Estimation

Question 1

Pro-forma

Answer 1

projected income statement; what is expected to be seen in future

Question 2

What is Pro-forma used for?

Answer 2

Used to demonstrate effectiveness of recommendations → increases credibility

Question 3

Estimation Applications

Answer 3

Market size & share
Revenue potential/impact
Profitability potential/impact (use profitability framework)

Question 4

Process

Answer 4

1. Clarify information & details
2. Break down problem & solve in pieces then aggregate
   Think:
   - what factors correlate with “What am I estimating?”
   - Go top down whenever possible
3. What information would I like to have?
4. Make defensible assumptions
5. Identify assumption imperfections & refine (segment your numbers)
6. Sense check your number (work backwards, does this number make sense)

Question 5

Canadian Population

Answer 5

40 million

Question 6

Life Expectancy

Answer 6

83 years

Question 7

Median Age

Answer 7

40.8 years

Question 8

People per household

Answer 8

2.5

Question 9

Median Household Income

Answer 9

$61,400

Question 10

Smartphone Penetration

Answer 10

86%

Question 11

Online Shopping

Answer 11

28.1 million people

Question 12

Urban

Answer 12

81% (Toronto, Montreal, Calgary, Ottawa, Edmonton, Vancouver)

Question 13

Market Segmentation

Answer 13

15-20% low-end, 60-65% avg., 15-20% high-end

Question 14

Types of Market (Size)

Answer 14

• TAM
• SAM
• SOM

Question 15

TAM

Answer 15

• Total Addressable Market → entire market for your product type (100% share)
• Many of these people will never be your customers (that segment needs other solution)

Question 16

SAM

Answer 16

• Serviceable Available Market → size of your segment (target)
• Customers you have the potential of reaching, but still might never (e.g. biases, opinions)

Question 17

SOM

Answer 17

Serviceable Obtainable Market → your share (how much segment you can win)

Question 18

Estimation Approach – Market Size

Answer 18

• Population (household or individual)
• Defining characteristics of the population = % of population
• % population x purchase frequency x purchase quantity x unit cost
  NOTE: if asked to project market size for next year, multiply number by 1.02 (2% growth)

Question 19

Example: Revenues

Answer 19

Revenues per store/day/customer x #stores/days/customers = total revenues

Question 20

Defend your Numbers

Answer 20

Ensure they make sense, sensitize major assumptions (show outcome if under/over)

Question 21

Example: Stores in a Geographic Region

Answer 21

• Helps us determine supply, saturation of market, revenues for store chain
• Use population approach
• Required: #locations in area, estimated population, population ÷ by residents per location