Beginner Market Sizing Example With Walkthrough

in this video I'm gonna walk you through a market sizing case interview example so that you understand what a market sizing case is what's expected from you and a little bit of how to solve it and I'm also going to pause the video at some points to help you read between the sidelines and understand why this case and this Dynamics is playing out the way that it is I'm Julio from crafting cases ex-bane consultant and you're going to see me interviewing brutal and ex Mackenzie consultant and also the other crafting cases guide so by the way I'm making this video right now because we have a free course on case interview fundamentals available to you but also module one of that course is 100 focused on estimations and Market sizes and there you're going to learn a step-by-step approach to solve any Market sizing question and also some practice so that you can put that to work and see whether it works or not what your weaknesses are what your difficulties are so that you can practice and eliminate them and become well a master in Market sizing let's get right to the interview what I want from you today is Can you estimate the market size for brake pads in the United States uh brake pads so in dollar value yeah Market size for brake pads so just to clarify a brake pad is the replaceable thing on the brake on the braking system of a car yeah so it's that bad that deteriorates as you use it a pair of wires the Press is on the on the whatever in the car okay cool uh and should we another clarification question should we estimate this just for cars or because I guess you use them in semi trucks and maybe trains airplanes race cars yeah and probably in industrial settings as well yeah uh but let's do only cars okay and let's actually do only personal use as well this time okay so excluding commercial cars yeah so no delivery cars no rental cars okay sounds sounds good thank you for that amplification you're welcome okay so if I may take a moment to structure my my thoughts here and see how it approached this go on take your time okay so this is a yearly market right yeah okay Market in one year okay okay all right so first thing that I want you to see here notice how Bruno is asking me about the scope of the question that I asked are big are these brake pads that you want to know only for cars transport trucks airplanes all kind of brake pads so he wants to know all that kind of stuff now it happens it does happen that the scope isn't clear in a market sizing interview and the interviewer might want you to clarify so they might want to see if you're the kind of person who will ask about something that they don't understand rather than just go and try to solve the case from their minds without confirming and they really want candidates who can't confirm and really understand the scope of what they're doing before they start doing it now it might of course be the case that you just didn't understand the scope and if that's the case you still want to ask because you really really really don't want to start solving that case without really understanding the question that the interviewer is asking okay so I think I have a structure that we can use to estimate this case one quick note here in these cases it's normal and expected to take some time to think before you answer so that's what Bruno is doing right here another common approach is to think as you speak but that's something that I really only recommend to you if you're very very advanced okay so the way I would do this is I would to find the dollar value of brake pads sold retail per uh for you know personal use cars per year in the US would be to estimate first the number of brake pads sold per year in the US yeah for that class of vehicles and then multiply that by the dollar value or the retail value on average per brake pad okay makes sense uh to estimate the number of brake pads sold per year I'd find first the number of active cars in the US yeah uh so I guess for personal use that would almost all cars that people have would be active in some way yeah maybe there's like Collectibles or something that are not but I guess 100 are active Okay okay but I'd find the number of total cars in the US in in U.S households uh that are active and then multiply that by the number of brake pads per car per year okay so that would give us the number of brake pads per year okay to find number of cars in the US I do number of households which is population divided by people per household number of persons per household and then multiply that by the number of cars or active cars per household all right okay and to estimate the number of brake pads per car per year uh the first variable I need to find is how many times on average uh do people replace their brake pads per year okay so this could be more than once per year or less than months per year could be a number bigger than one or smaller than one yeah and then I'd multiply that by the number of uh of brake pads replaced every time people replace their brake pads so I all right you mentioned their Super Wheels so I'd assume it's eight brake pads uh per car but I'm not sure if they'd uh replace all of them at once which kind of makes sense on average right yes you break all wheels at once but anyway so that's my structure does this sound like a good start yeah okay it makes sense you can go with that okay so uh all right another pause take a look at this one thing that I want you to notice is that Bruno started building only a structure only the mathematical path that he's going to take to solve the case without actually placing any numbers without actually doing any calculations he's only discussing the approach mathematically and that's because he wants to make sure that I the interviewer understand what he's going to do before he starts to work on it so that if I disagree with this path I can talk about the path without disagreeing with the entire answer or without waiting until he's done and without of course him wasting a lot of work on something that's eventually going to have to be done again so I think I need to do some assumptions but uh yeah there's a couple numbers that I want to ask if you have because they're more industry specific and I'm not sure I can have a great assumption for those so the first one is how often do people replace brake pads so you need to replace your brake pads every 30 to 70 000 miles driven 30 to 70 000 miles okay and do you replace all of them at once yes okay so it's eight brake pads per car yeah or is it four like does does it come in a pair no each wheel will require two okay so eight pads replaced on the same note as before notice how Bruno wants to see if I'm okay with the path that he will use to solve the case so that if I disagree with something he can change it now before doing more and more work and then uh the do you have an average value per brake pad because yeah I haven't switched my I haven't changed mine in years 80 per pixel per axle okay so for every two wheels yeah okay interesting so let me switch this variable for to number of axles okay replace just to make the math better we have two axles per car and then eighty dollars per axle yeah and that's an average of the market yeah so it's not just the low end it includes all cars yeah okay sounds good all right all right time to pause again one thing that you need to know about estimations and Market sizings is there are some numbers that are just really hard to get to and the interviewer will sometimes have to give them to you and sometimes they're going to require you to come up with those numbers in this case I'm giving Bruno a few numbers but I could have asked him to come up with the numbers himself from his mind he would have to model it somehow he'd have to come up with numbers from his life and then triangulate to these numbers now you can find some techniques on how to do all of that in our free course which is uh you can find in craftingcases.com free course and you will see Bruno doing that for some of the assumptions here as well but right now what I want you to see is that sometimes you can ask for numbers you can always ask for numbers sometimes the interviewers will give it to you and if they don't no big deal use the techniques that you'll learn in the free course place the numbers yourself interviewers going to love it uh for population if I'm not mistaken there's about 300 million people in the US yeah close to that okay so let's do 300 million and I would assume there's three people per household on average so lots of uh single person households also lots of households with a couple and three kids I'd say this is three a good average for nowadays yeah three sounds okay okay maybe it's four because yeah it's a little bit less than three but you can go three it's less than three okay I'll go with three then uh and then active cars per households this one well every American that I know has a car I've lived there and a room pretty much needs a car in most cities at least of course some people can't afford it and of course out of these three people uh one might be a child which won't drive so and and obviously some people have more than one car so I'd go with two cars per household so one for each adult on average obviously some people don't own cars but then some people have more than one does that sound okay yeah sounds pretty good okay so I have all the assumptions that I need actually number of times replaced per year you gave me in miles I need to transform that into a per year basis right before I do my math and I may need a little bit more structure and a little bit of math here so we don't have we don't happen to have how many miles an average American car runs per year right no okay interesting so let me see how I estimate that so the average of those has their own car they usually Drive alone uh in America so most cars are being used every day right out of these two cars uh but then you have let's call it I'd say have users and like users but I'll call them commuters and let's say known commuters okay uh because commuters they drive from suburbs to cities or from one town to another to work and my guess is that they spent about two hours per day on the car okay so want to go to work and want to go come back at let's say 50 miles per hour because they're usually on the highway okay okay yeah and then known commuters my guess is they spend like 30 minutes per day okay okay on the car at is a lower speed because they're usually in their city or town so at 30 30 miles per hour okay does do this uh assumptions sound reasonable yeah it's uncomfortable and I need a split between computers and non-commuters so let's say 50 each okay okay can I go with that yeah okay sounds good uh uh so check this out like I told you before at some point Bruno has to start placing numbers in the ends of History so that's what I call the assumptions that he will use in his model and right now that's what he's doing and basically he can sort of guess at this point because his mistakes and some assumptions will somewhat cancel out the mistakes in another so if some numbers he guesses too high you know whether he'll get too low and maybe he might be close to right in the final number but he can't really guess at like completely because in this moment in the interview the interviewer wants to see if he can put logic and numbers behind his assumptions so basically the interviewer wants to see that he understands what factors are affecting each number and how and so he's gonna have to do some math modeling in some of them in some he can just list the factors and then come up with an number but basically right now he's got to guess them and the interviewer wants to see as a principal if he can come up with a logic for each one of them all right so let's do some math here and I'll start with the number of times replaced for you because this is the most more tricky math okay okay so uh I need to find how many miles for commuters and non-commuters for commuters they drive two hours a day at 50 miles per hour so that's a hundred miles per day right and non-commuters drive half an hour at 30 miles per hour so that's 15 miles per day right yeah uh so on average because it's 50 50 that would be 115 divided by 2 to find the average how much the average American car runs yeah uh can I do 120 divided by two so I can have 60 miles on average sure okay I thought you were going to be mean to me I thought about it but yeah let's move on now this is something that I absolutely love so many people trap themselves into tough math because they forget that what they're doing is essentially an estimation many people call them gay estimates for help for God's sake so they have no idea if many of the numbers that they're putting in there are right yeah they're dividing numbers like 398 by 21 like this one is going to make a huge difference they could just divide 400 by 20 and get to 20. in a split second and it wouldn't even make a difference in the answer anyway my point is you can round numbers the interviewer needs to be on board so make sure that you ask them if they're okay with that rounding of course make sure you're not rounding a lot more than ten percent like if you're rounding 12 to 10 then that's a bit of a stretch but rounding small numbers to make your math easier is something that's encouraged okay now let's go on okay so let's say the average American car runs at 60 miles per day which equals per year that's 60 times I'll do 360 days per year because they might not run every day yeah maybe people travel right so let's do this math 360 times 60 let me find a shortcut here Julia uh so 336 times 10 equals 360 of course right yeah and then I have this extra zero here and I have to multiply this by 6 because I did by 10 instead of six uh still a little cumbersome right uh but let me multiply this by two and then by three okay so this is 72 100 times 3 that's 21 6 0 0 21.6 thousand miles uh per year okay and you mentioned it's between 30 and 70 000 miles that they have to change right yeah so if I do two years of the average car that would be 42 000 miles can I assume this is an average I know the exact meeting point between 30 and 70k would be 50. but maybe people uh uh maybe people change their brake pads a little earlier than that okay or maybe maybe it's a little later I mean no it's okay you can assume that they're poor drivers and don't need to change their brake pads more oh so this is the variability is between this is not an average the 30 to 70s depends on how well they drive yeah well you've got to change your brake pads in that space But if you drive poorly your brake pads are going to be uh you're gonna wear out before okay if the roads are in bad conditions they might wear out before okay interesting so on the lower end not before the 30 000 miles okay but most highways are in good conditions in the US yeah but you can assume that people are part drivers I'll let you use that number okay all right now it's time for calculations you're seeing Bruno calculating you're gonna see him calculating more now many people think that when you're doing calculations in case interviews interviewers want to see if you're being if you can be a math genius and if if you can divide uh by 7.33 in your mind in a split second I cannot emphasize this enough that is not the case right they really just want to see if your number fluent and that you can catch your own mistakes so if you make a mistake they want to see that you're the one who's going to say oh no no no this is wrong this is not 10 million it's 10 billion or whatever because when you're doing the actual consulting job Excel is going to do most of the math let's be honest but you do need to be able to see for example if there is a math mistake or something doesn't end up in your slides and you're going to be able to do you need to be able to do simple math in your mind right because you're going to be talking to clients and clients are going to tell you some numbers and you've got to do that quickly in your mind it doesn't have to be super quick but it does have to be fluent all right okay I'll go with this one but I need to check in real life because maybe people procrastinate and they might change every three years right so let's go with 0.5 uh uh Replacements per year for a car okay and then you have two axles per car so it's one axle replaced per car which is a neat number right so let's find the number of cars you have 300 million people three people per household that's a hundred million households two active cars per household that's 200 million cars in the US it sounds about right uh considering the population is 300 million so you have to sell 200 million kits of of brake pads considering a kit is an a whole axle yeah of brake pads per year and at 80 dollars per axle the way I do this math well it's kind of simple right it's 2 times 8 is 16 and then I add three zeros uh sixteen thousand million dollars which is equal to 16 billion dollars right uh now does this number make sense I mean I'm quite confident in the assumptions because uh besides the ones you gave me they're pretty I mean I didn't make a big mistake by by a large margin yeah but let me see if I can find a way to triangulate this number okay so one way to see it is that each household will spend they have two active cars so one car per household will get a break like a brake pad replacement per year so each household spends eighty dollars per year in brake pads which is like uh six dollars per month on average which kind of makes sense because it doesn't seem like a big item spent yeah uh it's less than you would expect to spend in car maintenance yeah for sure but there's all other elements of Carmax but what I mean is you don't give much thoughts of your expenditure for brake pads right yeah uh so 80 dollars per year makes sense also if you think like how much would you spend on maintenance per year for a car in this case we're spending forty dollars per car yeah because you know this eighty dollars is for two cars so forty dollars per car per year on brake pads which is maybe like 10 of a car's maintenance spending if this is true this would imply a 400 per car maintenance budget per year which sounds about right uh yeah makes sense because you have tires you have uh oil changes and and stuff like that yeah so this sounds reasonable uh I wouldn't say this is a large number at all although it sounds big like 16 billion yeah but it sounds reasonable given that it's a small spending per year per household yeah sounds reasonable to me all right this part is just gold so what Bruno did here is something that most people don't even know that you need to do in estimations and Market sizing cases but you absolutely need to do them it's called a reality check and it basically means checking in with reality to see if your number makes any sense at all all right so basically it usually it takes finding something in reality that you can compare with your number so in this case it could be something like the total car maintenance Market or the total car market or something like this now Bruno could not use these numbers because he simply didn't know them but he did manage to find a way to check if his conclusion made sense with reality somehow now this is something that Consultants do all the time because they always need to be checking if their models make sense or if the numbers they get from their clients make sense or if they need to get dig deeper to understand those numbers or maybe they need to question if that number is really right and of course managers need to reality check their consultants and their analysts models all the time and the reason they're checking all of those models and all of those numbers is because they absolutely cannot afford to use numbers that they get from clients that are inaccurate and also they can't afford to show numbers as a result of models that don't make sense so consulting firms also can't afford to audit every single model or get two or three Consultants doing the same model all the time because these people are really expensive heck they're expensive and that's part of the reason you want to join McKinsey yourself probably so what they do is hire people who can reality check by themselves the way way they do that is test in the interview if those people can reality check and that is exactly why you need to do reality checks in your interviews now if you want to learn more about how to do reality checks some techniques to do them and even get some practice that's one of the things that you're going to learn in our free market sizings estimations and case interview fundamentals course which you can find at craftingcases.com free course now let me ask you a quick question okay if people were to replace their brake pads once every three years instead of once every two years how would that number change so here's something that catches many candidates by surprise when interviewers ask them follow-up questions like I did now asking Bruno how his final number would change if a specific number changed now one thing that you should notice I didn't pick any number for this I picked the number that I thought was the most confusing like if I had picked the population of the US it would be a lot more obvious how the final number would change population is smaller than the market is smaller it's obvious now this isn't a hard one as well not at least not very hard but it's the most confusing one in there that I could find now the thing is interviewers sometimes want to see how well you understand your model and so they ask you these types of questions especially when the math gets complicated within the structure to see if you really understand the model so that's what I'm doing I'm trying to see how well Bruno understands what happens to his number if some of those numbers change now this is especially common among Partners at McKinsey BCG and Bain but it's something that you're going to find yourself out of previously if you've practiced enough market sizings before even better if you can practice with partners that ask follow-up questions or with content that has them I'm not gonna bore you again telling you to join our free course but our free course does have some of these all right okay that's that's a good good question so let me do this math right go on okay so if they were replaced every year this number would be twice as big yeah right so times two equals 32 billion yeah and then if we divided this by three if they were replaced every three years then uh then this would be a just about 11 billion so it if you want more Precision this would be 10 point six six billion dollars all right that makes sense so the last thing that I want you to understand here how realistic really is this case so I'd say this is a market sizing on the easy side of the spectrum but if you're lucky you can find one like these in a first round in Bain or BCG now if you want to learn how to solve any Market sizing like a pro you want to stand out in your interviews if you get one of them if you want to be that person hoping to get a very tough estimation because then that's when you know you're going to set yourself apart check out our free market sizing and estimations course today I've said this a thousand times in this video and I'm gonna say it once again because it's the best free content on estimations out there and you can find it in our website right now at craftingcases.com free course the first module of the course is all about market sizings and estimations and I guarantee you will love it because many many candidates have told me in the past that it was the main reason they got their dream Consulting offer so I hope to see you in there and I hope you enjoyed this video [Music] [Music] [Music]

Channel: CraftingCases

Views: 13,522

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Id: 75NidVjCIh0

Length: 29min 45sec (1785 seconds)

Published: Mon Nov 07 2022