# Market sizing

Market sizing issues are very classic and widespread in consulting, including the first round of interviews. The target audience for these exercises is mainly made up of junior candidates or senior candidates who redirect to consulting. These tests are not particularly complicated because they can be treated using a fairly calibrated process. On the other hand, it is necessary to pass these questions “quickly done and well done.”

You will not receive any offer at a consulting firm just for cracking a market sizing. However, this type of exercise is challenging for a number of candidates who start too slowly, are hesitant, or too little trained. I hear every year the echo of failures due to this type of reasoning. I suggest you make a point of studying market sizing professionally.

The simplest and most telling is to illustrate a real market sizing.

Estimate the total length, put end to end, of the spaghetti eaten each month in Europe.

Let us evaluate the population of Europe to be 500 million people.

– Pasta can be regarded as a delicacy consumed internationally in all the European countries.

– Suppose that 80% of Europeans consume pasta with an average of four meals per week.

– Suppose spaghetti accounts for 50% of consumed pasta.

– So we end up with 80% * 700 * 4 * 50% = 1.120 million spaghetti dishes per month.

– Let us evaluate the length corresponding to a dish. Suppose that a typical dish contains thirty pieces of spaghetti whose length in commerce is of the order of 30 cm. This corresponds to 9 meters per dish, 9 * 1.120 m = 10.080 m meters, or 10 million kilometers!

As you can see, this is nothing very complicated. This is where it spices up:  I call this Advanced Market Sizing. In these cases, it will be necessary to make more complicated assumptions in order to move forward. It will not only apply to a framework as in the previous question.

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.

A PC manufacturer asks if the launch of a luxury product might make sense.

You should begin by asking the geographical perimeter that the company wants to cover and the price of a luxury PC range.

– Without elaborating that the PC market is global, we will consider that the study here is international: it, therefore, can be considered as a first step to assess the market then the attractiveness of the latter by anticipating the realizable profits.

– As for the definition of the word “luxury” this is a really exceptional product, which will be priced out of proportion with the high standard PC range.

– This information is crucial to determining the target population segment. Therefore, we will target the market for very wealthy people.

– The PC high standard range is approximately €2 k.

– Consider a luxury PC costs €20 k.

– A buyer of a high-end PC earns an average of €50 k per year.

– We are, therefore, interested in people earning a minimum of €500 k per year.

– How many people are there earning more than €500 k per year in the world? Distinguish the case of the OECD vs. other countries.

– In the OECD, we can take a top-down approach: it is, therefore, considered twenty countries, about 50 million people on average each or 1 billion people: consider that 0.01% of the population earns more than €500k per year, so this is 100K people.

– In 200 other countries, taking a bottom-up approach, consider that on average 100 people earning more than €500 k per year or about 10 k people. Suppose that luxury PCs attract 0.1% of this population: this would generate a turnover of 0.1%*110 k*20k€ = 2.2 M€.

– The margin on luxury products is generally high. Here, take 50%, so activity would generate more than one million of Euros of annual profit for a hundred sales.

Note: this slot was taken by former members of the BCG :)