What is Top-Down vs Bottom-Up Forecasting?

These are two methods for building a financial forecast. A top-down approach starts with the total market size (TAM) and estimates a percentage the company can capture. A bottom-up approach builds the forecast based on internal drivers like sales team capacity, marketing spend, and conversion rates.

For Startups: While a top-down analysis is useful for showing the market potential, investors will only believe a bottom-up forecast. A bottom-up model demonstrates that the founder has a deep, operational understanding of how to achieve their revenue goals.

Example: A top-down forecast might say "We will capture 1% of a ₹1000 Crore market." A bottom-up forecast would say "We will hire 5 salespeople who can each close 10 deals a month at an average contract value of ₹50,000."