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

March 20, 2025

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, let’s understand market sizing for a few industries.
Let’s understand 𝘁𝗼𝗽-𝗱𝗼𝘄𝗻 first. It has the following steps:

a. 𝗜𝗱𝗲𝗻𝘁𝗶𝗳𝘆 𝗸𝗲𝘆 𝗶𝗻𝗱𝘂𝘀𝘁𝗿𝘆 𝗺𝗲𝘁𝗿𝗶𝗰 e.g.,
Premiums (for Insurance business),
# of 2-wheelers
# of beds (for hospitals)
AUM (for Asset Management),

b. 𝗗𝗲𝘁𝗲𝗿𝗺𝗶𝗻𝗲 𝗶𝗻𝗱𝘂𝘀𝘁𝗿𝘆 𝗺𝗲𝘁𝗿𝗶𝗰 𝘃𝗮𝗹𝘂𝗲 𝗿𝗲𝗹𝗮𝘁𝗶𝘃𝗲 𝘁𝗼 𝗚𝗗𝗣 𝗼𝗿 𝘁𝗵𝗲 𝗽𝗼𝗽𝘂𝗹𝗮𝘁𝗶𝗼𝗻 e.g.,
General Insurance Premium is 1% of India’s GDP,
# of 2-wheelers = 160 per 1000 people,
# of beds = 1.3 per 1000 people,
MF AUM is 20% of GDP

c. 𝗖𝗼𝗺𝗽𝗮𝗿𝗲 𝘁𝗵𝗲 𝗮𝗯𝗼𝘃𝗲 𝘄𝗶𝘁𝗵 𝗴𝗹𝗼𝗯𝗮𝗹 / 𝗲𝗺𝗲𝗿𝗴𝗶𝗻𝗴 𝗺𝗮𝗿𝗸𝗲𝘁 𝗽𝗲𝗲𝗿𝘀 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.

B𝗼𝘁𝘁𝗼𝗺-𝘂𝗽 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: