How to justify assumptions in market sizing?

Question

Hi all, I would appreciate advice on this topic. I would like to know when is the right time to explain assumptions in these ways:

1) Don't give any logic, or just based on personal experience

2) Mention an assumed number, but stating some different factors that impacts the number

3) Make a detailed deep dive into the assumed number, such as segmenting people into different age or income brackets

Also, do I need to check with interviewer on whether any assumptions make sense or not?

The feed back I got is I tend to pick option 3 mostly, or over explain my rationale. I am puzzled how to address assumptions that is hard to justify the numbers.

For example:

1) What is the occupancy increase in a basketball game after hiring a star player?

2) What is % of people who are in stable relationships

These are just a factor among a larger estimation question. In the example answers, a number is simply input without justification. Do you think it is fine to state a number directly without justification, in the above 2 questions?

Appreciate your advice.

Answer 1

Hi there,

This always depends on the context of the question:

1. If all else fails, you can base the assumption on “your experience”

2. Before that, think about analogies, similar industries, problems, and situations

3. Work with averages and ranges, and pick simple numbers for the calculation

Guide your thinking by 80/20 - don't overinvest into making assumptions more complex than they need to be. You are only creating a false sense of accuracy.

As regards your questions:

1. Depends a lot on the context - the occupancy rate for most top games is already at 100% so a star player would make no difference. If it's not at 100% yet, you could argue that this could lead to a 10-20% increase (reactivation of former fans, new fans)

2. This is something you can base on your experience

Cheers,

Florian