Fermi Estimation
A back-of-envelope reasoning technique that builds an answer from a chain of rough estimates (population x penetration x price, customer-count x average-spend x capture-rate, etc.). Named after physicist Enrico Fermi, who was famous for producing roughly-correct estimates of complex quantities from chains of order-of-magnitude inputs. Each individual estimate can be off by 50% without breaking the order-of-magnitude bound on the final answer. For investors, the discipline produces cheap fast cross-checks on TAM claims, revenue runway projections, and valuation-by-inspection sanity tests before committing analytical hours to the deeper work.
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Related terms
Ambiguity Aversion · Anchored Assumption · Asset Beta · Bank ROE Spread · Banker Pitch Deck · Beta
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