The Only 3 Market Sizing Techniques You Need For Case Interviews

hey everyone in today's video we'll dive into the market sizing questions a critical component of Consulting interviews we'll break it down the three main types of Market sizing questions explore the theory behind each one of them and walk you through a step-by-step example don't miss this all-in-one comprehensive guide to master remarket sizing let's Jump Right In before we begin you can access detailed guidelines and 10 Market sizing question walkthroughs in our gate to offer course on our website I'll share the link below now let's get started there are three main Market sizing questions in case interviews top down bottom up and hybrid let's briefly discuss each top-down questions involve estimating industry sizes like the US fast food market or the annual revenue of a market leader like McDonald's to solve these you'll need to start from the demand side and find a relevant demographic drivers bottom-up questions on the other hand focus on estimating specific units such as the annual revenue of one McDonald's restaurant order traffic for a local Burger chain with five locations hence you'll need to identify bottlenecks instead of looking at the total population lastly hybrid questions combine both approaches requiring you to estimate the number of units like the number of McDonald's restaurants in a town by considering supply and demand in this video we'll solve one question from each type maternity clothing Market in London daily revenue with Jim in our town number of gas stations in the US if you'd like post this video now and take some time to structure your approach for each of these questions once you're done hit play again and compare your approach with the methods we propose let's begin with our top-down question estimating the maternity clothing Market in London is a good candidate you'll want to clarify the scope of the products before laying out the framework let's assume the product range includes in-apparel one during pregnancy we can start by estimating two main components the number of pregnant women in London in a year and the average spend per pregnant woman there are two ways to estimate the number of pregnant women in a year in London the first option involves determining the total number of women in London understanding how many are of childbearing age let's say between 20 and 40 and estimating the percentage of those who are pregnant in a given year we can calculate a total number of women by taking their share of London's population to assume the purse percentage of woman of childbearing age we can use a specific age range say 20 to 40 and take its ratio to the average life expectancy finally we can find the percentage of pregnant women in a given year by dividing the total duration of pregnancy by the total duration of child bearing age alternatively we can calculate the total number of pregnant women by looking at the number of babies born in a year the non-rock babies per pregnancy and the ratio of successful pregnancies let's start assigning the values for the first option London has a full-time population of 8 million half of which are women next we need to identify a woman who could be pregnant as mentioned earlier let's assume this includes women between 20 and 40. assuming an equal age distribution and 80 years of life expectancy this age group represents 25 percent of women lastly we need to estimate a percentage of those who are pregnant in a given year for this we can assume that a woman gets pregnant twice between the age of 20 and 40. the sales for women who never have children as well as some who may have more based on this assumption on average a woman in the UK spends one and a half years in pregnancy in total divide this number by 20 years which is the total number of years between 20 and 40 we get 7.5 percent multiplying these values would give us 75 000 pregnant women in London in a given year let's take the second approach to Senate to check our number feel free to use the approach that I resonate space with you of course we can calculate the total number of pregnant women by looking at the number of babies born in a year the values of both should be similar as a percentage of mothers expecting multiple births or the number of unsuccessful pregnancies can be negligible assuming in an average life expectancy of 80 years there are 100 000 people in each one year age bracket so the number of pregnant women in a year should equal 100 000 people the values we found in both approaches are reasonably close let's take the conservative value and use 75 000 as the number of pregnant women in London in a year now let's move on to the pricing side of the equation we need to estimate the total number of units purchased and the average price per unit let's define one unit as a pair of pants and a top combine we'll assume that a woman would visit a store twice during pregnancy and buy seven units of clothing during each visit one for each day of the week this means that a woman buys 14 units in a year making two sets of purchases over a nine month pregnancy we can assign a mid-range price point of 30 pounds per unit therefore the average spend equals 420 pounds per person multiplying all the values together we estimate the total Market at 32 million pounds given the niche nature of the market and that we only looked at one city the final figure looks reasonable to me before we move on if you're looking for more tips to Acer case interviews consider subscribing to our Channel by liking this video you will also help others discover our helpful content thank you so much for your support and now let's continue with our discussion alright let's move to the bottom-up question we will estimate the daily revenue of a Gemini town a gym can earn revenues from membership fees food and drink purchases and merchandise let's start with membership revenues on the quantity side we will look at the total number of members on the price side assuming the only membership type is monthly we need to assume an average monthly membership fee per person and divide this value by the number of days in a month to get the daily figure to calculate the total number of members we need to understand how many members visit the gym in a day and multiply this value by the frequency of physi in terms of the number of days we need to factor in the frequency as the data visitors would not represent the entire member base since most members would not go to gym every day to understand how many members visit the gym in a day we can segment our analysis into Peak and off peak times we can estimate the total number of Visitors by figuring out how many people are at the gym at a given time and how many rotations take place during the day to understand the number of people at a given time we can take a space utilization approach first we need to estimate the total surface area of the gym and divide this number by the number of square meters occupied per person on average after understanding the number of visitors at a given time we then need to extrapolate this to peak hours to do this we need to estimate the number of rotations which we can find by dividing the total number of hours in peak times by the average time spent at the gym we can take a more pragmatic approach for off-peak times and take a percentage of the hourly capacity we will estimates for peak times and similarly we can multiply this figure with the number of rotations moving on let's take a high level approach for the other two revenue streams when we develop our structure it's good to assess how long we think it will take us to solve and then adjust as needed based on the timer loads it we can estimate the daily food and drink revenues by multiplying the typical number of purchases in a day by the average price per unit the number of daily purchases can be determined by multiplying the number of daily Visitors by the percentage of those making a purchase we can follow a similar approach for the merchandise revenues as well moving on to assigning the figures for the first Revenue stream let's start with the peak times we can estimate that a typical gym excluding space for things like restroom and the front desk would be four to five times larger than a typical apartment hence let's say 400 square meters it's often helpful to use reference points that we know from our own life like the size of an apartment if we're stuck for a starting point we can estimate the area occupied per person by looking at the minimum personal space one must have during peak times as none of the members arms should reach one another this is human arm's length of 2 meters hence 2x2 gives us 4 square meters occupied per person dividing 400 by 4 there should be 100 people at the gym at a given time the gym should be occupied more during the launch and after hours henceless assign four hours giving a person most likely spends one hour per visit we can conclude that there are four batches of 100 members hence 400 visitors during peak hours regarding off-beak hours it is safe to assume that the gym will operate 50 capacity compared to peak hours hence there should be 50 people at a given time the gym operates from ATM until midnight leaving us with 12 off-peak hours since the average time spent does not change we get to 12 patches or 50 members meaning that 600 members are visiting during off-peak hours summing up 400 and 600 we conclude that about 1 000 members visit the gym in a day as mentioned earlier a member would not visit the gym every day hence say every four days we reach 4 000 member base subscribe to the gym if you go ahead with a 20 membership fee per month and divide this number by 30 we get to 266 dollars of membership revenues generated per day let's quickly look at the food and drink revenues we already know that the gym Wall comes 1 000 visitors per day we can refer to our consumption pattern and say that only one in 10 times we typically make a purchase hence let's assign 10 and reach 100 purchases in a day assuming a two dollar charge per purchase we get to 200 of daily food and drink revenues lastly we can follow a similar logic with merchandise revenues again we know that 1000 members visit the gym per day but surely the percentage of visitors making a purchase should be lower let's say two percent hence 20 merchandise purchases are made in a day and assuming a higher price point corporate food injuring say ten dollars we get to 200 of daily merchandise revenues hence if we sum all these values we reach a daily revenues of three thousand and sixty six dollars let's use a retail specific kpi to send check our number rent expenses usually do not exceed 10 of total revenues with around ninety thousand dollars revenues per month nine thousand dollars of rent per month sounds reasonable to me before we move on I wanted to remind you that you can access all 10 Market sizing questions as part of our gate to offer course I'll share the link below let's continue lastly let's solve a hybrid estimation question I'll walk you through a question that I heard many many times the number of gas stations in the US toys to make a total number of gas stations in the U.S we need to determine the daily demand for gas stations and divide this by the supply that one gas station generates to calculate the daily demand for gas stations we need to estimate the total number of cars in the U.S and divide this by the frequency that a typical vehicle needs to be gassed up in terms of number of days we can segment the cars into passenger and Commercial cars given its b2c nature estimating the number of Passenger cars should be more straightforward let's use hustles instead of individuals as a car typically benefits a group of people not only one person we can estimate the total number of households by looking at high mids and low income categories and assign an average car per household switching to the supply side we can estimate the daily capacity of one gas station by dividing our analysis into Peak and off peak hours the number of cars served in peak hours can be found by multiple buying the total number of peak hours by the number of pumps utilization rates and number of customers per pump per hour the latter can be calculated by dividing the total number of minutes in an hour by the average time per transaction per customer we can marry the same approach for off-peak hours as well let's assign numbers starting with the demand sign since the US is a developed country we can say that 20 percent of households belong to high income fifty percent of them belong to middle and 30 percent of them belong to the low income category using the average household size of 2.5 people there are 130 million households which can be divided into 26 million High income 65 million middle income and 39 million low-income households as the adoption rate of cars is significantly higher in the US let's say that a high income household owns three cars a mid-income household owns two cars and a low income household owns a car this gives us a total of around 250 million passenger cars in the country given the speed of being nature it will be challenging to estimate the total number of commercial cars hence let's take a pragmatic approach and use our personal experience to say that one in every 10 cars on the road is typically a commercial car which could be smaller delivery vehicles or large trucks that hold products this allows us to tank 10 of the total number of Passenger cars and we can reach about 25 million commercial cars summing both figures we get to 275 million cars in the US to calculate the daily number of cars visiting in gas station we need to factor in the visit frequency assuming a car needs to go to a gas station every five days we can divide 275 Million by five and reach 55 million cars visiting a gas station per day in the US moving to the supply side let's start with the peak hours gas stations should be busier before work during lunch and after work hours hence say 8 hours in total next an Irish gas station typically has eight pumps working at 50 percent utilization rate during peak hours it also takes five minutes to complete a transaction which includes parking the car pumping the gas making the payment and leaving the pump in total this gives us 384 customers served during peak hours moving on to the off-peak hours assuming and gas station is typically open 24 hours there are 16 off peak hours similar to peak hours let's use the same figures for the number of pumps and the average transaction time however the demand for the pump should be significantly lower compared to peak hours hence let's take a 20 percent utilization rate this time this gives us 307 customers served during off-peak hours All In All About 700 cars served by one gas station per day as a next step we need to divide 55 million cars visiting a gas station per day by 700 cars served by one gas station per day we can conclude that there are approximately 78 600 gas stations in the US excellent I hope this video added some value to you if you have any questions please comment below and I'll be more than happy to answer see you in the next video [Music] foreign

Channel: Prepmatter

Views: 28,114

Keywords: market sizing, consulting case interview, case interview, market sizing questions, market sizing example, market sizing framework, market sizing case, consulting interview, estimation questions, bcg, bain, mckinsey, prepmatter, case study

Id: MWndKXMJ6Xo

Length: 14min 50sec (890 seconds)

Published: Fri May 12 2023