How to estimate market size, top-down and bottom-up?

Market sizing is a key step in equity research and investing.
In fact, market sizing is a favorite topic for Strategy & Consulting recruiters (I was asked to estimate the 2-wheeler market size in my case interview for my present firm almost a decade ago)

Now, letโ€™s understand market sizing for a few industries.
Letโ€™s understand ๐˜๐—ผ๐—ฝ-๐—ฑ๐—ผ๐˜„๐—ป first. It has the following steps:

a. ๐—œ๐—ฑ๐—ฒ๐—ป๐˜๐—ถ๐—ณ๐˜† ๐—ธ๐—ฒ๐˜† ๐—ถ๐—ป๐—ฑ๐˜‚๐˜€๐˜๐—ฟ๐˜† ๐—บ๐—ฒ๐˜๐—ฟ๐—ถ๐—ฐ e.g.,
Premiums (for Insurance business),
# of 2-wheelers
# of beds (for hospitals)
AUM (for Asset Management),

b. ๐——๐—ฒ๐˜๐—ฒ๐—ฟ๐—บ๐—ถ๐—ป๐—ฒ ๐—ถ๐—ป๐—ฑ๐˜‚๐˜€๐˜๐—ฟ๐˜† ๐—บ๐—ฒ๐˜๐—ฟ๐—ถ๐—ฐ ๐˜ƒ๐—ฎ๐—น๐˜‚๐—ฒ ๐—ฟ๐—ฒ๐—น๐—ฎ๐˜๐—ถ๐˜ƒ๐—ฒ ๐˜๐—ผ ๐—š๐——๐—ฃ ๐—ผ๐—ฟ ๐˜๐—ต๐—ฒ ๐—ฝ๐—ผ๐—ฝ๐˜‚๐—น๐—ฎ๐˜๐—ถ๐—ผ๐—ป e.g.,
General Insurance Premium is 1% of Indiaโ€™s GDP,
# of 2-wheelers = 160 per 1000 people,
# of beds = 1.3 per 1000 people,
MF AUM is 20% of GDP

c. ๐—–๐—ผ๐—บ๐—ฝ๐—ฎ๐—ฟ๐—ฒ ๐˜๐—ต๐—ฒ ๐—ฎ๐—ฏ๐—ผ๐˜ƒ๐—ฒ ๐˜„๐—ถ๐˜๐—ต ๐—ด๐—น๐—ผ๐—ฏ๐—ฎ๐—น / ๐—ฒ๐—บ๐—ฒ๐—ฟ๐—ด๐—ถ๐—ป๐—ด ๐—บ๐—ฎ๐—ฟ๐—ธ๐—ฒ๐˜ ๐—ฝ๐—ฒ๐—ฒ๐—ฟ๐˜€ e.g.,
General Insurance Premium is 2% of China and South Africa GDP,
# of 2-wheelers = 300 per 1000 people in China,
# of beds = 3 per 1000 people (WHO recommended),
MF AUM is 25% of China GDP; 50%+ of Brazil and SA GDP

Using this comparison you can estimate the top-down market size.

B๐—ผ๐˜๐˜๐—ผ๐—บ-๐˜‚๐—ฝ market sizing requires more work.
To over simplify, it is p*q i.e.
product price * quantity that can be sold to target customers.

If top-down and bottoms-up are close then you have arrived at a reasonable market size estimate.

Take a look at these video snippets / posts to understand how I bring the above theory into practice for diff industries:

Health Insurance:

2 Wheelers:

Hospital:

Asset Management:

https://www.linkedin.com/posts/gautamrastogi1_investandrise-equityresearch-valuation-activity-7207547229111234560-Pn-o/?utm_source=share&utm_medium=member_desktop

Movie Exhibition:

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Gautam is the passionate equity researcher and instructor at Invest and Rise