Market Sizing Questions

Hi there,

I would be happy to share my thoughts on your question:

• First of all, and contrary to what other coaches have said, approaching a market size estimation from the supply side makes no sense except for highly exclusive, limited goods and services (e.g. commercial SpaceX space flights). In all other cases, we live in demand markets. Also, estimating for a single unit is not considered a market size estimation, but a business case.
• Moreover, however, please keep in mind that except for Bain in the UK and few smaller consulting firms, most consulting firms have not used standalone market size estimations for a long time. While this does not mean it never happens, this type of case study question is typically not be very meaningful for both the candidate and interviewer, as only a few skills are being tested.

You can find more on this topic here: How to succeed in the final interview round.

If you would like a more detailed discussion on how to best prepare for your upcoming pre-interview assessments and/or interviews, please don't hesitate to contact me directly.

Best,

Hagen

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

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

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. 

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

"Loving" all the (wrong) ChatGPT answers.

Let's cut through the b.s.

For the revenue (not market size) of a restaurant, you have to do bottom up (supply-side).

Same goes for amusement park.

Think about it: Can you really reasonably estimate population, % that goes to the park, etc.? Nope! You're guessing.

Any approach that is guessing NOT estimating is wrong.

Demand-side does not work here.

Additionally, please get more familiar on market size versus revenue (they'll never ask you to estimate market size of a singular restaurant...doesn't make sense) AND demand/supply side instead of top-down versus bottom-up (better way of thinking about it).

My course here has a coffee shop example (amongst many) that is identical to your restaurant one...definitely grab it to see how to approach this problem in depth!

Market Sizing Analysis: Approaches, Techniques, and Exercises

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,

Demand-side: for something that everybody consumes on a daily basis, (e.g. coffee & alcohol consumption in general / total credit card debt in a country X etc.), usually without any ties to a specific brand (there may be exceptions, though);

Supply-side: for something that is hard / unfeasible to calculate using the demand side approach or / and for something limited by a specific brand (e.g. how many cappuccino cups does Starbucks chain serve daily in New York ?).

Ultimately, there's no definite answer as to which approach to use in each particular case, but there are markers that you should be aware of and also always remember to use common sense. Also, you can do a market sizing estimation using one approach and sense-check using the other.

Hope this helps,
Nick
 

Hey there, 

For a single business of the nature of your example (i.e. a restaurant or amusement park) => a bottom-up approach (i.e. supply side) is the better approach! 

Reason being, starting with population already introduces a challenge. Which population are you using? How do you account for travellers / visitors / tourists from other populations? It can become really tricky really quickly. Whereas with a bottom up approach, you would essentially measure the traffic (or utilisation rate) and this doesn't require you to know customer segments or population types etc. 

And yes, it is totally possible to get to same conclusions or answers with a top-down approach (i.e. demand side) - but the estimations of drivers becomes much more sensitive and challenging and can cause huge swings to final answer. 

All the best

Hi,

Thanks for your question.

In most market sizing questions you would use the demand side approach, unless there are any constraints involved where the supply constraints determine the market size. Note, it can vary based on the  situation even though industry/company or other variables stay the same. I have illustrated this with examples below.

For example, during COVID, the numbers of patients being treated/hospitalized in a certain hospital were bring driven by the capacity constraints such as number of doctors available, beds available, doctor's limited schedules etc. whereas in a normal situation, if the utilization of the hospital is less than 100%, then the number of patients being treated is driven by the demand.

Another example would be estimating the number of vehicles being manufactured by a company in a year. Under a normal situation, assuming there is no capacity or supply constraint, the market size would be driven by the demand for the brand/model of car. However, if there is a supply constraint, the estimation would be driven by the supply side constraints. The constraints could be labor, parts, manufacturing capacity or something else.

Going to the second part of your question:

Restaurant market sizing:

Assuming there are no constraints mentioned, you can go with the demand side approach. Adding some nuances to your approach:

1. Customer pool: Start the with the population of the city and allocate a % for customers coming out of town vs. from town. So maybe 70% of the people coming are from the town and 30% from out of town.

2. Of the % of the population in town, what % dine out. This % would be different for weekdays vs. weekends. So you could have two separate segments for weekday and weekend traffic. 

3. What % of those who dine out would come to this restaurant - if there are 5 restaurants in town and assuming all are similar, this restaurant would get ~20% market share.

4. Then you apply the average cost of a meal - you could segment this based on small, medium and large depending on what % of clients are single, couples or families.

Multiplying all the factors and summing for each segment will give you the total market size (in $) for the restaurant. Lastly, 

a. Assuming you are being asked to calculate the annual revenue of the restaurant, don't forget to multiply by the number of weeks in a year, or which ever unit is applicable based on how you did your estimation (weekly, monthly etc.)

b. And once you have that number, divide that by 70% to get to the total revenue opportunity accounting for the out of town clientele.

Supply side example: 

However, now assume the restaurant is always full or running beyond capacity. In that case, you would have to use the supply side approach to estimate the market size ($ revenue). In that case, the approach could be:

1. Number of tables in the restaurant

2. Number of hours the restaurant is open

3. Average cost of a meal depending on table seating capacity. For example, a table for couples could represent the small meal size cost, table for 4 medium and table for 8 people the high side. Multiply the meal size with the % of tables of different seating arrangements to get the total meal revenue.

4. Also factor in the average time spent by customers at a table, to calculate the churn of customers and how many sets of customers the table caters to in a day.

Multiply all these factors and sum up the revenue for each segment to get to the total revenue and multiple by 365 days in a year to get to the total annual revenue. In most cases, a restaurant may be full capacity only at certain times of the day and certain days, so you would have to make adjustments as needed to account for that. A quick way to do this is to apply a utilization factor to certain times of the day. For example, the utilization rate between 2 p.m to 3 pm. (post prime lunch time) and post 9 p.m. on weekdays may be <100%, and can factor that in when you calculate the hourly revenue.

Hope this helps. Feel free to reach out for any Market Sizing or other questions. You also have the option to book a free 15 minute consult with me to discuss any other consulting topics or prep plan.

Thanks,

Soh