Making Money

Bottoms Up

By November 27, 2016 No Comments

A key component of any business feasibility analysis is the financial projections.  The projections will reveal the financial feasibility, scale, and investment required to get your business going.  A common mistake is to create these projections from the top-down, rather than bottom-up.  A flawed approach, top-down projections are made when the entrepreneur takes a percentage of the whole market without justification.  For instance, a top-down revenue projection might say that by capturing 2% of a billion dollar market, the company’s revenue will be $20 million per year.  This is the wrong way to go about it.  Instead of guessing a percentage based on the total market size, build your case from the ground up.  With a bottom-up approach, each sale must be justified and tied to a business activity.  You can tie sales to traffic to your site, a sales team, joint ventures, or advertising spend.  To project the revenue of a sales team, for example, calculate how many calls a salesperson can make in a day, the percentage of those calls that result in sales, and the resulting number of sales made in a month.  Multiply this total by the number of salespeople and you have successfully completed a bottom-up sales projection.

Anytime you’re projecting into the future, build your case from the bottom-up and you’ll have a solid and realistic foundation to stand on.

Matt Sand

Author Matt Sand

Passionate about making a difference through innovation and entrepreneurship.

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