3 tips for approaching market sizing and estimation interview questions

hello everyone my name is Kempton cabeza - I'm an axe BCD consultant and ex-googler and the founder of rocket blocks an online platform that helps candidates prepare for case interviews in today's rocket blocks mini lesson we're going to be talking about how to approach market sizing or estimation questions these questions come up all the time and consulting case interviews not to mention product management or brand management interviews as well so what we're gonna do in this video is talk about three tips that you can use no matter what the market sizing or estimation question you are facing is and it will help you get through that problem so let's go ahead and jump it tip number one is to round early and round often the reason this is important is that rounding the numbers you're working with makes the math that you're gonna do significantly easier and in addition interviewers aren't concerned with seeing you go through super tedious steps in that what they want to see is that you can build a reasonable estimate that is directionally accurate and that's why rounding numbers as you're going through these exercise is so helpful and so important so to put an example on it imagine you're trying to estimate the number of food deliveries that happen daily in New York and you know as a starting point that what you're gonna use is that the the city of New York has a population of 8.5 million so you could start your estimate using that number but you might if you think ahead a little bit realized okay well maybe I'm gonna use that number to get to the number of households there are in New York City and then segment the households by you know how many used food delivery or don't and the frequency they do so you're thinking ahead a little bit you realize okay working with eight and a half million is going to be a little bit tough especially if maybe my next estimate is that you know the number of people per household is three so what you could do in this scenario is you could round right off the bat and round something like eight and a half up to nine million especially knowing that the next step is going to be 2/3 people per household which is gonna give you nice clean maths work with and again is going to retain the directional accuracy that you really want in a question like this tip number two is to default to using a top-down style of estimating versus using a bottoms up style of estimating and let's look at this through the lens of our New York City food delivery sizing case so if you were actually trying to size that particular market and you use a bottoms-up methodology what this would mean is that you would start by thinking about individuals in New York City and what their food delivery habits might be and in the beginning this might be fairly easy think about okay well I have a friend you know who lives in New York City he's fairly busy with work so he probably orders delivery once a day then you know I know there are some people that really like to cook they don't like food delivery or find it too expensive so they probably you know never use food delivery then there's some other people that maybe use it when it's convenient or not the challenge with that is once these thought through all those use cases which forces you to think about all the use cases right off the bat as well which is stuff is that you then need to figure out okay how many people are there in New York City like my friend is there 10,000 is there 15,000 is there a hundred thousand a million and you've got to do that for every single use case which is a lot of detailed estimating which opens up a lot of different stages where the estimate could go wrong now if you flip the problem on its head and come at it from a top-down perspective you start as we talked about in the last tip with the overall population of New York and we said okay we're gonna take 8.5 million round it up to 9 million and then we're going to assume there's three people per household so okay we've got three million households in New York now you can say okay I think some households probably never ordered food delivery can segment that way and maybe that's X percent of the population some people probably rely on food delivery a lot and that's this percent of the population then there's some people in the middle here it gives you a way to kind of structure and whittle down the universe that is still gonna give you the level of directional accuracy you want without getting into super detailed assumptions about how many people there are like your particular friend etc in a you know given city in this particular case tip number three is know your key facts and figures now rarely if ever on any of these mini lessons have I suggested that you memorize things because generally critically thinking if in understanding the process is much more important than knowing facts in isolation however for market sizing and estimating questions there is a big exception because knowing some key facts and figures is really helpful for two reasons the first is that if you want to do a top-down estimate which as we talked about is really useful you need to know where to start so for example populations are really useful in that particular case knowing the population of the United States is roughly three hundred and thirty million or the population of China is 1.3 billion roughly or the global population is around seven billion so those type of numbers can be really helpful for that case the second reason is that it's really helpful to have some numbers in benchmarks so that you can sanity check the answers that you're actually coming up with so say for example you were estimating the amount of revenue that a national sports retail chain does and you come up with the estimate twenty-five billion and you're trying to think well is that a reasonable amount of revenue for a national chain of sports retailers or not if you know that someone like Walmart which is the biggest retailer in the world does something like five hundred billion in sales annually it gives you something that you can triangulate on it you could say okay my estimate you know they do about five percent in the revenue Walmart does so given their particular scale and their footprint I think that seems reasonable or oh no that's way too big giving you know this particular retail in their flipper so it gives you a nice going to sanity check your actual answers as well okay so one final thought on market sizing and estimating questions the good news is that this type of drill you can definitely get better at with targeted practice and taking these tips into mind and the good news is there's ample opportunities to find practice on a daily basis so for example if you open up the Wall Street Journal and see an article that says the Ford Motor Company did X billion dollars in revenue in a particular year take that number store it away in your memory and do a market sizing drill to see if you can come up with that number use your the tips that we just went through round early and often look for opportunities to make that map easy use a top-down approach and know some of your key facts and figures so thank you again for watching we've got tons of rocket blocks mini lessons that come out on a weekly basis if you haven't subscribed yet please do so there's a big red button below and that means looking at all our videos as soon as they come out so thanks again for watching and have a great day you

Channel: rocketblocks

Views: 26,944

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Keywords: market sizing, market sizing questions, estimation questions, mckinsey interview questions, bcg interview questions, bain interview questions, consulting interview questions, interview prep, case prep advice, mckinsey interviews, bcg interviews, bain interviews

Id: WQkVVKk44gM

Length: 7min 29sec (449 seconds)

Published: Tue Mar 12 2019