Market Sizing in the MBA Consulting Case Interview
If you’re looking for information on practicing the market sizing portion of the MBA consulting case interview you are probably already diving deep. Congrats!
While more rare, you could be asked a standalone guesstimate market sizes or any other metric as part of the consulting case interview. The point of the market sizing question is to see how you can collect your thoughts, structure, quickly calculate, and communicate your line of thinking with the interviewer.
While unfortunately there is no simple- one size fits all- framework for to answer all market sizing questions, we attempted at creating one that will help you think through most.
Let’s walk through the framework with an untraditional example prompt
Interviewer: The Mayor of New York is asking us how much he should expect to invest in repairing traffic lights next year (not including changing light bulbs).
You: Thanks, to clarify, are we focusing on Manhattan?
You: Is the mayor only interested in car traffic lights or pedestrian as well?
Interviewer: Let’s focus on traffic lights for vehicles.
Now, use the framework to think:
What is the most segment unit that “uses” the product?
It’s easy to fall into thinking that traffic lights are used by people or municipalities, but really the traffic lights are consumed by intersections.
How many of those are there? How many are “used” by each?
NYC is organized as cross streets. To simplify you can assume there are about 30 x 20 streets = 600 intersections. You don’t have to be accurate. Ask the interviewer if it’s safe to assume each intersection has 4 traffic lights – 1 for each direction. If it is, then now you know NYC has 4×600=2,400 traffic lights.
How many “purchases” are being made per year?
In the context of our prompts this question would be rephrased as “how many repairs are being made a year. Traffic lights seem durable. Let’s assume that each traffic lights are fixed once in ten years on average. That means that 10% of traffic lights will need fixing, or 240 a year.
What is the price per unit?
Ask the interviewer for the cost of fixing a traffic light. Multiply by 240.
Recognize the complexity
When presenting the number, explain to the interviewer that this is a back of the envelope analysis. In a real-life estimation you will recognize that some traffic lights are more expensive than others, some intersections have more and less than four traffic lights (e.g. edges), etc…
An important note about step 2: This step typically takes the most thinking and time. Most commonly, when estimating an actual market, you will want to segment it. For example, think about different age groups, households, etc.
Not all market sizing questions are equal
More often, instead of getting a standalone market sizing question, you are likely to get a market sizing question as part of your case. These are usually simpler questions such as “How many insulin shots are sold in the US per year?”
You can still follow the same thinking technique above. But there are two additions.
First, segment the population. This will show the interviewer that you have enough business acumen to understand that different populations will consume differently. In the insulin case you probably want to segment by age.
Second, be organized on the page. It is incredibly easy to make simple calculation mistakes when your numbers are all over the place. Take your time, build a table and stick to it. If you need to, start a whole new table.