Guesstimate Questions are among the ‘curveballs’ that some ISB interviewers throw at candidates.
These questions are particularly likely if your post-MBA goal is consulting and/or your interview panel includes a current or former consultant.
This article explains what guesstimate questions are, provides frameworks for tackling them, outlines a high-level approach to solve them, and includes actionable tips along with 3 examples of guesstimates.
What is a guesstimate?
A guesstimate combines ‘guess’ and ‘estimate,’ requiring candidates to approximate a number or quantitative variable.
Market-sizing questions, a common subset, ask for estimations of a product’s market size. For instance, estimating the annual revenue of the smartphone market in India would be a typical market-sizing question.
Frameworks for Tackling Guesstimates
- Top-Down Approach: Start with a broad number (e.g., India’s population) and narrow down using logical segmentation.
- Bottom-Up Approach: Build estimates from smaller components, aggregating data points to reach the final figure.
- Demand-Supply Dynamics: For market-sizing questions, analyze both demand-side (consumer needs) and supply-side (available resources) factors.
Approach to Solving Guesstimate Questions
A structured methodology is crucial for tackling guesstimate questions effectively:
- Clarify the Problem: Begin by defining ambiguous terms and setting clear parameters. Determine the unit of measurement, timeframe, distribution channels, and target customers. For example, when estimating the number of smartphones sold annually in India, specify whether the focus is on units sold to end consumers within a particular year.
- Break Down the Problem: Divide the estimation into manageable components. This might involve segmenting the population, identifying potential customer bases, or categorizing product types. Such segmentation simplifies calculations and enhances accuracy. Use MECE (Mutually Exclusive, Collectively Exhaustive) principles to organize thoughts.
- Make Reasonable Assumptions: Base your assumptions on logical reasoning and general knowledge. For instance, if estimating the number of school teachers in a city, start with the city’s population, estimate the number of schools, and then the average number of teachers per school. Use relevant metrics such as urban-rural splits or industry benchmarks. For example, India’s urban population is approximately 35%, which may influence consumption trends.
- Perform Calculations: Use rounded numbers to simplify arithmetic and reduce errors. Clearly outline each step of your calculation to maintain transparency and allow for adjustments if necessary. Stay approximate but logical; avoid spending excessive time on precise computations.
- Validate (Sanity Check) and Present Your Answer: Assess the plausibility of your result by comparing it with real-world data or through logical reasoning. Conclude by summarizing your findings and explaining the rationale behind your approach.
Tips for Guesstimates
- Use Benchmarks: Use population data, consumption habits, and pricing to ground assumptions in reality.
- Adjust for Urban/Rural Divide: Urban and rural populations have vastly different consumption patterns.
- Rely on Local Examples: Examples like tea, smartphones, or public transport resonate well for cases.
- Leverage Common Metrics: Data like population percentages, daily/weekly habits, and average ticket sizes simplify assumptions.
Here are some examples of guesstimate questions with structured solutions:
Example 1: What is the annual revenue of tea consumption in India?
Step 1: Clarify the Problem
- Define “tea consumption” as total tea sold and consumed in India annually.
- Include retail and small outlets but exclude exports.
Step 2: Break Down the Problem
- Estimate the population of India.
- Assume the percentage of tea drinkers in India.
- Calculate the average number of cups consumed daily by a tea drinker.
- Estimate the average price per cup of tea.
Step 3: Estimate Each Component
- India’s population: ~1.4 billion.
- Percentage of tea drinkers: ~70%.
- Cups per day per tea drinker: ~2 cups.
- Price per cup: ₹10 (average across urban and rural areas).
Step 4: Calculate the Estimate
- Total cups consumed annually:
1.4 billion×70%×2 cups/day×365
= ~715 billion cups per year.
- Total annual revenue:
715 billion cups×₹10 per cup
= ₹7.15 trillion.
Step 5: Sanity Check
- Cross-check with known industry estimates (e.g., tea market reports) for reasonableness.
Example 2: How many smartphones are sold annually in India?
Step 1: Clarify the Problem
- Define “smartphones sold” as new purchases within a year.
- Focus only on India, excluding imports for personal use.
Step 2: Break Down the Problem
- Estimate the population of India.
- Calculate the percentage of smartphone users.
- Estimate the replacement cycle for smartphones.
Step 3: Estimate Each Component
- India’s population: ~1.4 billion.
- Smartphone penetration: ~50%.
- Replacement cycle: ~2 years.
Step 4: Calculate the Estimate
- Total smartphone users: 1.4 billion×50%=700 million.
- Annual sales: 700 million÷2 years=350 million smartphones/year
Step 5: Sanity Check
- Check if this aligns with data from smartphone manufacturers or industry reports.
Example 3: How many pizzas are sold in a city like Mumbai annually?
Step 1: Clarify the Problem
- Define “pizzas sold” as all pizzas sold through restaurants, delivery services, and retail outlets.
Step 2: Break Down the Problem
- Estimate Mumbai’s population.
- Calculate the percentage of the population that eats pizza.
- Estimate the average number of pizzas consumed per person annually.
Step 3: Estimate Each Component
- Mumbai’s population: ~20 million.
- Percentage eating pizza: ~30% (urban, diverse population).
- Pizzas per person annually: ~10 (one every 5 weeks).
Step 4: Calculate the Estimate
- Total pizzas sold annually:
20 million×30%×10=60 million pizzas/year
Step 5: Sanity Check
- Cross-check against sales data from major pizza chains (e.g., Domino’s, Pizza Hut) in Mumbai.
Final Thoughts
Remember, if your interviewer throws a guesstimate question at you, the goal isn’t to be numerically accurate to 2 decimal points, but to showcase your structured problem solving, common-sense (assumptions) and back-of-the-envelope calculations to arrive at a reasonably accurate answer.
Hope this helps some. Happy ‘guesstimate’ time.