Market sizing is the process of estimating the annual spending of a particular category of product. It represents the maximum revenue a product could generate if it captured 100% market share. It is a type of estimation or guesstimate question.
For business, market sizing is a critical step in strategic planning to enable businesses to make informed decisions on product development, pricing, marketing strategies, and resource allocation.
Market sizing or estimation questions are commonly asked in consulting interviews because they assess a variety of skills, including analytical thinking, problem solving, and communication.
For consulting interviews, nailing market sizing is critical to land a consulting job offer. You will not be able to break into consulting unless you can nail the market sizing questions you will be asked.
If you’re looking to learn how to do market sizing, we have you covered. In this comprehensive guide to market sizing and estimation questions, we’ll cover:
- What is market sizing?
- Why is market sizing used?
- What does market sizing assess in consulting interviews?
- How to do market sizing
- Useful data points to know for market sizing and estimation questions
- Market sizing and estimation question examples
- Market sizing and estimation question practice problems
- Market sizing and estimation common mistakes
- Market sizing and estimation tips
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What is Market Sizing?
Market sizing is the process of estimating the annual spending of a specific category of product or service. It involves determining the total addressable market (TAM), which represents the maximum revenue a product or service could generate if it captured 100% of the market.
Determining the size of a market is a critical step in business planning that helps businesses make informed decisions regarding product development, pricing, marketing, and resource allocation.
Entrepreneurs and startups, business development and sales teams, investors, marketing and product development teams, management consultants, and market research firms all use market sizing.
It is a versatile skill used by a wide range of professionals and organizations to make more informed decisions.
Market sizing is not a static process. It can be revisited and refined as new data becomes available or as market conditions change.
The skill of market sizing is so valuable that management consulting, investment banking, private equity, and tech companies ask market sizing questions, also known as estimation questions or guesstimate questions, in their interviews.
Why is Market Sizing Used?
Market sizing is used for a variety of purposes, including: strategic planning, resource allocation, product development, pricing strategies, investment and funding decisions, and market entry and expansion.
- Strategic Planning: Market sizing is a foundational step in the strategic planning process. It helps businesses understand the potential scope of their target market, enabling them to make informed decisions about product development, pricing strategies, marketing efforts, and resource allocation.
- Resource Allocation: By understanding the size of the market, a company can allocate resources (such as budget, manpower, and time) more effectively. This prevents wastage on markets that may not offer substantial returns.
- Product Development and Innovation: Knowing the potential market size guides the development of products or services. It helps businesses tailor their offerings to meet the needs and preferences of the target market.
- Pricing Strategies: Market sizing informs pricing decisions. It helps businesses determine a price point that is competitive yet profitable, considering the perceived value of the product or service.
- Investment and Funding Decisions: For startups and businesses seeking investment, market sizing is crucial. Investors want to understand the potential return on investment, which is directly related to the size of the market.
- Market Entry and Expansion: Market sizing helps businesses decide whether to enter a new market or expand into different regions. Knowing the potential size of the market helps in assessing the viability and potential returns of such endeavors.
What Does Market Sizing Assess in Consulting Interviews?
In consulting interviews, market sizing questions assess several key skills and qualities, including analytical thinking, problem solving, quantitative skills, communication, creativity, attention to detail, adaptability, and confidence.
- Analytical Thinking: Market sizing questions require candidates to break down complex problems into manageable components and use logical reasoning to arrive at a solution.
- Problem-Solving Skills: Candidates must devise a structured approach to estimate the size of a market, often under time constraints.
- Quantitative Skills: Candidates need to make numerical estimations and calculations, often without access to specific data.
- Communication Skills: Articulating the steps taken to arrive at an estimation is crucial. Effective communication ensures that interviewers can follow the candidate's thought process.
- Creativity and Innovation: Candidates might need to make reasonable assumptions or use creative methods to approach a problem for which there may not be readily available data.
- Comfort with Ambiguity: Market sizing questions often provide limited information, forcing candidates to make reasonable assumptions or ask clarifying questions.
- Time Management: Candidates are typically given a limited time frame to arrive at an estimate. Time management is crucial to ensure that the candidate doesn't spend too long on any one aspect of the problem.
- Attention to Detail: Small mistakes in calculations or assumptions can lead to significant errors in the final estimate. Attention to detail is crucial for accuracy.
- Logical Structuring: Candidates are expected to organize their approach in a logical manner, often using frameworks or structured thinking techniques.
- Adaptability: Depending on the information provided or the interviewer's feedback, candidates may need to adjust their approach or assumptions during the course of the question.
- Confidence and Poise: Confidence in presenting estimates and handling the pressure of the interview environment is important.
It's worth noting that interviewers are not always looking for an exact "correct" answer in market sizing questions.
They are more interested in the candidate's thought process, ability to structure the problem, and arrive at a reasonable estimation. Additionally, candidates are often encouraged to verbalize their assumptions and reasoning to demonstrate their approach.
Overall, market sizing questions in consulting interviews are used to evaluate a candidate's ability to approach complex problems in a structured, analytical, and logical manner.
How to Do Market Sizing
There are five steps to solve any market sizing or estimation question. We’ll go through these steps while answering the question: What is the market size of toothbrushes?
Step 1: Ask clarifying questions
When given a market sizing question, make sure you fully understand what you are being asked to calculate or estimate. You can ask clarifying questions to understand how market size is being defined and to understand what types of products should be included and excluded in your calculations.
For this question, you may ask:
- How are we defining market size?
- Are we including all types of toothbrushes, both electric toothbrushes and disposable toothbrushes?
- Are we determining the market size of toothbrushes globally?
For this market sizing example, let’s say that we define market size as the total sales in one year. We are specifically determining the market size of disposable, non-electric toothbrushes. Finally, let’s say that the interviewer tells us that we are determining the market size in the United States only.
Step 2: Develop a market sizing approach or framework
Now that you understand what we are being asked to guesstimate, you’ll want to structure an approach or create a framework before you begin doing any calculations.
Developing a market sizing approach or framework will help you avoid making unnecessary calculations and prevent math calculation mistakes.
There are two market sizing approaches you can take.
Top-down approach: In top-down market sizing, you start with a large number and then refine and break down the number until you get your answer.
In determining the market size of toothbrushes in the United States, a top-down market sizing framework would look like the following:
- Start with the US population
- Estimate what percentage of the population brushes their teeth
- Estimate what percentage of the population uses regular toothbrushes instead of electric toothbrushes
- Estimate how many toothbrushes the average person goes through in a year
- Estimate the cost per toothbrush
- Multiply all of these figures to determine the market size
Bottom-up approach: In bottom-up market sizing, you start with a small number and then build up and increase the number until you get your answer.
In determining the market size of toothbrushes in the United States, a bottom-up market sizing framework would look like the following:
- Start with a single individual
- Determine how many toothbrushes the average individual goes through in a year
- Estimate the cost per toothbrush
- Calculate the annual toothbrush spend of a single individual
- Estimate the number of individuals that purchase regular toothbrushes
- Multiply these figures to determine the market size of toothbrushes
Whether you use a top-down or bottom-up market sizing framework, both approaches can lead you to a reasonable answer.
In some market sizing questions, a top-down approach may be easier. In other estimation questions, a bottom-up approach may be easier. You will need to decide which approach and framework to use, so pick whichever one is easier.
For this market sizing example, let’s use a top-down approach.
Step 3: Make assumptions and calculations using round numbers
Once you have your market sizing approach or framework, the rest of the market sizing case is simple arithmetic.
Unless the interviewer provides you with numbers or data to use, you’ll need to make assumptions to guesstimate figures.
To make the market sizing question as easy as possible for you, choose round numbers and estimates when making your calculations. For example, multiplying 300 million people by 50% is way easier than multiplying 311 million people by 43%.
Many people make the mistake of aiming for too much precision and end up using numbers that make the calculations very tedious to do.
This false sense of precision does not guarantee that your final answer is more accurate. It does, however, significantly increase the likelihood that you will make a math or calculation mistake.
Therefore, it is almost always better to use simple, round numbers in your market sizing calculations, than to use numbers that are too precise and complicated.
For this market sizing example, we will assume there are roughly 320 million people in the United States.
If 90% of the population brushes their teeth. The 10% of people that don’t brush their teeth include babies that don’t have teeth and people that do have teeth, but choose not to brush them.
That means 320 million * 90% = 288 million people brush their teeth.
Assume that 25% of people use electric toothbrushes, so 75% of people use regular toothbrushes.
That gives us 288 million * 75% = 216 million people that use regular toothbrushes.
Let’s estimate that the average person uses 10 toothbrushes per year or that they roughly change toothbrushes a little less than once per month.
That means 216 million * 10 = 2.16 billion toothbrushes are purchased each year.
Assume that a regular toothbrush costs $2.
Therefore, the market size of toothbrushes in the United States is 2.16 billion * $2 = $4.32 billion.
Step 4: Sense check your answer
Once you have your answer, make sure you sense check it.
Although having the correct answer does not matter as much as the market sizing approach and framework that you used, sense checking your answer can help you determine whether you might have made a major math mistake.
Is your answer way too large? Is your answer way too small? If it is, what step of your calculation likely caused this?
For this market sizing example, we can check our answer in the following way.
We calculated that 216 million people use regular toothbrushes. The United States population was estimated to be 320 million people, so roughly two-thirds of people use regular toothbrushes.
This number seems reasonable, but perhaps slightly on the lower side because electric toothbrush market penetration might not be as high as the 25% we originally estimated.
10 toothbrushes per person per year seems reasonable and a cost of $2 per toothbrush seems reasonable.
Therefore, we might conclude that our answer of $4.32B seems reasonable, but may be slightly underestimated because the assumption we made on electric toothbrush adoption may be too high.
Step 5: Determine the implications of your answer
Once you have sense checked your answer and have determined that it is reasonable, don’t just stop there.
To separate yourself from other candidates, take your answer one step further. What are the implications of your answer?
For example, if this toothbrush market sizing question is part of a case interview in which you are helping a client determine whether or not they should enter the toothbrush market, what are the implications?
Is the market size a large and attractive market to enter? Or is the market size a small and unattractive market to enter?
Does determining the market size of toothbrushes support a recommendation to enter the market? Or does it support a recommendation to not enter the market?
What other information relating to the toothbrush market would you need to know to help you support your recommendation? You may want to know what the market growth rate is or what the average market profit margins are.
Determining the implications of your answer shows that you can go above and beyond just doing the market sizing calculations. It shows to the interviewer that you are a high-level thinker and can think critically.
Useful Data Points to Know for Market Sizing or Estimation Questions
Market sizing and estimation questions typically don’t require any prior or specialized knowledge, but it can be helpful to memorize a few figures to help you make your assumptions.
For consulting interviews, here is a market sizing cheat sheet to make it easier to come up with assumptions:
- Global population: 8 billion
- United States population: 320 million
- United States household size: 2.5 people per household
- United States average life expectancy: 80 years
- United States median household income: $50,000
- Brazil population: 200 million
- Mexico population: 125 million
- Canada population: 40 million
- China population: 1.4 billion
- India population: 1.4 billion
- Russia population: 150 million
- Japan population: 125 million
- Germany population: 80 million
- UK population: 60 million
- France population: 60 million
- Australia population: 25 million
For business strategic planning, the data points below can be helpful in determining an accurate market size for your particular category of product or service.
- Population Size: Knowing the total population or the population within a specific geographic region can provide a baseline for estimating potential customers.
- Demographics: Understanding the age, gender, income levels, and other demographic factors of the target market can help refine the estimate.
- Market Growth Rate: Information on the historical and projected growth rate of the market provides insights into potential future demand.
- Customer Surveys or Feedback: Direct input from potential customers through surveys or feedback can provide valuable insights into their preferences and potential purchasing behavior.
- Market Segmentation: Data on specific segments within the market (e.g., by age group, income level, industry, etc.) can provide a more detailed view of potential customers.
- Geographic Considerations: If the market is limited to a specific region or country, data on the population and demographics of that area are crucial.
- Pricing and Revenue Models: Information on how products or services are priced and the potential revenue generated per unit sold can help in estimating market size.
- Competitive Landscape: Knowing who the major players are, their market share, and their customer base provides context for estimating potential market size.
- Regulatory Constraints: Information on any regulations or policies that might affect market access or size should be taken into account.
- Historical Sales Data: If available, historical sales data from similar products or services can be used as a benchmark for estimating potential market size.
- Market Share of Similar Products: Data on the market share of similar products or services can be used as a reference point for estimating the market size of a new offering.
Market Sizing and Estimation Question Examples
Example 1: How many iPhones does Apple sell in the U.S. each year?
Using a top-down market sizing framework, you could develop the following approach:
- Start with the number of people in the U.S.
- Estimate the percentage of people that have cell phones
- Estimate the percentage of cell phones that are iPhones
- Estimate the frequency in which a person purchases a new iPhone each year
- Multiply these numbers to determine the number of iPhones sold each year
Following this approach, we’ll assume a U.S. population size of 320 million people.
If 75% of people have cell phones and 30% of cell phones are iPhones, this gives us 72 million iPhones.
If a person purchases a new iPhone every two years, that means 36 million iPhones are sold in the U.S. each year.
Example 2: How many TV ads are shown in the US each day?
One potential estimation framework could look like the following:
- Estimate the number of TV channels in the US
- Assume each channel is on-air for 24 hours each day
- Estimate the percentage of airtime that is given to ads
- Estimate the average duration of an ad
- Divide total ad airtime by ad duration to determine how many TV ads are shown
Starting with the number of TV channels in the US, let’s assume there are roughly 2,000 TV channels in the US. This estimate could be based on the number of channels that you get from your cable TV services.
Assuming each channel is on-air for 24 hours each day, that gives us 2,000 * 24 = 48,000 hours of airtime each day.
Based on personal experience, ads take up approximately 25% of total airtime. Therefore, ads run for 48,000 hours * 25% = 12,000 hours each day.
The average duration of an ad can be estimated to be approximately 30 seconds. Therefore, we need to divide 12,000 hours by 30 seconds to get the total number of ads run in a day.
12,000 hours is the equivalent of 60 * 12,000 = 720,000 minutes. 30 seconds is equivalent to 0.5 minutes.
So, 720,000 minutes divided by 0.5 minutes gives us 1.44M TV ads that are shown in the US each day.
Example 3: What is the volume of beer (in oz.) sold at an NBA basketball game?
A top-down estimation approach we can use to structure this problem is the following:
- Estimate the average number of seats at an NBA basketball game
- Estimate the average percentage of seats that are filled
- Estimate the percentage of people that are legally allowed to drink beer
- Estimate the percentage of people that would buy beer at an NBA basketball game
- Estimate the average number of beers purchased per person
- Estimate the volume of one beer
Multiply all of these figures to determine the volume of beer sold at an NBA basketball game
Let’s estimate that the average NBA basketball arena has 20,000 seats.
Assume that, on average, 70% of seats are filled. This means 70% * 20,000 = 14,000 people attend the average NBA basketball game.
Alcohol cannot be sold to people under the age of 21 in the US. If we assume that the average human life expectancy is 80 years and that there is a uniform distribution of ages, that means 20 / 80 = 25% of people cannot drink. Therefore, 75% of people can drink.
75% * 14,000 people = 10,500 people legally allowed to drink beer.
Let’s estimate that perhaps 60% of these people would purchase a beer. That means 60% * 10,500 people = 6,300 people purchase beer.
If the average person purchases 1 beer, that means 6,300 beers are purchased.
One beer is approximately 12 oz. Therefore, 6,300 beers * 12 oz. = 75,600 oz. of beer is sold at an NBA basketball game.
4. What is the market size of smartphone insurance in the United States?
You can watch the video below to see a full explanation of this market sizing practice question.
5. How many golf balls fit in a Boeing-737 airplane?
Watch the video above to see a full explanation of this guesstimate question.
Market Sizing and Estimation Practice Problems
Below is a list of market sizing, estimation, and guesstimate questions that you can practice on your own.
- How many gas stations are in the United States?
- How many burgers does McDonalds sell each year?
- How many airplanes take off from Los Angeles Airport (LAX) each day?
- How much does a hair salon with five stylists make a week?
- What is the market size of electric cars?
- How much does Mount Kilimanjaro weigh?
- How many cans of soda are consumed in the United States each year?
- How many donuts would you stack to be taller than the Eiffel Tower?
- What volume of water can fit in the Grand Canyon?
- What is the global market size of contact lenses?
- How many shoes are sold in the United States each year?
- What is the global market size of bubble gum?
- How many light bulbs are in the Empire State Building in New York?
- How many hot dogs does a hot dog stand located in a busy intersection in Tokyo sell?
- How many laptops are sold in the United States each year?
- What is the market size of disposable diapers in India?
- How many cups of coffee does the average Starbucks sell a day?
- How many Amazon packages are stolen in the world each year?
- How many tires are sold in the United States each year?
- What is the market size of used wedding dresses in the United States?
- Estimate the revenue generated from coffee sales in New York City’s cafes in a year
- What is the market size for luxury handbags in China?
- How many pizza delivery orders are placed in the United States every day?
- How many hair salons are there in London?
- How many flights depart from John F. Kennedy Airport (JFK) each day?
- Estimate the number of annual visitors to the Louvre Museum in Paris
- Estimate the total revenue of the fast-food industry in Canada
- Estimate the number of people who use ride-sharing services in San Francisco on a daily basis
- Estimate the number of smartphones sold worldwide in the last year
- How many books are sold online worldwide each year?
Market Sizing and Estimation Common Mistakes
Avoid the following common mistakes when answering market sizing or estimation questions.
1. Neglecting to Ask Clarifying Questions: Failing to seek clarification on ambiguous aspects of the question can lead to misunderstandings and inaccurate estimations.
2. Skipping the Structured Approach: Not outlining a structured framework before starting calculations can result in a disorganized and incomplete answer.
3. Overcomplicating the Approach: Sometimes, candidates attempt to use complex methodologies when a simpler approach would suffice. This can lead to unnecessary complexity and errors.
4. Ignoring Key Components: Neglecting to consider critical elements of the market, such as population size, adoption rates, or competitive factors, can result in incomplete estimations.
5. Failing to Make Reasonable Assumptions: Avoiding assumptions altogether or making unrealistic ones can lead to impractical or inaccurate estimates.
6. Rounding Errors: While rounding numbers is often necessary for simplicity, excessive rounding or incorrect rounding can lead to significant inaccuracies.
7. Lack of Sensitivity Analysis: Neglecting to consider how changes in key assumptions might impact the estimate can demonstrate a lack of understanding of uncertainty.
8. Not Verbalizing Your Thought Process: It's important to communicate your thought process aloud so the interviewer can follow your reasoning. Failing to do so can lead to misunderstandings.
9. Getting Stuck on Details: Spending too much time on specific details or calculations, especially early in the process, can result in a rushed and incomplete overall estimate.
10. Ignoring Feedback and Adjustments: If the interviewer provides feedback or asks for adjustments, failing to incorporate this can demonstrate a lack of adaptability.
Market Sizing and Estimation Tips
Follow these eight market sizing and estimation tips to solve these types of questions more easily and impress your interviewer.
1. Develop an approach or structure before making any market sizing calculations: Do not begin doing math until the interviewer has not seen and approved of your approach.
2. Turn your paper to face the interviewer when walking them through your market sizing approach: This will make it easier for the interviewer to understand your market sizing framework and structure.
3. Segment your population for more precise estimates: The most common way to segment a population is by age. You can assume the average life expectancy is 80 years and divide your population into 0-20 year-olds, 21-40 year-olds, 41-60 year-olds, and 61-80 year-olds. A quarter of your population will fall into each category. The main idea behind segmentation is that each segment has different behaviors or characteristics.
4. Use round numbers to keep the math easy: Instead of using a United States population of 328 million, use 300 million or 320 million instead. Instead of using a global population of 7.7 billion, use 8 billion instead.
5. Do your calculations on a separate sheet of paper: One sheet of paper that has your approach or framework while another sheet will have your calculations. This ensures you will always be able to refer back to your framework and keeps your calculations more clean.
6. Sense check your numbers along the way: Missing zeroes or adding additional zeroes during your calculations is the most common math mistake. During each step, do a quick sense check to ensure that your calculation is the right order of magnitude. For example, if you are multiplying 150 million by 25, you should confirm that your answer is in the billions because 200 million * 20 = 4 billion.
7. Remember to take replacement cycles into account: Just because there are 280 million cars in the United States does not mean that 280 million cars are purchased each year. You’ll need to estimate that perhaps cars are replaced every 10 years.
8. Benchmark your final answer to another figure: If you calculated that the toothbrush market in the United States is $4 trillion, you’ll know your answer is off by many orders of magnitude because the gross domestic product of the United States is only $20 trillion.
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