Market sizing is a crucial element of consulting case interviews, often used to test candidates’ ability to think logically, break down complex problems, and make reasonable assumptions. Whether it’s estimating the number of coffee cups sold in New York or calculating the market for electric vehicles in Germany, market sizing challenges your analytical and quantitative skills.
Here’s a guide to understanding and answering market sizing questions effectively.
What is Market Sizing?
Market sizing questions are designed to estimate the size or value of a market, either in units (e.g., number of products) or in monetary terms (e.g., revenue or profit). These types of questions are common in consulting interviews because they test your ability to:
- Structure a problem clearly
- Make reasonable and well-justified assumptions
- Perform accurate calculations under pressure
- Communicate your logic concisely
Examples of market sizing questions:
- How many smartphones are sold annually in the UK?
- What is the total revenue generated by pizza deliveries in New York City?
- How many patients visit dentists in China each year?
These questions require not only numerical ability but also a strong structured approach.
Key Steps to Answering Market Sizing Questions
1. Clarify the Problem before jumping into calculations
It’s tempting to dive straight into calculations, but the first step should always be clarifying exactly what is being asked. For example, if your interviewer asks, “What is the size of the pizza market in France?”, this can be interpreted in multiple ways. Pizza could be sold in restaurants, through delivery or takeout, frozen, or even just as pizza dough for homemade pizza. Additionally, should you be estimating the market size in terms of revenue or the number of pizzas sold? What seems like a straightforward question may actually require taking a moment to confirm the scope, just as you would in a real consulting project.
Here are some clarifying questions you can ask to ensure alignment:
- Units or currency: Are you estimating in dollars, euros, or number of units?
- Time frame: Is this an annual, monthly, or daily estimate?
- Specific products or services: Are you focusing on a specific segment, such as delivery pizzas, or the market as a whole?
This step will ensure you’re solving the right problem before proceeding with your estimation.
2. Decide if a Top-down or Bottom-up Approach Market makes more sense
There are two main ways to size a market: Top-down or Bottom-up. Your choice depends on the nature of the market you’re estimating and the data available, as well as how comfortable you are with making assumptions at a macro or micro level. Here’s a breakdown of each approach:
Top-down Approach:
In the top-down approach, you start with a broad, high-level figure, such as the population or the size of a related market, and narrow it down by applying percentages or assumptions. This approach works best when you’re estimating a large, broad market with well-known macro factors (e.g., population, income, general consumption trends).
When to Use It:
When dealing with markets where reliable macro-level information is known or when detailed data on individual components is scarce. It’s particularly useful for industries or products that are widely consumed across a large population.
Example:
If estimating the number of toothpaste tubes sold in a country, start with the total population. Estimate the percentage of the population who use toothpaste, then calculate how many tubes of toothpaste each person buys per year to arrive at your estimate.
Bottom-up Approach:
The bottom-up approach starts with small, specific data points, such as individual sales or units sold, and aggregates them into a larger figure. This approach is more suitable when estimating specific, niche, or local markets where granular data (e.g., sales per store or customers per neighborhood) can be intuitively assumed.
When to Use It:
When you can easily gather detailed, localized data or when the market is highly fragmented (e.g., many small players or outlets). It’s also helpful when starting with micro-level information and scaling up to reach a broader market estimate.
Example:
To estimate the number of pizza restaurants in a city, start by calculating how many pizza outlets exist in one neighborhood, then scale that up by the number of neighborhoods in the city to get a city-wide estimate.
Choosing the Right Method:
Decide on the method you feel most comfortable with based on the problem at hand. Whether you choose top-down or bottom-up, what’s most crucial is how you structure your logic and assumptions. Demonstrating a clear, methodical approach will be more important to your interviewer than achieving a perfectly accurate number. Make sure you can explain your thought process and justify any assumptions you make along the way.
3. Structure Your Approach
Structuring your answer is key to demonstrating your logical thinking to the interviewer. Break the problem into clear, logical steps, which can be visualized using a mental framework or logic tree. This helps you navigate the problem systematically and communicate your thinking clearly.
Here’s an example of how you could structure a top-down estimate for the size of the pizza takeout market in France:
- Start with the Total Population of France
- Estimate the Percentage of the Population That Eats Pizza
- Estimate the Percentage of Pizza Consumers Who Buy Takeout Pizza
- Estimate the Frequency of Takeout Pizza Purchases
- Calculate the Total Number of Takeout Pizzas Purchased Annually
- Estimate the Average Price of a Takeout Pizza
- Calculate the Total Market Size
By structuring your answer with a top-down approach, you can clearly demonstrate how to break down a large population into more specific, manageable segments, leading to a logical and reasonable estimate for the pizza takeout market size in France
4. Calculate the market size applying Sensible Assumptions into your structure
Since exact data is rarely available during an interview, you’ll need to make educated guesses. To avoid far-off estimates, base your assumptions on well-known figures or logical approximations (e.g., population size, common consumption habits, average household size).
A) Start with the Total Population of France
France has approximately 68 million people. This is the broad, high-level figure from which we’ll narrow down.
Assumption Basis: It is best to memorize the population of major countries to ensure you have a good starting base to your assumption.
B) Estimate the Percentage of the Population That Eats Pizza
Assume that around 70% of the population eats pizza at least occasionally. This gives us around 48 million people who consume pizza.
Assumption Basis: Pizza is a globally popular food, and you can make an educated guess that a large portion of the population eats pizza, based on common dietary habits in Western countries.
C) Estimate the Percentage of Pizza Consumers Who Buy Takeout Pizza
Next, narrow it further by estimating how many of these pizza eaters prefer takeout pizza. Assume that 50% of pizza consumers purchase takeout pizza regularly. This would give us roughly 24 million people buying takeout pizza.
Assumption Basis: Consider lifestyle trends such as convenience and busy schedules that favor takeout over dining in or homemade options. A 50/50 split is a reasonable starting point when estimating habits for a popular food category like pizza.
D) Estimate the Frequency of Takeout Pizza Purchases
Assume that, on average, each person buys takeout pizza once per month. This leads to 12 takeout pizza purchases per person annually.
Assumption Basis: Think about typical pizza consumption habits — pizza is often consumed occasionally (once a month is reasonable for many people, given that it’s often a weekend or casual meal option).
E) Calculate the Total Number of Takeout Pizzas Purchased Annually
Multiply the number of takeout pizza consumers (24 million) by the frequency of purchases (12 per year). This gives us an estimate of 288 million takeout pizzas sold annually in France.
F) Estimate the Average Price of a Takeout Pizza
Assume the average price of a takeout pizza in France is around €10.
Assumption Basis: Consider local pricing trends for pizza from popular chains or independent pizzerias in France. €10 is a reasonable average based on pricing in urban and suburban areas for a standard takeout pizza.
G) Calculate the Total Market Size
Multiply the total number of pizzas sold (288 million) by the average price (€10). This results in an estimated €2.880 billion annual market size for takeout pizza in France.
Assumption Basis: This final step combines the two core metrics (number of pizzas and price per pizza) to give a total market size. The result is a logical outcome based on the assumptions made.
5. Sanity Check Your Answer
Once you’ve reached an answer, take a moment to reflect: does it seem reasonable? This step gives you the opportunity to validate whether your assumptions and calculations align with common sense and known facts.
Sanity Check Example: If your calculation estimates that 288 million takeout pizzas are sold annually in France, divide that by the population of 68 million. This means the average person in France eats about 4 takeout pizzas per year. Does that sound reasonable? If it does, you can feel confident in your estimate. If not, revisit your assumptions and adjust accordingly.
Always ensure your final answer passes a common-sense check to avoid errors in assumptions or calculations.
Final Tips for Success
- Stay Calm: The interviewer doesn’t expect a perfect answer, but they do expect a well-structured, logical approach. Focus on keeping your thought process clear and methodical rather than aiming for complete precision.
- Communicate Clearly: Walk your interviewer through your reasoning step-by-step. This helps them follow your thought process and shows that you can structure a problem effectively. Be concise and avoid jumping ahead without explanation.
- Practice: Market sizing questions may feel tricky at first, but regular practice will help you develop the ability to quickly make logical estimates. Practicing with a variety of questions will prepare you for different types of markets and improve your confidence.
- Memorize Key Statistics: Memorize important numbers, such as the populations, average household sizes, and income levels of major countries. These common data points will make it easier to start calculations and justify your assumptions.
- Simplify When Possible: Don’t hesitate to round numbers to make your calculations easier. Precision isn’t as important as keeping your math simple and manageable, especially when you’re working without a calculator. Just ensure that your estimates remain reasonable and within the ballpark of accuracy.
Mastering market sizing questions will not only help you perform well in consulting interviews but also sharpen your business acumen. For more practice materials, check out our PrepBuddy case library for sample market sizing cases!