How can you prepare for a market sizing question in a Strategy interview?

1 Understand the types of market sizing questions

There are two main types of market sizing questions: top-down and bottom-up. Top-down questions start with a large population or market and apply filters or segments to narrow down the target market. For example, how many pizzas are sold in New York City per year? Bottom-up questions start with a small unit or product and multiply it by the number of customers or transactions to estimate the market size. For example, how much revenue does Netflix generate in the US per month? Depending on the question, you may need to use one or both approaches to arrive at a reasonable answer.

2 Choose a suitable framework

A framework is a tool that helps you structure your thinking and communicate your logic clearly. There are various frameworks that you can use for market sizing questions, such as the 4Ps (product, price, place, promotion), the 3Cs (customer, competitor, company), or the 5Ws (who, what, where, when, why). You can also create your own framework based on the specific context and objective of the question. The key is to choose a framework that covers the most relevant factors and dimensions that affect the market size.

3 Make reasonable assumptions and data points

One of the most challenging aspects of market sizing questions is that you often have to make assumptions and use data points that are not readily available or accurate. You need to use your common sense, industry knowledge, and research skills to make reasonable estimates and justify them. For example, you may need to assume the average price of a pizza, the population of New York City, or the number of Netflix subscribers in the US. You should also try to cross-check your assumptions and data points with other sources or methods to ensure their validity and consistency.

4 Show your calculations and logic

Another important aspect of market sizing questions is that you need to show your calculations and logic clearly and concisely. You should use simple math and round numbers to make your calculations easier and faster. You should also explain each step of your calculation and how it relates to your framework and assumptions. You should also use units and labels to avoid confusion and errors. For example, you should specify whether you are using millions or billions, dollars or euros, or monthly or yearly figures.

5 Validate and refine your answer

The final step of market sizing questions is to validate and refine your answer. You should check your answer for accuracy, completeness, and relevance. You should also compare your answer with other sources or benchmarks to see if it is within a reasonable range. For example, you can compare your estimate of the pizza market in New York City with the national or global pizza market, or with other similar markets. You should also consider the sensitivity and uncertainty of your answer and how it may change under different scenarios or assumptions.

6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?