This piece aims to help you understand how to solve guesstimate questions, we will solve a few questions as we scroll along with the piece. In the end, you will see 12 practice Guesstimate questions that you must solve to achieve proficiency with the subject. Let’s dive into it.
You might have heard stories of interviewers asking absurd questions like ‘How many cigarettes do Indians consume in a month,’ ‘How many Petrol stations are in Mumbai,’ ‘How many balloons can be accommodated in an Airbus 320’. These questions sound whacky and abstract and have no perfect answers. Such questions are called Guesstimates, which are the back of envelope calculations that can help estimate the market size/no of users/revenue etc. They are generally a part of Market Entry cases or can be independently used to check the analytical and problem-solving skills of the candidates.
Assumptions are Everything
There are various approaches to solve guesstimates, but robust assumptions should back each of them. Problems like market sizing are based on many assumptions, and a wrong one can lead to a huge negative impact. For example, finding the number of toothbrushes sold in India in a year is heavily dependent on the average life of a toothbrush. Assuming it to be six months instead of four can completely change your solution.
So it is always advised to take buy-in from the interviewer while assuming any number but be prepared to defend your assumptions with logic and rationale.
How to solve Guesstimate questions? The Approach
The Approach – Identifying the target segment
For market sizing problems, it is essential to identify the target segment. It can be specified by the interviewer, or you can use the rules below to arrive at one
- Geographic Split
- Rural-Urban Split
- Income Split
- Literacy Split
- Purchasing Power
For example, to find the number of toothbrushes, the right approach would be to divide the customers according to demographics or by rural-urban split.
Guesstimates by nature will never be identical. A single strategy for solving them will never work, so we have listed below a few ideas that can help you navigate guesstimates. Once you start practicing it will be easier for you all to figure out which idea to use for what kind of problems:
Supply and Demand Side
If it is required to find the number of petrol pumps in Bangalore, you need to consider the total number of vehicles in Bangalore and the number of filling pumps at a particular station. These two parameters together will be useful to estimate the total number of petrol pumps. Always remember that either demand constraint or supply constraint will drive calculation.
Type of Product/Service
Usage of household products like TV, refrigerator, cars is completely different from individual products like toothbrushes, soap, cigarettes, etc. Whenever you are presented with a guesstimate, ensure that the first step after identifying the target customer is understanding the usage of the product. With regards to services ensure that you consider different scenarios, for example, to find the number of movie tickets sold in India every day, you need to consider the occupancy rate, which will be higher on weekends and for night shows.
Whenever you are tasked with market sizing problems, ensure that you clear with the interviewer what exactly they are looking at, whether market size in terms of volumes or revenues. For example, the toothbrush market in India could be X units and Y USD. It is also helpful if you can clear the scope of calculation (Weekly, Monthly, Quarterly, Yearly, etc.)
While solving guesstimates, its always advised to use MECE (mutually exclusive collectively exhaustive) approach. It ensures that all variables are captured while solving the problem. Going back to the toothbrush example, if you can calculate the number of toothbrushes required by a household in a year, it can easily be multiplied by the number of families in the country to arrive at a final number. Multiplying factor helps you simplify the problem and is particularly useful in tackling issues where you need to find the revenue.
Peak and Non-Peak hours / Weekdays and Weekends
Considering these factors provides additional depth to the calculations, which many of us tend to neglect. These factors are especially important for services (restaurants, movie theatres, malls) where demand is a function of day and time. To make the calculation more straightforward, you can consider two factors- peak and non-peak demand. Let us try to understand the implications of these factors with an example.
A multiplex has five screens with five shows (two-morning shows and three evening shows) per day per screen. The seating capacity is 100 per screen. We need to compute the revenue generated by the multiplex. Five shows per screen calculate to 25 shows in a day, but the occupancy rate for shows spread across the day will be different. Similarly, the occupancy rate on weekends will be different.
Let’s assume that the occupancy rate during the weekdays is 50% for morning shows while that for evening shows is 75%. The total number of tickets sold on weekdays amount to 1625 (5x [2x100x0.5+3x100x0.75]) while on weekends with an occupancy rate of 100% for all shows 2500 tickets are sold. Now depending upon the average ticket value and scope (weekly, monthly, yearly), you can calculate the revenue of the multiplex.
Another addition to this calculation could be variably priced tickets instead of assuming some average pricing for types of tickets.
Some additional tips:
- Know basic facts – Guesstimates might seem difficult if you are unaware of some critical numbers. Please ensure that you know the below-listed points, which will help you in solving the guesstimates.
a. Rural-Urban Split
b. Gender Split
c. Metro cities in India and there approximate population
d. Income Split of the population in India
e. Age Split of the population
f. Average household size
- The devil lies in the details – While solving the guesstimates, ensure that you try to explore all aspects. The interviewers are judging your analytical and problem-solving ability so try to break down the problem into as small bits as possible
- Avoid representative sampling – I have seen people using representative sampling techniques which is honestly ineffective. For example, I know ten people out of which five are smokers, so if I assume the ten people to be a representative of the entire target customer segment, 50% of them would-be smokers. It is a flawed argument because of inherent biases and social habits. (a smoker will most probably be friends with other smokers and vice versa)
- Always take buy-in from the interviewer for your assumptions and clearly explain the rationale for the same.
- Use pen and paper for calculations – it might sound foolish as a tip, but believe me, in the pressure of interviews, even the smartest amongst can commit mistakes. Please make sure that you double-check your answers.
- Do not Panic – Even even if you are stuck at some point, don’t panic, the interviewer is just checking your reasoning ability. Try to buy-in some more time if required and logically explain all the calculations.
Here are some Guesstimates for practice:
- What is the market size of toothbrushes in India?
- How many flights does Bangalore/Mumbai/Delhi Airport handle in a day?
- How many balloons can be packed in an Airbus 380?
- What is the market size of refrigerators/TVs/Smartphones in India?
- How many Chocolates are sold in a day in India?
- What is the market size of Noodles in India?
- How many idlis are consumed in India in a year?
- How much paint is required to paint this room?
- What is the market size of disposable diapers in India?
- How much biryani is consumed in India in a year?
- How much toothpaste is used in a day in India?
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