Market Sizing Questions - 7 Steps to Ace Any Question!

how many cups of coffee does starbucks sell in a single year that's an example of a market sizing question that you're likely to encounter in your case interviews but don't worry if this is your first time doing a market sizing question or even a case interview because these questions are not meant to trip you up you're not expected to know the answer off the top of your head that would be crazy what consulting firms care about is that you can approach these questions logically in a structured manner as you find the answer [Music] hey everyone my name is davis nguyen i'm the founder of my consulting offer here at my consulting offer we help people from all types of backgrounds master the market sizing question on their way to becoming management consultants in fact we've helped over 500 people just like you land their dream consulting offer and the best news is you don't have to take my word for it hear how we helped arjun with his dream consulting firm one of my cases for bain was a school case right like opening a school and like the first thing i thought of i was like no way like i just watched like the mco module on like school so like it just all clicked from like i was like this is like unbelievably lucky and i'm so happy that there was an example video on how an exceptional education case goes so i was able to get the associate consultant intern offers the aci program at bain this upcoming summer and hopefully i can return there as well so i'm super excited in this video i'm going to teach you why consulting firms ask these crazy market sizing questions how you can best solve these market sizing questions in any market sizing questions you might encounter and ways to quickly master the market sizing questions if you're joining us today for the first time click the subscribe button and every video that is released you'll be the first to know and be on your way to landing your dream consulting offer first why do consulting firms even ask you these crazy market sizing questions well let's say that you're on a real live case and your client is a soda manufacturer and they're thinking about entering the energy drinks business you may want to start by knowing how big is the energy drink business is it 10 million or 10 billion if it's 10 billion the client might be interested but if it's 10 million they might just pass so on a real case the process to find out the answer may take days of searching for data as well as creating a model but luckily for you you don't have to do that in your interviews in the interviews your interviewers just want to know how well you can think through these problems by first creating a logical approach second making basic calculations and third clearly communicating the answer and why it matters to the client next what is the general approach to answering a market sizing question there are two methods that you need to know that will help you solve a hundred percent of all market sizing questions if you know these two methods you'll have an unfair advantage against anyone who doesn't know these the two methods are top-down market sizing and bottom-up market sizing let's go over each so you know what they are and when you should be using them the first is top-down which means that you start with an entire population for example it could be the world population a population of a country or a population as small as the number of people in your city top down is best used when your market is demand constraint the main constraint means that anyone who wants the product or service will get it that is there's no issue with supply for example while starbucks could make 10 million cups of coffee per day they want to know is there a demand for actually 10 million a cup of coffee per day so the question you need to answer is how many people want it you would start with a large population and identify factors to break that number down so you could use a top-down approach if you believe that starbucks can supply everyone who wants coffee with a cup of coffee the second method is bottom-up and as the name implies bottom-up means that you start at the bottom or the smallest unit for example in our starbucks example you could use just one starbucks store and then build up and calculate for all the stores bottom up is best used when you're supply constraint for example let's say that you're trying to figure out how many cups of coffee a particular starbucks could have per day well you're probably limited for example during rush hour by how many employees and how many espresso machines starbucks has so your supply constraint so supply constraint means that there's plenty of demand but the business may be limited by not having enough resources for example employees time space or raw materials going back to the starbucks example bottoms up may make the most sense here during the morning rush hour when there are lines going out the door so you have to take into account the demand but you're limited by the number of employees and how fast they can serve customers so your supply constraint so those are the two methods top down and bottom up before you can do a market sizing when you hear the question determine if the problem is demand constraint so you want to take a top-down approach or is it supply constraint where you're better off taking a bottom-up approach and regardless of the method that you choose there is an easy seven step process that you can use to solve any market sizing question step one is to ask clarifying questions to make sure you know what you're solving for most of the time you'll be asking are you solving for a money amount or the number of units for example is the interviewer asking for how many cups of coffee that starbucks sells per day in cups or do they want a monetary amount step two use a structured process focus on the factors that you want to look at in just words for now no numbers once you've aligned on the process with the interviewer then you can jump in and add the math for now you just want to have everything laid out in words step three make the estimation easy keep it simple for example you don't need to calculate 12.7 percent you can round it to 10 or 15 step four use educated assumptions don't just pick random numbers use your personal experience any industry knowledge you may have or ask data from the interviewer step five calculate and do it out loud and make sure you take your time to do it right this could be tricky because doing math under pressure causes you to make mistakes you otherwise wouldn't have such as adding an extra zero what you didn't mean to so take your time with your calculations and make sure you have the accurate numbers step six sandy check your numbers do your numbers make sense for example did you calculate that starbucks would sell 100 trillion cups of coffee per year if so you probably added a couple extra zeros somewhere so you want to go back and figure out where the mistake was made step seven so what what does this mean for the client now now that you have an estimation how does it impact the client so now that you know the seven steps let's see how they all work together now let's put all that together to solve the question for today which is how many cups of coffee does starbucks sell a single year okay let's see a real life example of a market sizing so you know what to expect in your case interviews if you encounter a market sizing question so i've asked gene here to play the role of an interviewer and for me i'll play the role of the interviewee so what we're gonna do is jean's to start by giving the prompt in the same way that you can expect to get a prompt yourself and then you and i are going to walk through each of the seven steps together about how to solve a market sizing problem so what i'll do is i'll explain each of the steps and then gene and i will act out what you can expect during an interview all right let's get started how many cups does starbucks sell in a year okay so gene just gave me the prompt for what we want to solve for which is the starbucks question of how many cups but at this point you want to start with stage one which is asking for more questions for anything that you don't already know so in this instance for example jean just gave me the prompt of starbucks but there's a lot i don't know for example even though she said she is wanting to know how many cups of coffee is sold i can't be sure for example does she want the literal number of cups or for example does she want a monetary value of how much money starbucks makes from these cups and i don't know that you want me to market sizes for entire world or is there a particular city or region or even country that she wants me to focus on so you'll notice in stage one i'm trying to clarify to make sure i have the right information so i'm solving for the right question great happy to help you estimate how many cups of coffee starbucks sells in a year but before i do i have two questions the first is are we focusing on just the number of cups or did you want for example a monetary value just the number of cups got it just some number of cups and are we focusing on starbucks for around the world or is there a particular location we're looking at uh only in u.s market got it so we're looking for just number of cups in u.s that starbucks sells a single year yes great so that concludes step one now that we finish step one which is asking clarifying questions we'll move to step two which is for me as the candidate to ask for time to pause so before a market sizing question you want to make sure that you have structured thoughts so it's okay for you to take a moment to pause and write down your thoughts so you'll notice that i'm using here grid paper which i recommend using because there's a lot of lines and you can keep your notes straight so you'll have you'll notice that i'll ask gene for a moment so i can structure my thoughts and write it down and then share it with her afterwards so don't worry you'll actually get to see what i'm writing on my paper in a later step but for now i just want you to know that step two is about asking for a moment to gather your thoughts and to write them down and then in later step five we will actually be able to look over my shoulder at what i am doing as well as what i'm writing down all right let's go back great could i have a moment to structure my thoughts and then i'll share it with you about how i would approach this problem sure take your time okay great so in order to solve this problem i'd like to be able to identify and solve for four key questions so the first is we want to know how many people in the u.s even drink coffee to start with and second once we know the number of people who drink coffee we want to be able to break that down to people who particularly choose starbucks over let's say another coffee shop third is after we know the number of people who drink coffee and drink it from starbucks we want to know the number of people who buy it from starbucks so the actual cup versus for example going to walmart and buying the bags pre-made and making the coffee cups at home and then the final thing we want to do is how many cups do they consume at starbucks per year does that sound about right to you yeah that makes sense so that concludes step two which is i took a moment to pause to write down my thoughts of how i approached this problem and then shared it with gene my interviewer before diving in okay next we'll move into step three and step four which i'll combine in this one so in this step we want to make sure to share with the interviewer our thought process as well as any assumptions before we do the calculations this is super important again because you want to make sure that the interviewer is aligned to what you're thinking so if you're about to make a mistake that the universe can correct you and that the interviewer knows exactly where you're headed so there's no confusion and they can trust you to do the math in step five so we'll do step three and step four combined great so i'm glad that you're aligned to your approach so here's how i'm thinking about it and i'd like to be able to share with you my assumptions before i dive in and do the calculation if that's okay so the first thing we wanted to solve for was how many people in the u.s drink coffee so what i would like to do is start with the u.s population and then break out the age group that actually drinks coffee for example a two-year-old is not going to drink coffee so we just want to focus on the age that drink coffee and other people who are able to drink coffee i know not everyone drinks coffee for example i don't drink coffee so we're going to remove those people who don't and from the people who are able to drink coffee i'm going to assume that this is going to be age 16 to 80. so i'm going to assume that people live on average to 80 and there's equal number of people who are age 0 to 1 1 to 2 and so forth to 80. so we're going to focus on 16 to 80. and then from there i want to be able to estimate how many people actually go and drink coffee so like i mentioned i'm one person who doesn't drink coffee and based on my friend groups probably three out of four of us will drink coffee so i'm gonna say about 75 of people will drink coffee and then after we figured out how many people from that 16 to 80 age group drink coffee which i'm gonna estimate at 75 i want to guess how many people actually choose starbucks as the coffee shop they go to versus let's say another coffee shop so in this case i know that roughly out of my friends about one in four will choose starbucks whenever they can even though there's another local coffee shop they can support so i'm gonna say that 25 of coffee drinkers will prefer to drink at starbucks and then from there i want to talk about how many people actually get their coffee from the stores because you mentioned the cups from the store versus like for example just buying the beans like for example ever since cobin my grandparents have just been buying their own coffee beans versus going to a coffee store but i think my grandparents are kind of out of the norm so i'm not going to say that about 80 percent of people still prefer to get their actual coffee made from starbucks versus let's say going to walmart or costco to buy the beans and then finally from there i want to estimate the number of people and how often they buy from starbucks for example there are people who are let's say i'm going to call them light buyers who might buy one cup out of a month and then there are let's say call it average or medium consumers they might buy one let's say once a week and then there are ones who are like my brother who just buy a cup of coffee every single day so i'm gonna call them the heavy users and so my estimation on this one is that they're gonna buy a coffee cup every single day so for now my estimations are for the light which is one per week i'm going to assume that let's say 10 of starbucks goers are like that they'll just get it once a month and then for the medium users it's going to be roughly once a week so i'm going to say that 80 of people are like that and then the remaining 10 are like the heavy users like my brother who will buy one every single day does that assumption do these numbers do they seem right to you yeah that sounds great awesome so since these assumptions are good to you i'd like to move on and actually do the calculations and it will be able to come up with an estimation of how many cups of coffee starbucks sells in a single year in the us sure go ahead all right so that concludes step three and four you'll notice i watch gene through my assumptions before step five which we'll go to where you'll be able to look over my shoulders and actually see the math being worked out great so now we're in step five so as a recap in steps three and four we just walk through the assumptions as well as what calculations we're going to do with the interviewer so now that the interviewer is fully aligned and knows exactly what we're about to do we can safely do the calculations without worrying the interviewer if we're on the right track or not so in step five i actually want to walk you through what it's like as a candidate to go through the market sizing so you'll notice two things here one is you'll notice that this is from steps three and four that i walked through which is in step two i outlined the four things i wanted to calculate which is how many u.s coffee drinkers there are second is how many people drink coffee prefer to go to starbucks and how many people go to starbucks stores versus for example buying in a costco and fours how many cups of coffee per year do they consume at starbucks so you notice that i presented this as well in step three and four assumption my assumptions which is i wanted to examine the age of 16 to 80. 75 of those 16 to 80 drink coffee and i assume that 25 of coffee drinkers will drink starbucks and within those 80 will choose to do it exclusively in stores or in combination stores and then how many cups there are so i broke it down into the light drinkers the medium drinkers and heavy drinkers so you can rewind this video to know where i got these numbers from but this will form the basis for step five which is when we do the calculations and i'm gonna do the calculation out loud as if the interviewer was listening to what i'm saying so you can see what you can expect in your interviews as well so what you're gonna do is i recommend taking another sheet of paper so for example i have another blank sheet of paper here and what we're gonna do is transform this step two three and four paper in to the more detailed math that you'll need to do and to keep the final answer on all right let's do it great so now i like to do is proceed with the calculations to get to an estimation of how many cups of coffee starbucks sells within a year in the us so the first thing that we said that we were gonna need to calculate is how many people in the united states actually drink coffee so in order to do that as i mentioned there's two things that we need to do first is i want to take the population of the u.s which i'm going to estimate the u.s population is roughly about 220 million people but as we talked about not every single person will drink coffee for example someone who's two years old will not drink coffee so we mentioned that the age of coffee drinkers will be 16 to 80. i'm assuming 80 here because the average life expectancy in the u.s is roughly 82 so we're gonna just do 80 to keep the math simple and if you look at the ages here from 16 to 80 so if you do 80 minus 16 this equals 64. so there are 64 ages between 0 and 80 that will drink coffee and 64 out of the total 80 here age so 80 here i'm going to figure out what percentage of this is of the us population so both can be divided by 16. so then this gives us four over five which is eighty percent so here you can see that eighty percent of the us population would be eligible to be part of the coffee drinking age but of course we said that not everyone who is of coffee age for example i'm a coffee age but i don't drink coffee will actually drink coffee and we said though that three out of four people will drink coffee so three out of four drink so now what we have for step one is we have 32 million from the population of the u.s times four out of five of the age group we're covering times the three fourths here so you can kind of see here the math kind of cancels out so 4 here so i'm going to go ahead and do the calculations and 5 here you can cancel out by dividing this here by 5 and then you'll get 64. so then you have 64 million times three so 64 times three two one that's 19. i have to carry the million so we get about 192 million people from our original population who are of coffee drinking age and do drink coffee so to simplify the math i'm actually gonna round this up if that's okay to 200 million so that 200 million is a little easier to work with here so i'm gonna say from part one is how many people drink coffee in the u.s that's going to be 200 million people so that's stage one so then what i'd like to do is go to stage two which is how many people actually prefer starbucks and we said earlier that starbucks is one of the most popular brands but not everyone will drink starbucks but based on my friends roughly about one in four of us will drink starbucks so then what i'm going to do is take 200 million and multiply that by 25 so 1 4 so that equals out to be 50 million so now we've narrowed it down to 50 million people who will drink starbucks so that's a good next step so we've calculated number two but in number three is we need to calculate what percentage of people actually buy their coffee from starbucks into stores versus for example going to costco to buy the beans like my grandparents so in this case we estimated that would be 80 of the population so then what we'll do is take 80 million and multiply that by 80 which again is four out of five one here so that equals 40 million so now we have 40 million people who are eligible to do the cups of coffee but of course this is only one part of the equation that we need the last step we wanted to do was to calculate out how many cups of coffee are consumed by people who go to starbucks and we said that there are three populations you have the light consumers who will consume one a month so every year they will go ahead and do 12 and they're only 10 percent of the population so 10 of the population second is you have the medium who will buy at least one per week so then what you'll have is 52 cups per year and we think that's 80 percent of the population of starbucks goers and then the third group here is the heavy which will do one every day so that's 365 like my rubber and they are only 10 of the starbucks population so you can kind of see here that we can do a weighted average of each of these so what we're going to do is do a weighted average of each of these so we can kind of see here 12 10 of 12 is roughly about 1.2 80 of 52 is roughly about the same as 80 percent of 50 which is 40 and 80 of 2 is roughly about 1.6 so we this is about 41.46 and then we have 10 of 365 which is 65. so then what you have here is you have roughly 1.2 plus 41.8 plus 36.5 and this is one that's three that's one that's nine uranus seven so roughly it's 79.3 cups of coffee at starbucks that's a lot per per year so we're just going to round this out make it easy so i'm going to say this is 80 cups all right so now we know that we have 40 million people from step 3 and there are 80 cups that they the average starbucks consumer consumes a year then what you can do is take the 80 cups and then multiply that here from the 40 million and you get there 40 cups then you'll get here 32 0 0 and then carried a million so it's 3 200 million which is equal to 3.2 billion all right so we've got a calculation of roughly in the u.s starbucks in their stores will sell every year about 3.2 billion cups of coffee so i'm gonna highlight this for later okay so that's an example of how to do step five which is the calculation so you notice how i wrote it down line by line so i wrote an extra big font so that you can see from your device but normally you can write as big or as small as you want but in this case you notice how each of the steps i made the math very simple by rounding the numbers but also the same time following to the plan that i already outlined with the interviewer so they know exactly what i'm doing so in this case i have four calculations here and i calculated one two three four and eventually got my answer here to be an estimate of 3.2 billion great so we just concluded step five and we have our estimation for how many cups of coffee starbucks sells in a single year but regardless of your market sizing question at this phase of the question you want to proactively tell the interviewer if this number if you think it's too high or too low with step six which is to sense check your number so but let's imagine in this example that i forgot to do that so you'll see that the interviewer in this case gene is going to ask me do i think that this number is too high too low is it reasonable and in this case you want to be able to give an answer but in an ideal situation you don't want to wait for the interviewer to tell you and ask you to sense check your number you want to do that proactively but let's imagine i forgot to do that so jean's going to do that and you'll hear my response to it great do you think that number is reasonable sure so we estimated that about 3.2 billion cups of coffee are sold by starbucks in the us every single year so if we think about 3.2 billion so that's about 3 billion and i think about the fact that average starbucks coffee costs about four dollars so three billion times four dollars is about 12 billion so if we think that starbucks is about a 12 billion dollar a year business then it would be reasonable and based on the fact that starbucks is a major food and beverage company i would imagine that business like that on the us would probably be in the 10s or 20 billion so i would say that that estimation is about right great okay so that concludes step six so whether or not the interviewer asks you or better yet you proactively tell the interviewer what you think about the number you want to be able to sense check your number because if it is too high or too low you want to go back to your step five and readjust some of your numbers and if it's just right you want to proceed to step seven which is the final step so in step seven you wanna answer the question so what so the client didn't just pay you to answer this complicated question spend weeks on excel building this model out just for you to not have an answer so what you want to be able to do now is to tell them so what did they pay you for what's the so what how is this relevant to me and this will all come down to the client situation so you'll notice that in this situation i'm actually gonna be sharing two examples so that you can see how the client situation affects step seven's answer so in the first scenario we're gonna assume that this is a starbucks competitor and in the second example we're gonna assume that this is a starbucks partner let's say like a coffee bean supplier so i think this number looks really promising because i know our coffee shop right now is currently not in the united states and trying to enter and looking at these numbers i think this is very promising for our client because even if we can only capture a fraction of the market share of starbucks we're already stealing away from a 12 billion dollar market that starbucks currently has a command of but the thing that i would want to work with the client on is product differentiation just even that we don't have any presence in the united states right now i want to see how we can actually compete with starbucks all right so that's example one where we're competitors starbucks entering the u.s market but now let's imagine that we're a partner with starbucks supplying their coffee beans in the united states so it looks like starbucks produces about 3.2 billion cups of coffee per year and given that we're a major partner with starbucks i think this is very promising for our client because i know that our contract renewals coming up with starbucks and one of the things i want to know is talk to the client about are there alternatives that starbucks can go into because if we're the major supplier for their coffee beans i think that gives us a lot of leverage in our next negotiation to ask for better pricing for starbucks and i think that will help our ceo be able to achieve their profit goals for the year all right so you'll notice there that in step seven i gave to so what what does this mean and you saw two different examples one is competitor and one is a partner so you always want to be thinking about this when you're doing your market sizing which is why does this matter to our client all right that concludes the market sizing example so now you've seen an example of how to solve a market sizing problem by the way if you're curious the actual answer with starbucks own numbers is 2.9 billion cups of coffee so we're pretty close but knowing that number won't help you because you're going to encounter numerous different types of market sizing questions in your interviews so let's make sure that you're prepared for not just starbucks but any market sizing question you might encounter now how do you actually do that there are two great ways that you can master the market sizing the first way is to create market sizing problems in your own daily life for example let's say that you're a sports fan and you enjoy watching football the next time you watch a football game during a commercial ask yourself how many football fans are there in the world that watch at least one game a year or if you're ordering at your favorite restaurant ask yourself how many people eat at this restaurant every single year and then there's a second way and much faster way which is you can allow my team and i to help you when you work with my team and i we'll give you an entire curriculum teaching you even more strategies tips and tricks to solve market sizing problems that you'll encounter including numerous examples of live cases second you're going to receive one-on-one coaching with former mckinsey bain and bcg consultants who are going to work with you one-on-one to make sure that you can master case interviews cover your weaknesses as well as build on your strengths we have a proven process in fact you don't have to take my word for it here's arjun and brenda two clients who worked with us to land their dream consulting offers my name is arjun radigari and i am a junior studying bioengineering at the university of illinois i joined college not knowing what i wanted to do i was debating between industry or even pre-med during my freshman year i realized neither was you know a passion of mine so i went to a consulting for engineers event and that's when i really found out about the career path that's when i really began my pivot into the business side of things um my sophomore year you know join certains i had was one like of course like the cost just like the monetary value of it and the second was how was this program even unique compared to the other ones that are out there and i realized that both of those were well worth it even at the time before i even joined i decided like you know no matter how it goes i think like i would regret not doing this program because who knows what could have happened if i did though it doesn't seem it doesn't seem like overcome these concerns is like utilizing the so many different aspects of the program like mco had a lot of unique value propositions one i thought was super useful was the facebook community i think that's just like not underrated in regards to you like meeting people who are in the same position as you and like casing with a wide variety of people who have different approaches majors backgrounds etc that have taught me just the modules that davis had not just the video modules but the drills specifically i thought the structuring drill was by far the most influential on my like for me i guess like i had two like favorite parts like one was of course i think just like the level of communication i was able to have with like you and ammar for instance i thought like there was just like the response and rate and just the like i guess like how fast you guys got back to all my questions was super helpful so all these tidbits that inside information helped me a ton while applying to these like different mbb programs and on the other side it was the facebook community i have to go back that honestly like well worth the investment and i'm like super glad that i did it at the end of the day um if you put in the hard work with the program and utilize all its resources it will pay off in the long run 100 so i was able to get the associate consultant intern offers the aci program at bain this upcoming summer and hopefully i can return there as well so i'm super excited for that being a part of the community at my consulting offer really helped me to secure my offer at pcg and i'm really grateful for davis marcus and everyone else in the my consulting offer community i only had one week to prepare before my first round of interviews at pcg for their full-time associate position and i was studying engineering in my final year in a non-target school and this was my first ever case in debut experience so prior to that i never really did a case before i didn't know exactly how it works and to practice where to even begin or where to go but thank god my sister introduced me to davis because she was previously his client as well and i was really impressed by how davis responded because he was quick to respond and enthusiastically as well he wasn't intimidated by the fact that i only had underweight to prepare but instead he was confident to jump on board so that itself gave me motivation to want to do my best and give my best effort believing that i actually have a chance to pass this interview want to learn about how my consulting offer can help you land your dream offer for a limited time i've asked my team of former bain bcg mckenzie recruiters to help anyone who's watching this video get more interviews and land more offers when you click the link next to this video in the description you'll be able to book a free 30-minute strategy session with a member of my team the best part is that this call is free because we typically charge a thousand dollars for these strategy calls but for a limited time until slots run out you're able to book these calls for free so feel free to grab one of your free strategy sessions today all you have to do is click the link in the description below this video and schedule your free strategy session

Channel: My Consulting Offer

Views: 19,984

Keywords: #ConsultingInterviewTips, #ManagementConsulting, #Consulting, #MarketSizing, #MarketSizingQuestions

Id: gCu3u8QJSwk

Length: 32min 24sec (1944 seconds)

Published: Thu Apr 21 2022