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Basics of Guesstimate / Market Sizing

By
Tejal Jadhav and Ashish Dugar
PG A
GUESSTIMATES/MARKET SIZING
BASICS
Imagine, you are at an interview and the interviewer asks you a question How many weddings
are performed each day in India? or you are asked how many petrol pumps are there in your
city or you are told to state the number of apple phone user in your college. You might wonder
what kind of questions are these? How can anyone have knowledge about it?

Well, there is nothing wrong with neither the question nor the interviewer. These questions are
called as Guestimates and called as market sizing if the question is related to market size.

Lets understand why such questions are asked in interviews.

1. First and foremost, there is no wrong or right answer to such kind of questions.
2. The goal is to make reasonable, logical assumptions and if you are wrong on your
assumptions, that is totally fine.
3. These kinds of questions are asked to test analytical ability of the candidate.

How to go about these type of questions?

Yes, there are certain steps to be followed for solving these questions.

1. CLARIFY THE QUESTION


Suppose question given to you is, find out number of people from who go to gym on Saturday.
For getting clear idea, ask questions like, do we need to count people who go only on Saturday
or Saturday and some other day. You can also ask if a person goes to gym twice then how many
entries will be counted. Etc.

2. DECIDE APPROACH
Deciding approach is not a difficult task, you will surely come to know about correct approach
when you read the problem. But to have a clear structure, sticking to the approach is important.
CLARIFY THE
QUESTION

DECIDE
APPROACH

BREAK DOWN
THE PROBLEM

SOLVE EACH
PIECE

CONSOLIDATE

Following are two types of approach:

Bottom-Up (Ground-Up) approach:

For these questions, rather than starting from the top with a high-level figure such as
population, the best approach is to start from the bottomsome low-level statistic, such as
Revenue per customer, and build your way up to the answer. For example, consider the
question pertaining to the monthly revenue of a hair salon. In this case, wed recommend you
work out the revenue for a week and then multiply that by four. You could start with an
assumption regarding the average price per client visit, and then estimate weekly volume by
assuming the number of chairs in the salon, the number of hours it is open per week, and the
average number of clients chair per hour.

Top-Down Questions:

Questions that involve starting with an entire population (in other words, the top level) and
then breaking it down until you arrive at an answer. For example, consider the question about
the number of schoolteachers in Chicago. A simple way to approach it would be to start with
the population of Chicago, then estimate what percentage of the population is of student
age, and then estimate the number of students per class. Using this, you would arrive at an
estimate of the number of school teachers, because at any given time there is (generally)
exactly one teacher per class.
3. BREAK DOWN THE PROBLEM
This is an important step as it helps in identifying factors deciding the market size or
guesstimate. Consider the question, find out number of people from who go to gym on
Saturday.

4. SOLVE EACH PIECE


Once you break down the problem, you get rough map of your solution, now with help of
assumptions (percentage of people going to gym once or twice a week etc.) solve each piece.

For example,
5. CONSOLIDATE INTO FINAL RESULTS
Have a lot of pieces estimation and data to consolidate. Complete the calculation by
substituting numbers (example, population of Mumbai) & try to represent data in systematic
way.

GUESSTIMATES/MARKET SIZING
EXAMPLES
GUESSTIMATE CASE EXAMPLE #1

How many cups of coffee were consumed in the United States in the past week?

Start by clarifying the question, then identify the variables to apply to this problem.
Number of cups in the past week: This equals number of cups per day 7 (for 7 days
per week). Mention to the interviewer that your assumption treats each day equally,
although you would get points for mentioning that there are likely fewer cups consumed
on the weekend, as people are not in the office and in general might feel less of a need
to drink coffee.
Percent of the population that drinks coffee: this would be an educated guess.
Assuming 300 million people in the U.S., we could further assume that 20% are children
that (we hope) do not drink coffee. We could also guess that another 20% of the
population does not drink coffee at all (perhaps they prefer tea or other beverages, or
just water).
Number of cups per day: here our guess is that of the remaining 60% of people, half of
them drink 2 cups per day, a quarter of them drink 4 cups per day, and rest of the quarter
drink 1 cup per day. This averages out to 2 0.5 + 4 0.25 + 1 0.25 = 2.25 cups per
coffee drinker per day.
Therefore the calculation is:
o 60% 2.25 300,000,000 = 405 million cups each day
o 405 million cups 7 days per week = 2.84 billion cups per week (you could round
it to approximately 2.8 billion cups)

Note: the interviewer could then ask questions around how many cups are drunk at home or the
office versus bought from a store, or other similar variations. The interviewer might also ask
your thoughts on coffee trends and also how much revenue this would mean, etc.

GUESSTIMATE CASE EXAMPLE #2

What was the revenue for flat screen televisions sold in Australia in the past 12 months?

Your first thought might be, Why Australia? I am not applying for the Sydney Office of
McKinsey! Interestingly, more and more questions have a global component as
Consulting becomes more global in nature (for example, advising firms on entering or
performance in foreign markets, or working directly with foreign clients). While you will
not be expected to know Australias population, your estimate will say something about
your ability to think and your logic.
Start by clarifying the question, then identify the variables to apply to this problem.
Population of Australia: Approximately 23 million people. (Editors note: I once received
a Case Study question involving this figure and my estimate was far too high, but I still
did well on the case because my thought process was transparent and otherwise
accurate.)
Assume that the average household is 3 people. It is worth noting that families probably
have more than 3 people, but this is balanced out by people living alone, such as
students and young professionals. Here is a good example of rounding: you can say 8
million households (which is a little more than 23 million 3).
Assume households replace their televisions every 4 years. The interviewer might say
that seems reasonable or you should try a higher/lower number. You might also note
that you believe there was nothing special about last year in terms of television sales
no major product innovations, sluggish but growing economy, etc.
Assume an average of 1 flat screen television per household. Some households might
not have any, but others may have 2 or even 3.
Therefore, (8 million households) (1 TV per household) (4 years/purchase) = 2 million
televisions purchased in the past year.
Assume an average sale price of $600. Again, the interviewer might say that seems
reasonable or you should try a higher/lower number. He or she may even ask you to
break this down into groups, such as high-end flat screens and smaller flat screens
with different average prices. However, $600 seems like a reasonable average across
higher-end TVs, which might cost more than $1,000, and smaller flat screen TVs, which
can sell for $200 or even lower.
Therefore, 2 million $600 = $1.2 billion annual Revenue for television sales in
Australia.
To show your creativity and business thinking you could have also discussed the market
for resold used televisions and the Revenue that comes from that (this might reduce
your estimate of the market size by reducing the average sale price; if the interviewer
insists that the question should only include new televisions, then keep the average sale
price constant but reduce the number of purchasing households each year).
The interviewer might then ask you a follow-up question, such as discuss your thoughts
about trends in television sales, just to see how you think on the spot.

GUESSTIMATE CASE EXAMPLE #3

How many iPhones are currently being used in China?

Start by clarifying the question. In this case you might want to confirm whether the
question is how many iPhones are in operation, or how many are being used at that this
current moment. (The interviewer would probably explain that he or she means in
operation.) Once the question is clarified, identify the variables to apply to this problem.
Population of China: Approximately 1.4 billion people.
There are several different approaches from this point; one approach is to make
assumptions around the number of people that can afford iPhones rather than
considering the number of households.
Based on very basic knowledge of China, even though the country is experiencing
extraordinary economic growth, you might assume that the majority of the population is
still very low-income and cannot afford an iPhone. Thus, you might estimate that 20% of
the population could afford an iPhone.
Therefore, the total potential market size is 20% 1.4 billion = 280 million iPhones.
What percent of this total market size is penetrated? There are many competing
products that are cheaper, but perhaps youve read that the Chinese are very brand-
focused and that Apple has an extremely trusted and desirable brand in China. Therefore
you estimate that 20% of this segment is currently using an iPhone.
Using these estimates, 20% 280 million = 56 million iPhones are currently being used
in China.
A follow-up question might be something along the lines of Are there are more iPhones
in operation in the U.S. or in China? Well leave you to try and figure that one out
yourself.
Another follow-up question might be how you would check the accuracy of your
assumptions and response (in this case, perhaps by reviewing the Apple annual report or
telecom industry reports).

GUESSTIMATE EXAMPLE #4

What is the revenue of Peugeots sold in France per year?

Start by clarifying the question, then identify the variables to apply to this problem.
Population of France: Approximately 60 million people.
Assume an average household is 3 people. This leads to 20 million households (60
million 3).
Assume 20% of households have no car, as they are in urban cities such as Paris or
Lyon.
Of the remaining households, assume an average of 1.5 cars per household.
Therefore, there are approximately 80% 1.5 20 million households = 24 million cars in
France.
Assuming a replacement rate of every 6 years, there will be (24 6) = 4 million cars
replaced per year.
Of these 4 million, how many are Peugeot brand? You could suggest that the French are
quite patriotic, so perhaps 20% of the 4 million cars purchased each year are Peugeot.
Therefore, you estimate that (20 4 million) = 800,000 Peugeot cars are purchased in
France per year.
Of the 800,000, assume 70% are new cars and 30% are used cars.
Assume that the average price is $30,000 for new cars, and used is $10,000 for used
cars (this is assuming similar pricing, currency-adjusted, to that of U.S. cars).
Using these assumptions, (560,000 $30,000) + (240,000 $10,000) = $16.8 Billion +
$2.4 Billion = $19.2 Billion.
Therefore, total Revenue of Peugeot cars sold in France per year is approximately $20
Billion.

FEW MORE GUESSTIMATES FOR OUR NOVICE GUESSTIMATORS

What is Air Frances weekly revenue for the Paris-to-New York leg?
What volume of beer is sold at an average LA Lakers basketball game?
What is the monthly revenue of your hair salon?
How many school teachers are there in Chicago?
What is the monthly profit of your favorite restaurant?
How many flat screen televisions have been sold in Australia in the past 12 months?
How many iPhones are currently being used in China?
Are there more iPhones in operation in the U.S. or in China?
How many trees are there in New York City?
How many avocados are used to make guacamole per day in Mexico?
What is the Revenue for the smartphone market in India?

1. Numbers that you assume should bring ease in calculation, thus use numbers like 2000,
40000, 100 etc.
2. Clarify the question even if its clear to you
3. Final value should hold sanctity
Example, if population of a colony is 1000 then it cannot have 1200 android phone user
4. Present data in structured way with help of neat diagrams
5. Keep some numbers on fingertips (example: population of India, population of Mumbai
etc.)
FEW NUMBERS WHICH MIGHT HELP SOLVE A
GUESSTIMATE QUESTION
Below are few numbers which might be helpful in doing the calculations or going through the
solve step of solving a guesstimate question. (Approximate values for easy calculation)

Population

Total world population 7.5 billion

Population of India 1.5 billion (exact no is 1.35 billion according to 2017 census data)

One sixth of world population lives in India

Gender wise Breakup in India

Sex ratio Female : Male :: 9.5 : 10 (Actual 945 females per 1000 males)

Population of male in india 0.7 billion (2017 census data)

Population of female in india - .65 billion (2017 census data)

Age wise Breakup in India

Age wise Population Split up

5%
15%
0 14 years
35%
15 19 years

20 44 years

45 65 years

35% > 65 years


10%
Income Status wise breakup

Income wise break up of Population

>10,00,000
Salary Range of Population

5,00,000 to 10,00,000

2,50,000 to 5,00,000

1,00,000 to 2,50,000

<1,00,000

0 10 20 30 40 50 60
Population in Crores

State wise population breakup

States Population
UP 20 crores
Maharashtra / Bihar / West Bengal 10 crores
MP / Tamil Nadu / Rajasthan 7 crores
Karnataka / Gujarat 6 crores
Andhra Pradesh 5 crores
Telangana / Kerela / Jharkhand /
3 crores
Assam
Punjab /Chhatisgarh / Haryana 2 crores
J&k , Uttarakhand 1 crores
All other sates < 1 crores
City Category wise population breakup

Percentage
Population of People of total
Category residing Population
Metro >50 lakh 10%
Tier 1 >10 lakh 5%
Tier 2 >5,00,000 5%
Tier 3 <5,00,000 15%
Rural 65%

Automobiles present in India based on Type

Automobile
Type Number
Buses 2 million
Cars 30 million
Two Wheelers 150 million

Note: The process which is described above in the article is one of the methods of handling
guesstimate as we have understood from various online sources. The data provided are an
approximate value of the parameters as the main aim of the guesstimate article is to check the
thought process and accuracy of the numbers.

SO NOW