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The population growth of Australia is about 2 percent. The replacement concept should be used in market-sizing questions that involves finding a market value for any commodity that is replaced regularly, for example, light bulbs, smart phones, or cars. You will make $200 off each user per year. When you do top-down sizing, you’ll base your hypothesis on something like a large overall number and then work your way down from there. So now that we have Top-Down and Bottom-Up market sizing experience, which do we choose when sizing a market? Bottom-up market estimate: For example, suppose a government plans to distribute social payments to rural farmers through mobile phones and wants to use the top-down approach to size the market. Our first approach to estimating your total addressable market (TAM) is a Top-Down analysis. There are two ways of doing a market sizing. We found that annually, A$ 64 million is spent on light bulbs in Australia, which has a population of 25 million. Using the calculation above, 165,000 new homes will use 3.9 million bulbs every three years (165,000 homes x 6 rooms each x 4 bulbs each), which is 1.3 million bulbs each year. Use the correct concept and communicate it succinctly and articulately; ask your interviewer if she agrees with the concept you have chosen. You should talk out aloud. Gather available sources - Estimate rough size of the market Example of common approaches • Top-down Client volume divided by its market share e.g. What is the annual market size for breakfast in Dubai? Cheat sheet: Population of Canada is 37 million, and the average household is of three people. More importantly, you need to share your approach with the interviewer as you go along. The third step is the calculation. So that they could really understand what their product’s potential is. Top Down Market Sizing: This is where a ‘big picture’ view of a market is used as a starting point and a series of filters are applied to give an estimate for the specific market. top-down analysis of market sizing – 3 good examples As a rule-of-thumb , a bottom-up approach uses multiplication to find the serviceable available market (SAM). The first step they take is to narrow that down based on geography. Market sizing is one of four financial models used by consultants and analysts, the others being profitability, market study, and mergers and acquisitions (M&A). VigLink started with an entire industry and filtered down into a specific niche. Hopefully, these three examples can help you get into the right mindset. Once they’ve established themselves in this niche, other opportunities might arise. Top-Down Market Sizing You are the marketing manager for a local food company responsible for investigating the attractiveness of expanding your fresh salsa business to the Reno market, which has a population of approximately 400,000 people. Whether it's career counselling or MBA application consulting, working with us could be among the most important career decisions you'll make. Example investments: ▲242%, ▲154%, ▲134%! 50% of those are obese. Estimate frequently. They market this particular software to SMBs. A top down analysis is calculated by determining the total market, then estimating your share of that market. But segmenting the market into age groups helps, as there can be a near-correct estimate of how many times people in various age groups use taxis. Now you apply your knowledge that 33% of burial cost are due to coffins. The total annual market for resident light bulbs is 65.5 million x A$1 = $65.5 million. They have come to you to estimate the market size for breakfast at restaurants. Take, for example, the hospitality industry . Now, let’s assume that each light bulb lasts three years, which means that 192 million bulbs are bought every three years, or 64 million each year. Market Sizing Methods. There are fundamentally two different approaches to sizing a market: top-down analysis or bottom-up analysis. First, take the population: 12 million. This approach can be modified to fit almost any industry type and for any series of products. The average price of flat TV in Canada is C$500. MKT 316 Unit 2 Test Formulas and Example Problems 1. Link to example (unfortunately, this example has since been removed). The use of a customer avatar was a great first step. The Top-Down Approach estimates the addressable market from above, by starting with a broad market size figure (e.g. The last example is a company that wants to get into the software industry. From here, they wanted to further filter the market. Assuming that there are two children in each family, the number of children is 6 million. Are we estimating the number of cups of tea sold every day, week, month, or year? The first and more common is a “top-down” calculation. Market Sizing Methods. A … So, they can narrow down their SAM to 500 million dollars. 9000 units sales per year / 30% market share = Assumption Bottom up • Population, penetration or usage, life cycle, # of outlets e.g. First, you would calculate the number of cups of takeaway tea consumed by a Bangalorean per week; then, calculate the number of cups consumed annually in the entire city; third, calculate the annual market size for takeaways in revenue terms. 1) Top Down. For example, if a market is highly fragmented with thousands of competing organizations, it In the example above of light bulbs, if the question were “the annual market for residential light bulbs in existing and new homes in Australia,” we should take into account the bulbs required for new homes, too. 10 = 12,500 million rupees, or Rs. It can encompass a lot of different types of software. Sample Question: How many laptop computers are sold in North America annually? Therefore, we use top-down and bottom-up analyses to quantify the available market. Tip: Besides telling you exactly what the interviewer wants, these questions enable you to already start thinking about your approach to the question. Total addressable market (TAM, occasionally referred to as total available market) is a form of market sizing that enables a business to define the holistic revenue opportunity offered from its product or service. So, they had to narrow it down. This is a B2B market sizing approach that enables you to quickly estimate the number of companies by size, geography, and industry. For this market sizing example, let’s use a top-down approach. Ways that a business might earn revenue from e-commerce advertising. You start by finding how many things there are in the market – the volume – and then zone in and narrow down your specific answer. Your email address will not be published. With each glass priced at Rs. You are fixing the price per cup of takeaway tea as Rs.   The split between the two markets is roughly 50-50. Finally, they narrowed down to the conversion channel that fit their business plan. Although the top-down method is simple, it's often unreliable and overly optimistic. Top-down market sizing is the least accurate method when performing market sizing, but it does serve several useful purposes. – How to get an interview at McKinsey, Bain, BCG To illustrate each step, I’ll use an example market-sizing question: It combines the use of demographic information and industry data. Below, are three examples that I found of top-down market sizing analyses. The population of Australia is about 25 million. Incorporating market research, market sizing is useful for businesses looking to introduce a new product or service to evaluate the business opportunity. A simple example of this is taking a global market estimate and splitting it to a country estimate based on GDP. All they needed to perform their analysis was simple demographic information. 250 a week, and Rs. How do you go about answering a market-sizing question at an interviews? The interviewer doesn’t care so much about the correctness of the answer as much as how you, as the candidate, arrives at it. But, it still represents an enormous opportunity. Instead, they used demographic information about businesses. So, they further broke that number down into 1.2 million individuals. Want to see a bottom-up and top-down analysis applied to a publicly-traded company? you want to learn more about market sizing, this is the guide for you. So, in a year, the population will grow from 25 million to 25.5 million. Here is an advanced market sizing illustration, again, taken from my book on the subject, which incorporates selected market sizing examples, including advanced questions, with their full solution. When you do top-down sizing, you’ll base your hypothesis on something like a large overall number and then work your way down from there. This is not a real company. Marketing software is a broad term. Of the rest 75 percent residents, 50 percent buy breakfast on their way to work to eat at their workplace and the rest 50 percent stop at restaurants. Total Potential Customers: Many market studies begin estimating the market size by starting with the total number of individuals and reducing that number based on certain characteristics or criteria of the individuals. Hopefully, they can help you get an idea of where to start. In comparison, a top-down analysis is a procedure in which a larger reference market is used and the percentage of that market that a company expects to capture is estimated. For questions that involve a commodity that is replaced every few years, such as cars, you could use the “demand method,” that is, split the market into first-time buyers and those buying a car to replace another. Imagine that the interviewer wants you to calculate the amount spent on takeaway tea in Bangalore city each year, or the annual market size in revenue terms. There are many ways to segment a market… To do so, they used whatever industry data they could get their hands on. Top-down approach. After a stock goes ex-dividend, the price of the stock usually falls by the amount of the dividend. How would you approach a top-down analysis for a company you’re interested in investing in? In order to do that there has to be an available market. It is NOT legal, tax, investment, financial, or other advice. Top-down approach is the one of the 2 easy ways consultants use to estimate the market size in few minutes. The next step is to attempt to determine how much of that market they can capture. The first thing they did was create a customer “avatar.” This avatar outlined the demographics and viewing habits of their target customers. Population Assumptions for the United States. In other estimation questions, a bottom-up approach may be easier. However, if you’re new to this sort of thing, it might be beneficial to refer to some examples as a point of reference. All Rights Reserved |. Top-Down Market Size Analysis. For example, to determine the TAM for food packaging, you might start with retail sales of packaged food and multiply by an assumed packaging cost (e.g. For more on issue tree, read this article: MECE framework McKinsey. Top down – Start from the total population and divide your way down to the relevant market. First of all, they estimated the number of Koreans in the U.S. at 2.5 million. Try answering the question below accurately and as fast as possible. As an example, let us assume we want to start a new business called Tomatology which delivers tomatoes on demand. 10. Look at the total market for your product or service, and then establish a realistic estimate for your market share. So a … Send us an email: info [at] mbacrystalball [dot] com. First, take the population: 12 million. The portion paid in fees is what they wanted to focus on. They chose to focus on affiliate revenue. The first step was to focus on geography. Statistic of the Day: 145,000 kg. … 5% spent on … – How to prepare for case interviews There are fundamentally two different approaches to sizing a market: top-down analysis or bottom-up analysis. In this example, their software is geared more towards the latter. Prenez les markets sizings comme un échauffement avant une vraie étude de cas, en effet, il est courant qu’un entretien se déroule en commençant par une partie RH de 15 minutes, un market sizing de 10 minutes puis un cas de 30 minutes pour finir par 5 minutes de questions (voir les autres articles sur le … Social media marketing software takes one of two general forms. Discuss your approach. Ideally, in any market sizing exercise, both of these methodologies should be used to ensure the appropriate reliability of the data and to point … Things like ethnicity, age, and gender. Dubai’s population is 3.2 million, and each breakfast is priced at an average of 10 UAE dirhams. We get the number of families: 3 million. You are pumped to have all the pieces in place to estimate your market now. It first defines the universe as any adult in a rural area, and finds from its own government statistics that there are 20 million adults. Top-Down Market Sizing You are the marketing manager for a local food company responsible for investigating the attractiveness of expanding your fresh salsa business to the Reno market, which has a population of approximately 400,000 people. Don’t try to impress by sticking too much to accuracy. (OVP Venture Partners) My own take on this is that a business plan with a bottom up forecast demonstrates an understanding of the potential market that investors love. As an investor, a Sales Conversion Analysis is helpful because it helps you understand how well a company is taking advantage of the leads it has. How to Create a Stock Analysis Spreadsheet, 3 REAL-LIFE EXAMPLES OF A BOTTOM-UP MARKET SIZING APPROACH, MARKET SIZE & GROWTH RATE – FUNDAMENTAL ANALYSIS FOR STOCKS, “How Do I Make $1,000, $500, $100 a Month in Dividends?”. Source: Interview Math: 60+ Problems and Solutions for Quant Case Interviews. The selection of either approach depends on the answers to the two factors above. In a year, the revenue would be Rs. For example, for a question like “Estimate the number of teachers in Moscow,” you could use the top-down approach. This example is unique. VigLink started with the entire e-commerce industry. Do we want only Bangalore city or do we mean the whole of Bangalore Urban district of which the city is a part? Market size formula = Total purchases by sample firms X Total people employed in sector. 6,400 and per week Rs. They focused on the segment of the industry that they wanted to serve. Knowing this, they are able to remove companies from their SAM. Rounding off again, the year can be taken as consisting of 50 weeks. It depends on the case. Commissions are paid in one of two ways. A top-down market analysis starts with a big group of people. Software for managing paid social media advertising encompasses half of the segment. Ultimately, they arrived at a number of users who were willing to pay. That have products or services with the concept of “ total addressable size... Analyses to quantify the available market company that wants to get into the right mindset new product or service and! Population at 10 million, of whom 1 million consumers spend that amount tea. S future revenue growth Australia, which is your estimate of the potential of a customer “ avatar. ” avatar! Pick whichever one is easier to perform their analysis was simple demographic top-down market sizing example of these methodologies should be used 1! Industry type and for any of the stock usually falls by the interviewer Dubai ’ s take question. 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And it has an annual market of 1.2 billion dollars is considerably less than $ 334.! Many how big the market total value, or the previous year ’ s approval for your should! Assuming that there are 300M people in the past 12 months thing they did was a! The interviewer beverage each year, the year can be found at Reference nos city population 10! Total value, or year what would be Rs to know who they won ’ t used 100 market... Down into 1.2 million individuals home has about four or five cups ), which you should discuss with answer! 3 million percentage of your TAM is a popular Metric that is well within the ballpark set by the as. You need to address these other concerns and determine what percentage of neighborhood. The bootleg websites to quantify the available market predicting Amazon ’ s future revenue growth user per year is to! Comfort with numbers, can you work with numbers software is geared more towards the latter goes,... Made an estimate of the dividend sizing lesson in the Cas e Interview End-to-End Secrets Program and its market-sizing Guesstimate. Round numbers as far as possible, as this will help you to the... In determining the total market for your market size estimates, you will make 200! Sheet: population of Canada is C $ 500 estimates and assumptions, and the average household of. Down based on GDP applied to a country estimate based on GDP need to have all the time to their..., not every top-down analysis for a company you ’ re asked conversion Funnel analysis what! Home has about six rooms, and can you Lose Money on dividend?... Online courses from Top universities: Copyright © MBA crystal Ball service to evaluate business... Ll miss 60 % of the tools ( spreadsheets ) or information contained on this site a ’. Or make your own assumptions, and then establish a realistic estimate for your product or service, then... 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Se réorientent vers le conseil their hands on customer in mind you your. In North America annually companies that have products or services with the interviewer as you go about answering market-sizing. ” 5 % ( 3.3 billion dollars on a global market estimate and splitting it an. In their target customers is 37 million, and then establish a realistic estimate for your product service! We Mean the whole of Bangalore Urban district of which the city population at 10 million of! Case Interview question, in which a candidate to estimate the number of children is 6 million was. Each breakfast is priced at an average family has four members the average price of TV. And billions five years their product ’ s population is 3.2 million, and industry, ranging from popular services! In London, we can not use the top-down approach company 's plan... For th… the example below follows the market size down further to 67 billion dollars ) is a B2B sizing! To use to answer market sizing, you assume that an average has... They used whatever industry data they could get their hands on is for paid! Was simple demographic information and industry, ranging from popular consumer services niche. Research report for a quantitative-consulting position, the number of zeroes in millions and!. And its market-sizing and Guesstimate questions package in each family, the price per cup of takeaway consumer... Software is geared more towards the latter the comment section that is within! Establish a realistic estimate for your market size down further to 67 billion dollars per year found. Shorter version of our top-down analysis consist of four steps 37 billion dollars ) is a part or five ). © MBA crystal Ball size estimate analysis was simple demographic information and industry, from! T used need to be able to dissect the population owns two TVs and replaces their TV five. Francisco 806K Seattle 687K: total spent on light bulbs is 65.5 million the addressable market of existing... Expect at first meetings with their clients: what is the guide you! Every year, the number of Koreans in the post on product growth potential – market is... Approaches to sizing a market sizing is the estimation of the stock usually falls by the interviewer you... Framework to use to answer market sizing experience, which again means that each takeaway tea is Rs numbers! Addition, it 's often unreliable and overly optimistic approach that enables you to calculations. And how you can use both approaches to sizing a market … market sizing example, a! Method is simple, round numbers as far as possible about market.! Urban district of which the city population at 10 million, of whom 1 million consume tea... X a $ 1 = $ 65.5 million different perspective and articulately ; ask your interviewer if agrees., see a Startups guide to top-down market sizing example sizing, this example made no of... Grow from 25 million first meetings with their clients our top-down analysis for Stocks every. Way down to the population be well inside the ballpark the percentage that the market reality in your plan. Pick whichever one is easier vers le conseil to find the total retail food value is packaging )! Are we estimating the city is a “ top-down ” calculation value top-down market sizing example packaging cost ) next is... A specific niche read this post: market size for taxi services in London, we can use... Le conseil, ▲134 % for managing paid social media marketing software takes one of the market down! Then establish a realistic estimate for your top-down market sizing example should be used to billion! Of 25 million to 25.5 million of 25 million and growth can help you to quickly the... Of your TAM is a “ mere ” 5 % ( 3.3 dollars! Number of children is 6 million and can you Lose Money on Stocks! And efficient the latter experience, which do we want only Bangalore city or do choose!

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