Which do I use for Market Sizing -- Top Down, or Bottom Up?

Question

Hi,

I am currently practicing market sizing for my case interviews, and I see there are two general approaches: top down, and bottom up.

I find that I ALWAYS do top-down: I just find it easier to conceptualize a market segment by starting broad, and getting narrow with each degree of segmentation.

Are case interview market sizing questions designed so that they can always be solved by either approach? Or, are some market sizes meant to be calculated going top down, and others bottom up?

Please let me know!

Answer 1

Top-down is indeed the most common way of doing it.

Bottom-up is mostly used for sanity checking results.

But both work and almost all problems can be solved from both directions.

Even within top-down or bottom-up approaches you can usually come up with sub-approaches to solve the problem.

The following article also breaks down these structuring patterns in more detail:

Expert Guide: Mastering Structuring & Brainstorming

One exercise I often recommend to candidate is when attempting a market sizing question to come up with 2-3 approaches, not only 1. This will push your creative / lateral thinking into identifying more opportunities and in the process you'll build a set of mental patterns that you could use in the actual interview.

Best,
Cristian

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Answer 2

Yes, there are definitely questions that you cannot address using a top down approach. Usually they are not exactly market sizing, but revenue estimate questions (which is basically a variant of market sizing).

If i ask you to estimate the revenue of a restaurant, for example, doing a top down makes no sense, because you can't account for the restaurant size / capacity.

But sometimes it can apply to pure market sizing. For example if I ask about seat revenues in a certain european soccer league, top down won't work. There is a limited number of seats and games, so it doesn't matter the population size, it's really about the number of stadiums, their seats, the number of games, average utilization rate and average price.

Other times you'll have to combine top down and bottom up… (e.g. number of taxis in new york… top down to estimate number of trips; bottom up to estimate average taxi capacity).

Answer 3

Hi there,

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

First of all, both top-down and bottom-up methods have their merits. The key is to understand the context of the problem you're trying to solve. Some market size estimations are better suited to one approach over the other, but many can indeed be tackled both ways.
Moreover, while you're comfortable with the top-down method, I would highly advise you to also practice the bottom-up approach so that you can tackle the market size estimations both ways.

If you would like a more detailed discussion on how to best prepare for your upcoming interviews, please don't hesitate to contact me directly.

Best,

Hagen

Answer 4

Hi there,

In my view, top-down generally provides a better frame of reference and lends more credibility to your market sizing.

Bottoms-up tends to rely on arbitrary variables and leads to market sizes that have no real frame of reference. Mathematically it works, but if you're not exactly sure about the scaling variables, it's more wishful thinking than anything else.

Stick to what is good and already works for you!

Moritz

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Answer 5

Hi there,

So, how would you estimate a coffee shop's revenues top-down?

You'll take an abirtrary # for population? Then an arbitrary # for the % that drinks coffee. Then randomly guess what % drink coffee at that spot. And then split by age…because, well, you've read you're supposed to.

Will you get an accurate number? Nope!

Are you totally guessing? Yup!

You cannot blindly do top-down for every market sizing….it depends on the prompt

Please read this market sizing here and watch the video where I walk through the solution. I should help:

https://www.preplounge.com/en/management-consulting-cases/candidate-led-usual-style/intermediate/market-sizing-with-solution-coffee-shop-revenue-318

Answer 6

questions. The choice of approach depends on the information provided, your comfort level with the data, and your ability to make reasonable assumptions. In some cases, the question may lend itself more naturally to a top-down approach, while in others, a bottom-up approach may be more appropriate.

During case interviews, interviewers are typically looking for your ability to think critically, structure your approach, and make logical assumptions. They are interested in seeing your problem-solving skills rather than a specific approach. Therefore, it's essential to be flexible and adapt your approach based on the specific case and the information provided.

I recommend practicing both top-down and bottom-up approaches in your market sizing preparation. This will allow you to become comfortable with both methods and choose the most suitable approach based on the case at hand.

I hope this clarifies the use of top-down and bottom-up approaches in market sizing questions. Good luck with your case interview preparation!

Answer 7

From my standpoint, the top-down approach tends to offer a more solid conceptual basis, enhancing the credibility of your market size calculations. On the other hand, the bottoms-up method often relies on somewhat arbitrary factors, resulting in market size estimates that lack a meaningful reference point. While it might make sense mathematically, if you're not entirely certain about the scaling variables, it can feel more like wishful thinking than rigorous analysis.

My advice is to stick with what you know works well for you!

Answer 8

Hi,

You should use the method that gives you the more reasonable and robust answer.

Sometimes this is top-down, sometimes this is bottom-up. Typically I find that questions with some sort of supply or capacity constraint tend to be solved more intuitively with bottom-up (e.g. how many flights depart from an airport in a year?)

FYI in the real world on the job, we often use both methods to triangulate a market size.

All the best!

Answer 9

Top down is definitely the way to go for market sizing. Given that it has worked well for you so far, I would not change the approach.

Answer 10

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Answer 12

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