Market Sizing Questions

Hello,

Great question! When tackling market-sizing questions, the choice between a demand-side or supply-side approach depends on the context of the problem and the information you have. However, it’s generally safer to start with the population and segment demand step by step, as it provides a broader, more realistic view of the market size. Here’s why and how:

1. Why Start with the Demand-Side (Population)?
    •    Broader Perspective: Starting with population ensures you account for the potential customers and allows you to segment them logically based on relevant behaviors (e.g., dining out habits, park visits).
    •    Easier to Justify: Population-driven calculations are based on commonly known or easily assumed data (e.g., demographics, behavior patterns), which is often more intuitive for both you and the interviewer.

2. Restaurant Example

For a restaurant, starting with the population makes the most sense:
    1.    Total population in the area.
    2.    Segment by the percentage who eat out regularly.
    3.    Estimate the average frequency of dining out per person.
    4.    Multiply by the average spend per meal.

This approach focuses on demand and avoids overestimating by assuming maximum capacity or operational limits (which the supply-side could unintentionally do).

3. Amusement Park Example

An amusement park can also be approached from the demand side:
    1.    Start with the population in the catchment area.
    2.    Segment by the percentage likely to visit an amusement park (e.g., families, tourists).
    3.    Estimate how often they visit annually.
    4.    Multiply by the average ticket price.

While the supply-side (capacity × occupancy) could work, it assumes the park operates at or near capacity, which may not reflect reality. Using the demand-side approach accounts for potential underutilization.

4. When to Use the Supply-Side Approach?

The supply-side approach can be useful when:
    •    The market is supply-constrained (e.g., there are hard limits on capacity, hours, or resources).
    •    You’re asked to focus on the current operations of a specific business rather than the broader market.

For example, if the question explicitly asks about a single restaurant’s revenue or a park’s maximum revenue potential, the supply-side could be a better starting point.

5. General Rule of Thumb

When in doubt, start with the population and work through demand segmentation. This approach tends to be safer, more comprehensive, and easier to adapt. Supply-side calculations can be used as a cross-check or in cases where capacity constraints are critical to the problem.

Happy to help you practice market sizing in real cases that are used in consulting interviews - feel free to DM me! :)

Best,
Evelina

Great question! In short, it depends on the prompt, and you can always consider using both approaches (time permitting). Here are some situations when on method might be better than the other: 

• Demand-side: total addressable market for a good or service at city, state, country, or global level -- look for keywords that make you think "total" or "all potential customers" in the prompt; customer behavior and population segmentation are key drivers; supply isn't the constraint
• Supply-side: demand for a single business / firm / location / etc.; capacity constrained operations (e.g., restaurant, hotel, parks, factory, etc.); prompt with key words about operating hours, utilization, purchasing patterns (e.g., $/meal, units per hour, etc.)

Happy to discuss in more detail. Free free to DM me. 

Hi there!
While both approaches are valid, it will depend on the prompt for you to decide which one to use. 

(1) Demand - If the question regards market size, that should be driven by demand (in general, there may be exceptions). That is because it doesn't matter how much of something is available, but how many people/business would consume that something. 

• Simplified example: the market size of all amusement parks in a given geo would be [number of people who would by this service * average spend per person per visit [tickets, food, games] * times in a year a person would buy this service]. That will give you how much revenue there is in general for all the amusement parks fight for.

(2) Supply: If the question regards how much money a potential park could generate, than you would have to calculate by the supply side. 

• Simplified example: the potential revenue of a park would be [capacity * occupancy rate * average spend per person per year].

(3) Both: Finally, if the question is about how many of a business there is, you may combine both. 

• Simplified example: the number of amusement parks is equal to [demand (see #1) / (average capacity per park * average occupancy rate)].

As said, there may be exceptions, but as general rule, that should help you think about your approach in your next cases. Try with the ones you have made and let me know if you have any questions.

Best,

Mari

Hello, both approaches should lead to the same conclusion unless there are constraints. 

In a case interview, dont make things too complicated. You could begin by focusing on the supply side, then incorporate the utilization rate to address demand-constrained scenarios.

Hopefully this helps! 

Hey! 

From my experience as both an interviewer and interviewee, the supply-side approach is usually preferred, as it tends to be easier to estimate with available data. However, the demand-side approach can be useful when supply-side data is limited or when assessing untapped market potential. Ultimately, choosing between the two depends on data availability and the specific context of the case.

Alessa