Market sizing: how to estimate a market, step by step

Market sizing is an estimation exercise: how many bikes are sold in France each year, what revenue a petrol station makes, how many pianos need tuning in Lyon. It is also called a "market estimate" or, for the most abstract versions, a "Fermi question", after the physicist Enrico Fermi, known for his quick estimates from almost nothing.

In an interview it comes alone, as a five to ten minute question, or inside a case, when you need to quantify a potential before deciding on a market entry or a growth plan.

Two routes lead to the result. The demand-side approach starts from the population and filters it down to buyers: inhabitants, households, share of households concerned, quantity bought, price. The supply-side approach starts from what is sold or produced: number of outlets, customers per day, average ticket. Neither is better in absolute terms. The right one is the one whose factors you can estimate without making things up.

A market sizing is a driver tree: the quantity you are looking for is at the root, and each level breaks it into a product of factors. The rule is to lay out the whole tree before giving the first number. You show it to the interviewer, they confirm or correct the logic, and only then do you fill in the boxes.

A good tree stops when every leaf is a quantity you can estimate with simple reasoning or a figure everyone knows. If a leaf forces you to guess, split it again or change approach.

The question: what is the annual size, in value, of the dry cat food market in France? All the numbers below are working assumptions, to be stated as such out loud.

Clarify. You check the scope: dry food only, not wet food, bought by households, over one year, at shelf price.

Set up the equation. Market = number of cats x kilos eaten per cat per year x price per kilo. You choose the demand-side approach because the number of households is a solid base.

Estimate each factor.

1. France has about 68 million inhabitants. With a little over two people per household, that makes about 30 million households.
2. You assume roughly one household in three has a cat, and take 30% to keep it simple: 9 million households.
3. Some households have several cats. With 1.5 cats on average, you get 13.5 million cats.
4. A cat fed on dry food eats in the region of 60 grams a day, about 22 kilos a year.
5. Between supermarket brands and vet brands, you take an average price of €5 per kilo.

Calculate. One cat represents 22 x 5 = €110 a year. 13.5 million cats x €110 gives about €1.5 billion.

Check. €110 a year is a little under €10 a month per cat, which seems reasonable, perhaps slightly low. Conversely, not every cat eats only dry food, which pulls the number down. The two effects work in opposite directions, and you can say so.

Conclude. "I estimate the market at about €1.5 billion a year. The assumption that weighs most is the share of households with a cat: at 25% instead of 30%, we drop to €1.25 billion." One sentence for the result, one for sensitivity, and you stop.

The method breaks when you always apply the same funnel. Starting from the French population works for a consumer product. For the market for hospital scanners or payroll software, you need to start from the number of facilities or companies, sometimes from installed capacity. A candidate who opens with "68 million inhabitants" to estimate tractor sales has already lost time.

It also breaks when you confuse stock and flow. The number of washing machines in service is not the number sold each year. To go from one to the other, divide the installed base by the product's lifespan, then add first-time purchases if the market is growing. This is the most common mistake on durable goods.

Third weakness: an average hides very different segments. Estimating coffee consumption "per French person" mixes children who drink none and adults who drink three a day. As soon as behaviour varies strongly with age, income or where people live, cut the population into two or three groups.

Finally, precision is a trap. Multiplying 13.47 million by €109.50 adds nothing when each assumption is only right to within 20%, and it costs you a minute. Round numbers, a clean calculation, a sanity check: that is what the exercise rewards.

Choose your starting point according to what limits the market. If it is the number of buyers, start from demand. If it is capacity, such as the number of tables in a restaurant or seats on a plane, start from supply. Say why in one sentence: it is the first sign that you are thinking about the case and not about a recipe.

State each assumption with its justification, however short. "I take 30% of households with a cat, because it is the most common pet and I see one in about one home in three around me." A justified assumption that is wrong beats a correct number from nowhere, because the interviewer can correct it and your reasoning still stands.

Keep the interviewer with you: show the tree, then calculate out loud, rounding as you go. And always finish with a check, bringing the result back to something you can judge: a spend per month, a number of customers per day, a share of the population.

You can practise right away with the market sizing tool, free and with no account, and sharpen your multiplications with mental maths. In the FrameLab course, market sizing is treated as one driver tree among others: the same building block as the profit tree, applied to a quantity you do not know.

Estimate the annual revenue of a neighbourhood bakery in a large city. Choose your approach, set up the equation, then calculate. Give yourself five minutes before reading the answer.