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

Hi, below is one approach to get to this number for sales in one particular outlet

I will assume that the main purchases are 2-fold - 1. Sports equipment and 2. Sports clothing

To get overall market size :

• Estimate population of the city
• Divide into individual age brackets assuming uniform distribution
• Estimate % that play sports of some kind by age :
  • Almost all children 6-18 can be assumed to play sports of some kind; for college (18-22) this number should drop by 60% or so and for adults maybe 20-30% play sports regularly
• Now assume that for children they need new gear at least once a year as they grow out of equipment fast
• Adults this can be once in 2 years or less, anything is reasonable if you can explain it
• Now to make it simple assume some sort of an average price for the spend, let's say $100 for children each time and $250 for adults each time
• Multiply the two to get an initial estimation

For sports clothes

• Next, estimate the % that go to gym or do outdoors physical activity that requires gear
  1. Relevant for all children <18 - assume 10%
  2. College assume 40%-60% or so
  3. Adults - need country context but say 20% to 40% do some sort of regular physical activity
• Make assumptions on how often you need new gear for these activities - I would use the same as for sports gear
• Assume some sort of avg price , say $100 for children, $200 for adults
• Multiply the two to get the estimation

• Add both the numbers to get total market size for sports gear and clothes
• Next get market share of this chain (If it is a dominant chain you can assume 30 to 60% depending on the context you have)
• Multiply market size by this above percentage to get sales for the chain in question
• Divide revenue by number of stores
• This should give you annual sales for one store (with the assumption that sales are equally distributed)

To make it more realistic you can get separate market shares for sports goods vs sports clothes as people shop for those two things very differently

Hope this helps,
Udayan

Hi Kristian,

I usually start from demand side me as well, because I find it more intuitive. Nevertheless, there may be some cases where you have some specific insights about supply and it's easier/most accurate starting from supply side. It really depends on the case. Happy to discuss it further if you have more details.

Hope it helps! :)

I’d echo the previous response.

I’d add that when you size the market from the demand side, usually it’s good to be within +-30% range of the first input. For example, value size of market of tea in China equals to population of China multiplied by % drink hot drinks multiplied by... here you should start with a proper assumption on population of China. Ideally, you should break down the equation to as many steps as you can and your inputs should be within +-20% range of the actual values. It’s fine, however, if your final output is 2x times bigger than it is in reality. If the final number seems to be too high or too low, sanity check the response and change equation input values to lower or higher respectively