Guesstimates often come these days in different consulting/analytics/product based interviews. Guesstimates are at times even asked by MBA college interview panels at the time of intake. This article is intended to help everyone who is preparing for an interview or will eventually prepare in times to come! One read through this article and you will understand what guesstimates are and how to approach them.
What are guesstimates?
Guesstimate is a process of making an educated guess on some numbers. The guess has to be made using estimates after breaking down the overall number crunching problem into smaller sub units. So, for example if I ask you to tell me, “How many people live in your housing society?” and you cannot refer to the society directory or use any other factual direct modes of counting. What will you do? You will guess using some estimates right! This is what guesstimate is all about.
Let’s solve this very question first. Let’s do some child play!
Question: How many people live in your housing society?
So, I think of it like this:
My society has two types of houses: Apartments and row houses.
I then think the number of apartments and row houses. I remember there are Apartment blocks numbered 1 to 30. There are 4 row house lanes and each might have 8 row houses I guess.
Now I have the following first level estimates:30 apartment blocks and 32 row houses.
>An apartment block in my society has 9 floors each with 3 apartments. So, 27*30 = 810 flats.
>A row house has 2 floors, each with 2 flats – makes the total as 2*2*32 = 128 flats.
So, total number of flats = 810+128 = 938. I know average household in India has approx 5 members. I also know that some flats are still not occupied. I make a guess; let’s assume 10% flats are not occupied.
I get the final number of people living in my society: 938*0.9*5 = 4221.
See, that was fun? Wasn’t it? This number crunching is called guesstimate!
I hope you have understood the meaning of the term now! Let me take you into a more real IIM or MNC level interview like guesstimate question.
Question: How many motorcycles are sold in India every year?
Now, to solve such questions, you need to know some basic facts about your country; the way you knew about your housing society. Have collated some facts which help in most guesstimate questions(you must learn these):-
So, let the game begin!
Age based filter: Let me make the first assumption: + or – mostly people in the age group 18-55 are bike riders. I know 58%(17%+28%+13%) Indians are in the age group 15-64. Let me assume that this is the max segment for potential bike buyers. So, I am taking potential bike riders as 58%. Now, am assuming that mostly boys ride motor cycles in India(Percentage of girls riding motorcycles is very less in India). So, effectively the percentage of riders of motorcycles comes close to 58/2 => rounding off 30%. This means approx 1.5 in 5 member of a household is a potential bike rider.
Income based filter: Now, I look at the average household income figures and make another assumption here. Let me assume that families with household income >10k per month will have bikes. So, that percentage comes as (20+10+2) = 32%. Will use this as potential buying multiplier in terms of family income.
Combining the 2, we get 30% of 32% of the total Indian population.
This number comes as 0.3*0.32*130 = 12.5 cr. This is a number for number of people who would perhaps want to have a bike in the country. Assuming that a person changes his bike in 8 years. <Normally I see people change due to many reasons: some love changing, some bikes go bad, some want updated tech in bikes etc> So, the final annual buy number comes as 12.5/8 = 1.56 cr.
So, here goes my guess: Approx 1.5 crore people Indians buy motorcycles every year.
See, so much fun! So many educated guesses! This is how you approach a guesstimate. You might not reach very close to the actual numbers, but you need to work through in a proper way with proper logical assumptions. The interviewer is mostly interested in the process you follow and the numbers you crunch. Starting with the population for market sizing is not the only way. You can adopt other approaches. You can start with number of tier 1-2-3 cities in the country and number of villages and make assumptions on connectivity, rural urban factors etc. etc. as well. Ways can differ, approach should be structured and should take you to closure.
Hope you loved “guesstimates” mates 🙂
Rahul Sir (Teacher, Bfactory. IIM A, 9-11)