Market sizing is the test of a consultant’s mettle. It is a classic case interview question, in which a candidate is asked to make an estimate.
A market sizing question literally asks a candidate to estimate the volume or the value of a something. This could be the size of a market or something from left field. It tests your ability to perform a quick back of the envelope calculation, logically explain your calculation, and produce an answer that is roughly accurate (to within an order of magnitude).
When a consultant meets with the CEO of a major airline to discuss growth strategy, for example, they may need to do a market sizing to get a grasp of how big the broader market is.
How big is the market? How quickly is it growing? What market share does the competition have? The CEO wants to know whether there is scope for expansion, and the market sizing will inform the discussion.
Market sizing questions test your mental maths, your business instincts, your ability to hold lots of information in your head, and your ability to perform under pressure. Lots of people end up with a solution that makes no sense or is intuitively too big or too small. It is important to listen to yourself as you do this task to make sure you aren’t talking nonsense!
How to do it?
There are two ways of doing a market sizing. It depends on the case.
The first and more common is a “top-down” calculation. You start by finding how many things there are in the market – the volume – and then zone in and narrow down on a specific answer. For example, you would follow this approach if asked how big the market for bikes is in France. You would start by estimating the population of France, then figure out how many people cycle etc etc
The second way to approach market sizing is “bottom-up”. This is much more common for guessing revenue or unit volume. For example, you would use it for a question like, how much lemonade do we sell in a month? Start with unit price, then find the volume per day, and multiply it up.
Like all interview questions or tasks in consultancy, ask questions at the start. Show that you can see the problems coming and make sure that you are starting off on the right line of thinking.
It is important to talk through your assumptions and calculations as you go. This makes it easy to follow what you are doing and it makes you look more impressive. Remember, lots of people can do the maths, but to be a consultant, you need to have a linear, structured, and understandable way of thinking. Talking as you go through the calculation will save you some embarrassment and give you more ability to error correct if you make an erroneous estimation. An interviewer is likely to jump in and highlight your mistake if you are otherwise doing well!
Examples
Here are three examples of questions that test market sizing:
- How many golf balls fit into an aeroplane?
- How many traffic lights are there in London?
- What is the size of the sandwich market in India?
To illustrate how to answer one of these questions, we have unpacked the India example.
For this question, it is better to go from the top down.
- Start by estimating India’s population. There are about 1.4 billion people living in India, but this is definitely something that would be acceptable to ask your interviewer.
- You then want to figure out how many people have access to commercial sandwiches. A proxy for this might be an estimate of how many people live in urban centres. 20% would be a good estimate. 0.2 x 1.4 = 280. That makes 280 million Indians.
- But how many of these people can afford a sandwich or would choose to buy one? You should mention that India has a lower GDP per capita than the UK, and so maybe only 40% of people living in cities and towns have enough income for such a purpose. 0.4 x 280 = 112. You might want to round this to 110. Ask before doing so. Your interviewer will almost certainly accept a rounding to 110 million.
- So 110 million people are interested in buying sandwiches. But how often do they do that? This is the trickiest part of the question. You need to come up with sensible rules for when people buy sandwiches. To keep it simple, estimate that people buy a sandwich twice per week on their way to work. Therefore 2 x 52 = 104 sandwiches per year. 104 sandwiches x 110 million Indians = 11.4 billion sandwiches. This is the kind of calculation that you can reasonably be assumed to do without rounding. This is the volume of the market.
- Finally, you need an average unit price to multiply by your unit volume, to get a revenue. Let’s say a sandwich costs £2 in India. Therefore 2 x 11.4 = £23 billion industry.
- After sanity checking your result, it is wise to comment on the implications, even if you have not been asked to do so. This is a big industry – what else would a consultant want to know? How does this inform your objective in the broader business case you are analysing? Some consultancies call this the ‘synthesis’, so be aware if you are asked to synthesise!
Will is the founder of The Cambridge Consultant, a site which focuses on everything consulting – how to get in and get on!
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