• Ben Gutkovich

7 steps to excel in Market Sizing questions

Have you ever wondered how many pizzas are sold in New York every day? If you are preparing for a consulting interview at a top tier company like McKinsey, Bain or BCG, then you better get ready to answer a question like this. This could be a market sizing question that is typically asked in such interviews to assess your math and logical reasoning skills. A market sizing question may be given as a standalone problem or as part of a broader business scenario such as “new product launch”. So let’s get you prepared for it!

For instance, as part of your analysis for growth options of a mozzarella producer, your interviewer might ask: "How many pizzerias are there in New York?” This type of question can really feel unsettling at first. But the good news is that if you know how to approach them market sizing questions are the easiest type of case questions around.

This case type is used to test your quantitative and reasoning skills. The interviewer wants to evaluate whether you are comfortable doing mental math (generally with large number) and whether you are capable of making sound assumptions and handle ambiguity. Market sizing questions can also cover other types of estimations, for instance, estimating the number of windows in a skyscraper.

Ideally your result should be “in the right ballpark”, meaning the answer should be within a 20% range as compared to the actual answer. But more than the result, the crucial aspects of this problem solving process are the approach you took, the structure you applied and the way you thought about the problem. If you don’t to share your approach and the thinking process, it is unlikely the interviewer will let you pass to the next stage, even if you miraculously reach the right answer.

Some examples of market sizing cases are:

  • “How many gas stations are there in Los Angeles?”

  • “How big is the market for smartphones in Africa?”

  • “How many coffees are sold daily in London?”

  • “How many golf balls can fit in a Boeing 747?”

Although, some of these questions might seem odd, consultants are often asked by clients and partners in brainstorming sessions to do market sizing questions on the spot. Having a structured approach and being able to analyse what the drivers are behind such estimation questions is essential for a useful and convincing response.

Let’s assume that you’ve been asked to estimate the number of pizzerias in New York. The key steps and success factors to answer this or other market sizing questions:

  1. Clarify the exact question at hand: are we looking for the number of all restaurants that serve pizza or only those that primarily serve pizza?

  2. Come up with a formula or a driver tree for the calculation: X = Demand for pizza / Supply of one pizzeria = Number of restaurant produced pizzas that are consumed per day / Number of pizzas one average restaurant can produce per day

  3. Calculate accurately and quickly, especially paying attention to number of zeroes, as market sizing questions are likely to involve large numbers

  4. Make assumptions that are as defensible as possible and based on sound logic (your personal experience counts!), and if possible choose convenient numbers to work with (e.g., if NYC population is 8.4 million, it’s OK to use 8 million; for number of days per year – use 350 rather than 365). Only use gut feeling if no other options remain.

  5. Communicate in a structured, top down and concise manner, and make all your assumptions explicit (e.g., excluding all restaurants that don’t focus on pizza)

  6. Present the answer in a clear manner, tying it back to the original question (e.g., if we are supporting a mozzarella producer – is New York an attractive market for them to enter?)

  7. Sense check your results at the end – does the answer sound about right? (e.g., it is unlikely that there are a million pizzerias in New York)

There are a few useful shortcuts that will help you impress your interviewer, simplify your calculations and avoid calculation mistakes.

  1. Useful life principle: if calculating market size for a product with a typical useful life (e.g., TVs in the US), it might be easier to estimate market size by calculating the number of devices replaced every year (e.g., if we assume that all households have a TV, we can estimate that these are replaced every 5 years, therefore the market size would be 1/5th of number of households in the US multiplied by an average TV price).

  2. Simple segmentation: choose the segment that would be easiest to work with and make assumptions for (e.g., if calculating the number of pizzas consumed in New York, you could segment them by type of pizza - hint: not very helpful, or by customer age groups: 10-20, 21-40, 41+; hint: more helpful, and estimating the consumption in each age group)

Want to practice a Market Sizing case? Book your session here.

#MarketSizing #Guesstimate

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