**What is Market Sizing? **

Market sizing is defined as estimating the number of buyers of a particular product or users of a service within a given market, and the total revenue that these sales may generate. Businesses use market sizing estimates regularly to better understand market potential when considering penetrating new markets or launching a new product or service. And these questions are common during Consulting interviews.

It’s typically answered in terms of an annual revenue figure.

**Examples:**

- How many cups of boba are consumed each year in the U.S.?
- How many people use dating apps every year in the entire world?
- What is the market size of jeans in the U.S.?
- Estimate the market value of coffee sold by Starbucks each year in the U.S.

**When Are You Asked Market Sizing Questions? **

Short answer: it depends. Market sizing questions can be asked upfront to start a case interview or in the middle of case to support decision making. More often than not, market sizing estimates will arise during case interviews. For example, if you were tasked with determining whether The Final Round should create a Europe-specific podcast, you’d likely want to know the number of podcast listeners in Europe who consume career content — this would require the use of a market sizing estimate.

4 Essential Steps To Answering Market Sizing Questions:

**Clarifying Questions**

It’s important to ask questions clarifying the geographic region, time period, what units the interviewer is looking for, product, customers, distribution channels, etc.

**Structure**

There are two approaches to answering market sizing questions: Top-Down and Bottom-up. Either one works, so don’t be afraid to test both out!

**Top-Down: **This is when you start with a large number and then break it down.

For example, you can start with the population and then narrow it down by segmenting age groups into categories.

If we wanted to figure out how many cups of coffee are sold in a year, the first segmentation would be figuring out who drinks coffee and those who don’t out of everyone in the population.

**Bottom-Up: **This is when you begin with a small number and then build it up to get your answer.

In the coffee example, the first step could be finding out how much coffee someone consumes in a week depending on whether or not they’re a heavy, moderate, or a light drinker. The next step would be finding out how many cups of coffee would be consumed per year by a heavy/moderate/light drinker and so on…

**Estimate using round numbers**

Since you won’t be allowed to use a calculator during market sizing interview questions, make the process easy by rounding numbers. Multiplying 320 by 50% is much easier than multiplying 320 by 47%. **Warning:** always ask for permission from your interviewer to round a number up or down.

Precision is not the objective when you’re asked a market sizing question. Instead, the interviewer is much more focused on your logic and thought process. Save yourself from making tedious calculations and round your numbers!

**Sanity-check your answer**

Although there is no correct answer to market sizing questions, there are definitely incorrect answers so it is critical that the answer is logical and makes sense.

If you notice that your answer might be too large or small, explain to the interviewer why that is. For example, if you were estimating the market size of coffee sold and you notice that your number is too large, you can attribute that to a previous assumption you made such as overestimating the amount of people who drink coffee or overestimating the average price of a coffee cup .

Extra Tips to Ace Market Sizing:

**Walk your interviewer through all of your calculations and assumptions.**

Be sure to engage your interviewer, explain your rationale, and walk your interviewer through your logic. Again, interviewers are not concerned about your answer; they are interested in your approach. Explain WHY you’re making that specific assumption and how you arrived at a number.

**Remember that people can have more than 1.**

For example, phones. It can be easy to assume that everyone only has one phone and while many students each have one phone, a majority of companies give their employees a phone. So it can be possible to have two phones.

**Replacement Rates**

There are many objects that are replaced every few years such as cars, TVs, devices, chairs, lightbulbs, the list goes on and on.

**Numbers to Know**

To prepare, brush up on your knowledge of demographics. We’ve detailed the most important ones you need to know:

- Population:
- World: 8B
- United States: 320M
- China: 1.4B
- UK: 60M

- Persons Per Household: 3
- Average Life Expectancy: 80 years old
- Median Household Income: $60K

Here are some extra population metrics that may be useful:

- India: 1.4B
- Canada: 40M
- Russia: 150M
- Germany: 80M
- Australia: 25M
- Japan: 125M
- France: 60M
- Mexico: 125M
- Brazil: 200M

**Market Sizing Examples:**

**Question:** How many cups of boba are sold each year in the US?

Steps and Explanations:

- Assume that there are 320 million people in the US.

In this example, we’re using the top-down approach which is starting with a large number and then breaking it down. In this case, we will start with the population of the United States, approximately 320 million, to begin our market sizing. Remember, the true US population is 330M+, however, we use 320M because it is easily divisible.

- Segment the population

Because Boba consumption varies greatly by age demographics, it is important to segment our population to get an accurate answer…

**If you want to see how to solve the rest, click here. **

Question: Estimate the number of people in the world who use dating apps.

Steps and Explanations:

- Assume that there are 8 billion people in the world.

In this example, we will use the top-down approach (a method that starts with a larger number then breaks it down). In this case, we will start with the population of the world, approximately 8 billion, to begin our market sizing. Remember, the true world population is 7.7+ billion, however, we use 8B because it is easily divisible.

- Segment the population

Generally speaking, most people using dating apps are of age (above the age of 18) and single (we hope!) Given this information…

**If you want to see how to solve the rest, click here. **