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Case Prep Assist - Week 4 3 PDF

This document provides two examples of "guesstimates" or back-of-the-envelope calculations to estimate unknown values. The first estimates the size of the U.S. chewing gum market at around $2.4 billion annually based on assumptions about population demographics and usage rates. The second considers whether a new magazine targeted at men aged 30-50 could generate $10 million in first-year circulation revenue by making assumptions about the target customer population size, potential market share, cover prices, and subscription vs. newsstand sales split. Based on the estimates and assumptions, it is determined that $10 million in first-year revenue would not be feasible for the proposed new magazine launch.

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Varun Agarwal
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95 views2 pages

Case Prep Assist - Week 4 3 PDF

This document provides two examples of "guesstimates" or back-of-the-envelope calculations to estimate unknown values. The first estimates the size of the U.S. chewing gum market at around $2.4 billion annually based on assumptions about population demographics and usage rates. The second considers whether a new magazine targeted at men aged 30-50 could generate $10 million in first-year circulation revenue by making assumptions about the target customer population size, potential market share, cover prices, and subscription vs. newsstand sales split. Based on the estimates and assumptions, it is determined that $10 million in first-year revenue would not be feasible for the proposed new magazine launch.

Uploaded by

Varun Agarwal
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Guesstimates

Case # 1 – Chewing Gum Market


Question (posed by interviewer):
How would you estimate the size of the annual U.S. chewing gum market? Check your answer for
reasonableness.

A typical approach:
Estimate the number of people who chew gum: of the population of 300 million, 15% are between the
ages of 10 and 20, the heaviest users, for a total of 45 million. Estimate that these people chew two packs
per week, for annual sales of 4,500 million packs. For the other users over age 20, (70% of the 300
million population, or 210 million) estimate a usage rate of one half pack per week, for a total of 5,250
packs per year. Total packs per year is 9,750.
To check for reasonableness, figure the dollar sales that these packs represent: at 25 cents per pack,
annual sales
would be $2.4 billion, a reasonable figure.

Case # 2 – New Magazine


Question (posed by interviewer):
Your client is the CEO of a publishing company that produces a line of educational magazines as well as
a line of women’s magazines. Both businesses are profitable but are not growing quickly. He wants to
start a third monthly magazine in the US targeted at 30-50 year old men (eg. GQ Magazine). His stated
goal is to generate circulation revenues of $10 million in the first year. He has hired you to figure out
whether this is possible.

Possible Solution:
This is an estimation case. The key here is to clearly define your assumptions, the specific answer is not
important as long as you are making reasonable assumptions. For example

Target Customers
The total US population is approximately 240 million. Based on a normal distribution with the average life
span of 80 years, approximately 2/3 of the population falls between 30-50 which is about 160 million
people. Approximately ½ are male or 80 million.
Of the 80 million 30-50 year old men in the country, assume that at least 1/2 would read a magazine or 40
million.
Given the wide range of magazines on the market assume that only 10% of magazine readers would
want to read a men’s journal or 4 million target customers.

Share
As a new magazine assume that you can generate a 5% share of the men’s magazine market in year one
or 240,000 customers.

Revenues
Based on what other magazines sell for ($2.50-$5.00) assume a cover price. Let’s say $3/magazine at
the newsstand and $2/magazine for a subscription. Now make some assumptions on how many
customers will buy on the news-stand versus subscription, let’s say 50% subscribe (120,000) and 50%
buy at the news stand (120,000). This comes out to $360,000 + $240,000 or $600,000. Finally, this is a
monthly magazine. For simplicity assume that all target customers buy a magazine every month. This
would generate total revenues of $600,000 X 12 or $7.2 million.
In this case given the CEO.s stated goal of $10 million in circulation revenues, it would not make sense to
launch the magazine.

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