Revenue Forecasting Tool (Top-Down & Bottom-Up)

Revenue forecasting is essential for business planning, investor presentations, and strategic decision-making. There are two complementary approaches: top-down and bottom-up. Each provides a different perspective, and comparing them helps validate your assumptions.

🏔️Top-Down Forecasting

Top-down forecasting starts with the total market size and works down to your expected share. This approach is useful when you have reliable market data and want to understand your potential within the broader industry context.

Best for: Investor presentations, TAM/SAM/SOM analysis, understanding market context, strategic planning.

🧱Bottom-Up Forecasting

Bottom-up forecasting builds from individual customer segments. This approach is more operationally grounded and reflects your actual sales capacity, customer acquisition rates, and retention metrics.

Best for: Operational planning, sales capacity modeling, SaaS metrics, unit economics validation.

Why Compare Both Approaches?

Using both methods provides a sanity check on your projections:

• Top-down higher than bottom-up: Your market share assumptions may be optimistic, or you need to scale operations to capture the opportunity.
• Bottom-up higher than top-down: Your operational projections exceed what the market can support, or your market size estimates are too conservative.
• Both similar: Your assumptions are internally consistent—a good sign, but still validate with real data.

Key Metrics Explained

Tips for Accurate Forecasting

• Use conservative estimates—it's better to exceed projections than miss them.
• Validate market size with industry reports, competitor data, and primary research.
• Update forecasts quarterly as you learn from actual performance.
• Consider seasonality and market cycles that may affect growth rates.
• For bottom-up, ensure customer acquisition and churn assumptions align with historical data or industry benchmarks.