All questions tagged Market sizing - Consulting Q&A - PrepLounge.com

Hi PK,

Overall a good and logical approach!

Just some small points on assumptions.

(1) 70% penetration of ride-hailing seems high. While it could be possible in the big metropolitan cities like NY or SF, outside the handful of big cities the penetration rate would be rather low.

(2) Don't forget there is Lyft also. So besides the 70% penetration rate, you probably need to think about market share as well. At the moment Lyft probably is comparable or just a bit smaller than Uber?

Cheers,

Emily

Hi Anonymous,

Yes, I think this sounds like a pretty good approach and is well-tailored to the specifics of a Starbucks operation. Just remember to adjust somehow for the fact that the Barista would not be at 100% capacity during all of the opening hours.

-A

Hi,

Here is how you can improve your math skills:

1) Fast math - train, train, and train again

• Learn how to multiply double digit numbers (https://www.youtube.com/watch?v=6ndkkPZYJHo)
• Learn the division table up to 1/11 (i.e. 5/6 = 83.3)
• Learn how to work with zeros (Hint: 4000000 = 4*10ˆ6)
• Use math tools (Mimir math for iOS), Math tool on Preplounge website to practice

2) Quant part of the case

• Simply download all casebooks available online and go through all cases. Pls disregard the structuring part and just practice the quant part. The number of distinct math tasks types is not infinite and you can train all of them

3) Critical Reasoning (for PST)

• GMAT test CR and IR parts (Official guide and Manhattan prep)
• Mckinsey practice tests
• PST like tests from the web

4) Working with tables and graphs and deriving conclusions

• Study "Say it with Charts" book
• Check all available MBB presentations and publications. Practice to derive conclusions and check yourself with the actual ones from the article/presentation
• GMAT IR part (Official guide and Manhattan prep)
• Learn basic statistics (Any GMAT or MBA prep guides)

5) Case math

Practice common market sizing topics (Airport passenger flow, real estate volumes, subway passenger flows, car usage, etc.). You should become comfortable with making assumptions

Learn key financial topics (P&L and balance sheet and how to analyze them, Basic Valuation principles via NPV and comps) and case math:

• Interest rates calculations
• Compound margin
• NPV using the Rule of 72, Perpetuity
• CAGR using the Rule of 72
• Currencies exchange calculations
• Speed, time, distance calculations
• Equations, systems of equations
• Ratio & Proportions
• Solving the problems by calculating the area of the triangle
• Profit / breakeven formula
• Correlations, outliers (being able to spot on the graphs, tables)

Good luck with your interviews!

Hi!

Top-down market sizing is usually much easier to do and can give you a ballpark number within minutes (or even seconds). But it is usually far less accurate than a bottom-up approach. In a consulting context it usually only makes sense in two cases:

• Either you lack the information/data for a bottom-up approach, or the influencing factors are too granular and complex to robustly combine them in a reasonable time frame
• Or you use the top-down approach as a validation to your bottom up result (this is called triangulation)

Cheers, Sidi

Hi,

It's less about the quantity, but rather about the tools that you use:

1) First of all, 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

2) 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 the real environment
• etc.

3) 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)
• 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.

4) 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.

5) Practice 10-15 cases and you'll be fine. Almost all casebooks have good market sizing examples and the solutions

Feel free to PM for clarifications

Good Luck!

Ciao valentina,

The website doesn't let you to post a personal email, the message is crypted. Feel free to contact me if you need more materials.

Buona serata,
Luca

Hello!

In the Q&A you have many many old post with interesting cases, that were solved and commented by many users and many experts.

It´s easy to filter them with "market sizing"

You can also use that tag filter in the Cases tab of PrepL.

Hope it helps!

Cheers,

Clara

Hi there,

This is a great question as it's really testing your ability to make reasonable assumptions about the world, lacking any real data.

By # of Electric Cars

1. Population of Ho Chi Minh - Around 8 million?
2. # of adults - Around 5-6 million
3. # of cars per person - around .5 (probably 1 per household)
4. % of electric vehicles expected in 10 years -
   1. highly variable based on country.
   2. While Vietnam is a developing country (points against), they are also command-and-control communist and are capable of big change (points for).
   3. The global rate of EV uptake will probably equate to 1% of the global fleet each year (obviously less now, more later). So, perhaps 10% globally? Let's place vietnam around there
5. ​Big consideration: Charging stations are a leading investment to electric cars. So, you need capacity there before demand hits. We will probably need around 1 charging station per vehicle (docking at night). And this would need to lead by a few years. So, we might need charging stations for 15% of the Vietnamese car fleet (instead of 10%)
6. Answer = 375,000 - 450,000 charging stations:
   1. (5 - 6 million people) X (.5 cars per person) X (15%)

Hi there,

Well, the first question is top-down or bottom-up. I think you could do both, but bottom-up feels more thorough + logical.

Bottom-up

• Number of sheets of paper printed per floor
  • Number of employees per floor
  • Number of papers printed per day per employee
• Cost per sheet of paper (or per 100)
  • Perhaps differentiate between color and black/white (take, say, 20% of total for color)
• Number of floors + buildings for the bank

Top-down

• Total typical expenditures for a large corporate bank
• SG&A costs %
• % of SG&A that would be spent on paper

Hi!

Please keep it simple! So you could just:

1. Estimate (or ask for) the size of area covered by Central Park (let's say 3 square kilometers)
2. Make an assumption on the share of the space covered by trees (let's say 50%, the rest is water, grass, walking spaces, etc.)
3. Estimate the density of trees (let's say on average one tree needs 10x10m space, so 100 square meters)
4. Divide the relevant tree-covered space by the required space per tree --> 1.5 square kilometers = 1.5 million square meters --> 1.5 million / 100 = 15k trees

Please note: this result is equally sensitive to all assumptions (since all elements are connected via multiplications or divisions). Hence, changing an assumption by a certain percentage will directly translate into a corresponding percentage-change in the result (e.g., if the density of trees is halved (--> doubling the the average square meters per tree), the final number of trees will also be halved).

Hope this is helpful!

Cheers, Sidi

Hi,

Here is a set of things you need to know:

1) Math and formulas:

• Interest rates calculations
• Compound margin
• NPV using the Rule of 72, Perpetuity
• CAGR using the Rule of 72
• Currencies exchange calculations
• Speed, time, distance calculations
• Equations, systems of equations
• Ratio & Proportions
• Little's Law
• Solving the problems by calculating the area of the triangle
• Profit / breakeven formula
• Correlations, outliers (being able to spot on the graphs, tables)

2) Fast math skills

• Rounding up and down
• Learn how to multiply double digit numbers (https://www.youtube.com/watch?v=6ndkkPZYJHo)
• Learn the division table up to 1/11 (i.e. 5/6 = 83.3)
• Learn how to work with zeros using powers (e.g.: 4000000 = 4*10ˆ6)

Use math tools (Mimir math for iOS), Math tool on Viktor Cheng website to practice

3) Working with tables and graphs and deriving conclusions

• Study "Say it with Charts" book
• Check all available MBB presentations and publications. Practice to derive conclusions and check yourself with the actual ones from the article / presentation
• GMAT IR part (Official guide and Manhattan prep)
• Learn basic statistics (Any GMAT or MBA prep guides)

Good luck!

Hi! Try to be as pragmatic as possible.

1. Estimate average distance per usage --> assume the same probability for each level, hence 100 metres on average --> double the distance because the elevator needs to get back to the ground floor --> 200m per usage

2. Estimate number of usages per day --> here you need to consider number of elevators in the building and different times of the day (heavy usage in the morning and evening, medium usage mid day, very low usage at night)

3. Multiply 1 with 2 to get the total meters per day.

Cheers, Sidi

Hi,

Your approach is indeed a good one.

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

Hello!

Totally!

Indeed, it´s not "it would be nice to clarify about the segments..." but it´s a must!

You always need to know your market, and segmenting it (B2B vs. B2C, determined aged groups, etc.) is the way to advance towards the solution.

Hope it helps!

Cheers,

Clara

Hi,

I would suggest that you should present your own approach and I would be happy to review.

Meanwhile please see below my approach to segmentation in market sizing as well as examples of solved cases:

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

• UK population (= 60 Mio)
• # of women (~50% = 30 Mio)
• those in the marriable age (age group 20-60, i.e. 50% of all women if 80 y.o. is assumed as life expectancy = 15 mio)
• Out of those women % getting married while being in the age group (maybe also 50% = 7.5 Mio)

1. Out of those % getting divorced (50% = 3.75 Mio)
2. Out of those who are not getting divorced % who sell their wedding dress (10% = 0.75 Mio)

Total women selling their wedding dresses over their lifetime = 4.5 Mio

Divided by the number of "marrigeable years" we assumed: 4.5 Mio / 40 years = 112.5 k second-hand dresses per year

Hello Viktoria!

I would approach the problem as following:

• Estimate number of t-shirt per man
• Estimate percentage of white t-shirt
• Estimate the "expected life" of a shirt from Zara
• Number of white t-shirt sold per year= # men * # t-shirt per man * % white t-shirt / Expected life
• Estimate the market share of Zara
• # white tshirt sold by zara = Mkt share * # white t-shirt sold per year

Feel free to text me if you want to discuss it further,

Luca