. £300m buscuit market means everyone in the UK (approx. 60m) spending £5 on biscuits per.

First what are some other ways to check this and second what are some ways to check when its less obvious what to do e.g. for the following questions:

1) How many vet clinics are there in the UK?

2) How many steps did you take to walk here?

Thanks

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Hi,

usually a good way to sanity check your answer is using a differnt driver than the one you have used for estimating the market.

For example if you use the population to estimate a certain market, you can use a different driver (as average revenue by shop / vet clinic... Average revenue per employee... number of shops per population served...)

Regarding the Vet clinic case:

  • on the Vet clinics I would probably start with the population, then making some assumptions on the average size of a family/ number of families in the country... then some assumption on the share of families with a pet... depending on the geography/ local culture... then number of pet by family... When you have a reasonable number of pets (market), you can make some assumption on the number of times a pet need to see a vet
  • when you have the total visits (lets assume a normal visit takes 30/40 mins - you can derive the maximum number of visits a clinc can make in one day/ and then one year
  • you can easilly determine the maximum number of visits a clinic can make per day, by assuming an average number of employees per clinic (maybe 5-10)...

A case sizing should take 10 to 15 mins max... Difficult to tell you the number of steps... it really depends on the case... but usually the more filters you can immagine, the more deep thinking you can demonstrate to the interviewer... off course not boiling the ocean... just keep in mind to not go longer than 15 mins

Hi,

usually a good way to sanity check your answer is using a differnt driver than the one you have used for estimating the market.

For example if you use the population to estimate a certain market, you can use a different driver (as average revenue by shop / vet clinic... Average revenue per employee... number of shops per population served...)

Regarding the Vet clinic case:

  • on the Vet clinics I would probably start with the population, then making some assumptions on the average size of a family/ number of families in the country... then some assumption on the share of families with a pet... depending on the geography/ local culture... then number of pet by family... When you have a reasonable number of pets (market), you can make some assumption on the number of times a pet need to see a vet
  • when you have the total visits (lets assume a normal visit takes 30/40 mins - you can derive the maximum number of visits a clinc can make in one day/ and then one year
  • you can easilly determine the maximum number of visits a clinic can make per day, by assuming an average number of employees per clinic (maybe 5-10)...

A case sizing should take 10 to 15 mins max... Difficult to tell you the number of steps... it really depends on the case... but usually the more filters you can immagine, the more deep thinking you can demonstrate to the interviewer... off course not boiling the ocean... just keep in mind to not go longer than 15 mins

The basic rule while doing the sanity check is that you can’t use the inputs form the equation that you built to arrive at the estimate to begin with. For example, if you are sanity checking the number of steps taken to walk here, and one of your inputs in the equation was the time spent, you can't use the time spent in sanity check otherwise you'll create a circular reference.

Use reference numbers.

  • References could be part of a total (you know the size of the market for pastries, and you think biscuits, one type of pastry, should be less than 10% of it), or
  • They could be analogous: you know the number of human clinics in UK, you can assume that the number of vet clinics is not going to exceed the number of vet clinics. Or you know the number of vet clinics in US and you think that the number of vet clinics in UK should be 5-7 times fewer due to difference in population size.

Use another estimation approach, e.g., if you made the estimates from the demand side, you can re-estimate from the supply side. If you calculated from top-down, you can re-calculate from bottom up.

The basic rule while doing the sanity check is that you can’t use the inputs form the equation that you built to arrive at the estimate to begin with. For example, if you are sanity checking the number of steps taken to walk here, and one of your inputs in the equation was the time spent, you can't use the time spent in sanity check otherwise you'll create a circular reference.

Use reference numbers.

  • References could be part of a total (you know the size of the market for pastries, and you think biscuits, one type of pastry, should be less than 10% of it), or
  • They could be analogous: you know the number of human clinics in UK, you can assume that the number of vet clinics is not going to exceed the number of vet clinics. Or you know the number of vet clinics in US and you think that the number of vet clinics in UK should be 5-7 times fewer due to difference in population size.

Use another estimation approach, e.g., if you made the estimates from the demand side, you can re-estimate from the supply side. If you calculated from top-down, you can re-calculate from bottom up.

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