Bottom-Up Estimation Strategies

Most revenue models are built backwards. Finance picks a number. Sales divides by average quota. You end up with something like: “We need $40M, our quota is $1M per rep, so let’s hire 40 reps.” It looks tidy in a spreadsheet...and it almost never works in the real world. :) Why? Well, because this model assumes every rep: - Ramps on time - Hits 100% - Stays the full year Which is like assuming every Uber driver wins the Indy 500. Here’s a better way to build a revenue model: First off, stop treating quota as a fixed assumption, and start building around ramped capacity, rep variability, and reality. 1. Plan using RRE, not headcount. RRE = Ramp-Weighted Ramped Equivalents Forget how many reps you have. Focus on how many fully productive equivalents you’ll actually have in a given quarter. This accounts for: - Ramp time. - Attrition. - Variance in performance bands. That new rep you just hired? They're not a "1" in your model. They're a 0.2, then 0.4, then maybe 0.7 if you're lucky. Ten reps with half still ramping = 6.5 RREs. Not 10. 2. Build top down and bottom up...then reconcile. Top down: What makes the VCs happy? Bottom up: What's actually possible given productivity curves? When these numbers don't match (spoiler: they won't), you've found your strategic tension point. 3. Layer in performance bands. Not all reps hit quota. And that’s not failure. That’s just math. Try modeling based on realistic performance distribution: - Top 20% hit 120-150% - Middle 60% hit 70-90% - Bottom 20% hit 0-50% If your plan assumes everyone hits 100%, you’re either new here… ...or about to be. 😬 4. Bake in operational drag. Every revenue model looks clean...until enablement stalls, marketing underdelivers, or a region goes sideways. So you should build in a drag factor: - Deal slippage. - Hiring delays. - Funnel softness. - Internal execution risk. Don’t present worst case scenarios, but do plan for them. Some revenue leaders treat quota like a scoreboard, whereas you should treat it like an operating system. Don’t ask: “How many reps do we need to hit $40M?” Instead, ask: “How do we engineer the system to consistently produce $40M - with margin for error?” That’s the difference between running a sales org and running a revenue machine.

Instead of deciding on a revenue goal and working backwards from there in a spreadsheet to set pipeline and revenue targets, try this instead: 1. Get finance, sales, marketing and customer success in the same room 2. Have each functional leader share their perspective on what a “bottoms up” forecast would look like based on historical performance, reality and specific changes that we can make to improve historical performance 3. Go ahead and model the “top down” scenario on what would be an ideal revenue target and progression towards that goal over the 12 month timeframe 4. Compare the “bottoms up” and “top down” scenario and get clear on the gap 5. Identify what would have to be true to achieve your ideal top down forecast 6. Honestly assess the feasibility of being able to achieve those things based on historical performance and reality  - wanting and hoping for something is not enough to achieve meaningfully different results  7. Take your “bottoms up” model and identify what the GTM teams can do together to make some improvements, place those bets and adjust the forecast accordingly After this exercise, you’ll probably land closer to your “bottoms up” forecast instead of your ideal “top down” model -  but this is likely much closer to what will really happen vs what you want to happen This isn’t about settling for lower goals, it’s about how do we forecast accurately, take reality into account, identify our best bets, place those bets and try to improve results over time in a realistic and sustainable way Bonus - when all GTM teams and finance are all involved in this process together it creates way more alignment, empathy and clarity on what each team is accountable for and how they need to work together to achieve company targets #marketing #b2b #demandgeneration

Edit: Grab the resource right here: https://lnkd.in/gJgzZWQD We’ve managed over $10M on B2B ads. And the #1 reason the ad budget gets killed is: flimsy projections that fall apart the moment leadership asks a single question. Here's what happens in most companies: Week 1: You get a budget. You launch ads. Week 2: Management asks, "Where are my SQLs?" Week 3: They forward LinkedIn posts from "gurus" who "cracked the code" Week 4: Meetings appear on your calendar to interrogate you Week 5: Your budget gets slashed. The channel is labeled "too expensive" or "not scalable." And the truth is... it IS your fault. Not because the ads failed. But because you never set the right expectations. After managing 100+ B2B SaaS campaigns, we've built a framework at Spear Growth that solves this problem forever. 1) Start With Top-Down Projection If leadership says "We need 100 SQLs," great. But ask: • How did they arrive at this number? • Is it just some random industry benchmark? • Is it even possible with your budget? Start as close to revenue targets as possible and work backward. 2) Build Bottom-Up Projections Now flip the script. What's actually achievable? Build real audiences, complete keyword research, and get estimates on CPCs, reach, and search volume. Use your experience to estimate conversion rates and lead quality. Project what's POSSIBLE, not what's desired. 3) Rework Until Numbers Match Your top-down numbers show what's needed. Your bottom-up numbers show what's possible. Keep tweaking until they meet in the middle by: • Adjusting goals if they're unrealistic • Optimizing your funnel to improve lead-to-revenue rates • Or changing your ad strategy entirely 4) Rebuild With Real Data After two weeks of running ads, you'll have actual performance data. Were your estimated CPCs too low? Was CTR higher than expected? Was lead quality worse? Incorporate all of this into your projections. Just make sure management knows this update is coming. Once you have enough data, you won't be guessing anymore. Your projections will align with reality. This system has saved millions in ad spend for our clients. One discovered they were targeting a cost per MQL that was literally impossible in their industry. Using our template, they rebuilt projections from the ground up. The result: Not only did they keep their budget, they got approval for a 40% increase because they could defend every number with data. Want this template for yourself? I've packaged the entire system into a free template you can use to create “defendable projections” in under an hour. Like Comment "PROJECTIONS" I'll DM you the template + detailed guide covering demand capture, demand gen, and both top-down and bottom-up approaches. (Connect with me so I can send it your way!)

Yesterday, we pitched at an angel syndicate's startup showcase with 14 other companies. Every single company used a top-down approach where SOM is a % of SAM is a % of TAM. I couldn't help but cringe. I was one of them a year ago. But not anymore! 😎 The problem with this approach is that you'll always end up with a market worth [insert $X million or billions]. It's devoid of any deep analysis. It doesn't question your ability or consider theoretical limits, like lead gen rate or conversion rates, that you'll encounter while trying to hit those numbers. For instance, you're probably not generating 1,000 leads per day for a B2B business, even at scale. So, it's about time we started questioning the age-old TAM-SAM-SOM approach. A better approach is bottom-up. You ask: "How big can I grow if Y number of customers pay us $Z?" It's a more pragmatic approach, focusing on your ability instead of some arbitrary %. When you think it through, you'll realize there are limiters like churn rate. This exercise grounds you in reality. I'm sharing our market size calculation in the comments (+ bonus video to learn more). It's been vetted by two institutional investors and includes neat tools like scenario analysis and funding round sizes. Not saying it's the best out there, but it's definitely a step up from what our grandfathers did. Copy and steal the template. No credit needed. Happy learning! 🥂 --- Edit: Since link got lost in the comments, here you go: https://lnkd.in/g2pK6BK6

Most small businesses default to two forecasting methods: top-down or bottom-up. But they both share the same problem. The "why" behind performance isn't explained. These approaches are easy to model and are used all the time. But they can easily fail as companies grow larger and more driver based. (1) Top-down forecasting Many companies favor top-down because it's simple and aligned with strategic goals. But the biggest drawback is it's often completely disconnected from an operational reality. I use it for high-level financial forecasting and hardly ever for operational planning. • Leadership sets growth or margin targets • The P&L is segmented into business units • These targets cascade down the statements • Line-items are forecast on high-level assumptions (2) Bottom-up forecasting Bottom-up forecasting is based upon detailed inputs such as sales to customers, sales by SKU, hiring plans by individual versus job category or department, expense budgets, etc. The benefit of bottoms-up is it's detailed and grounded in operations. But it's usually time-consuming, fragmented, and hard to roll up consistently. • Individual contributors come up with their numbers • They share it with an accountant or financial analyst • The accounting/finance person puts it into a model • The model is updated constantly with new details (3) Driver-based forecasting Rather than come up with high-level assumptions that don't tie into operations, or granular detail that doesn't separate signal from noise, driver-based combines the best of both. In this example for a professional staffing company, we can tie future revenue to placements per recruiter, contract duration, markup percentage, bill rates, and recruiter headcount. This allows FP&A the ability to flex operating assumptions, test them, and quickly see what can be done on the ground to influence. Differences between the 3 methods matter: Top-down may set revenue at $50 million based upon an 8% growth rate. We can ask "how do we increase growth?" Bottoms-up may set revenue at $50 million based upon a monthly forecast of 200 customers. We can ask "what do we expect from each customer?" Driver-based planning may arrive at the same $50 million but ask "what operational levers can we press to truly move revenue and margin?" The result is forecasts that are faster, more explainable and easier to update. 💡 If you want to explore next-level modeling techniques, join live with 200+ people for Advanced FP&A: Financial Modeling with Dynamic Excel Session 2. https://lnkd.in/emi2xFdZ

If done right, bottom-up cash flow forecasting is one of the most powerful tools for treasury and finance teams. Here are the 5 most common questions (and answers!) I get about cash flow forecasting: Q: What is the goal of a bottom-up forecast? A: A bottom-up forecast builds from specific, ground-level data like open AR and AP items, focusing on short-term liquidity. It differs from top-down forecasts, which use broader financial trends and long-term projections. Bottom-up ensures you’re managing day-to-day cash needs while preparing for immediate business decisions. Q: How do I set key cash flow categories? A: Best practice is to use ERP systems, which provide AR/AP data, your financial planning tools, and strategic input from stakeholders (like FP&A or real estate teams). Incorporate big data for broader trends, and automate data collection to ensure accuracy and free up time for higher-level analysis. Q: How often should I reforecast? A: You should reforecast in alignment with FP&A's financial cycles, typically monthly or quarterly. It's crucial that your cash flow forecast matches the timing of the P&L reforecast done by FP&A, ensuring your data is relevant and timely when presented to leadership. If your forecast lags behind the business's updated P&L, your insights will be outdated, making your forecast less actionable. Q: What is a good variance? A: There's no strict rule for variance percentages. Some CFOs use the "3-2-1" model for the P&L, aiming for 3% accuracy three months out, and 2% for two month out etc. This is hard to do if assumptions are not tight and the business is highly variable. However, cash flow is far more volatile, making such precision unrealistic. A good rule of thumb is to keep your cash flow variances within 7-12% as a safe target. Q: How should I balance automation vs. strategic conversations in forecasting? A: Automate around 80% of manual tasks, like pulling AP/AR balances or bank data, to free up time for the remaining 20%. Focus that time on strategic conversations with stakeholders to capture events like planned CapEx or M&A that aren’t yet reflected in the data. ♻ Repost this to help someone in your network. Follow Matthew for more thoughtful treasury content.

🚀 Stop Killing Your Fundraising with the Wrong TAM! Startups, let’s talk about your Total Addressable Market (TAM)—because investors can see through the fluff. If you’re still using top-down market sizing like “The global healthcare industry is $8T”, you’re setting yourself up for failure. 🔴 Red Flags Investors Hate: ❌ “If we capture just 1% of this market…” ❌ “According to Gartner, the market is worth $100B…” ❌ “We’re targeting a multi-trillion-dollar opportunity…” ✅ The Right Way to Do It: Bottom-Up TAM 👉 Real TAM = (Target Users) × (Realistic Price) × (Actual Usage) For example: 10,000 users × $100/month × 12 months = $12M TAM. This is what investors care about—real numbers, not market reports. 📌 Winning Strategy: • Start small: Focus on a niche, dominate, then expand. • Show real traction: Current customer count, pricing power, and actual usage. • Prove penetration: Better to own 50% of a small market than 1% of a huge one. 💡 Amazon started with books, Zoom targeted tech companies, Dropbox focused on SF tech workers—they didn’t pitch global domination from day one. 🔥 VCs skip your TAM slide and do their own math. Make their job easy—go bottom-up. 👉 Are you making this mistake in your pitch deck? Let’s discuss in the comments! 🚀 #Startups #Fundraising #TAM #VC #PitchDeck

Sales Projections: Strategy or Speculation? Let’s be honest — I’ve seen far too many sales projections that look more like wishful thinking than strategic planning. A bold number on a slide — “We’ll hit $1M next quarter.” Everyone nods, the target is set, and the meeting moves on. But here’s the hard truth: A projection without a strategy is just a guess. I’ve learned this the hard way. Early in my career, I witnessed a team miss their quarterly target by a huge margin — not because they didn’t work hard, but because their projections were built on gut feel and blind optimism. No alignment between sales goals and actual pipeline health. No consideration for changing customer behavior or market dynamics. No breakdown of how deals would move through the funnel. It wasn’t a forecast — it was a hope-cast. So, how do seasoned sales leaders project with precision? It boils down to three strategic pillars: 1️⃣ Market-Driven Insights Your projections must start outside your company, not inside. What’s happening in your industry? How are customer priorities shifting? Is there economic turbulence or competitive disruption? Sales doesn’t operate in a vacuum — your projections shouldn't either. 2️⃣ Pipeline Precision A projection isn’t a random target — it’s a sum of its parts: How many deals are in each pipeline stage? What’s your historical win rate? What’s the average deal size and velocity? Bottom-up forecasting — where data, not hope, dictates the number — is the only way to build credibility. 3️⃣ Scenario-Based Planning Smart leaders never project a single number — they project a range: Best case: If high-value deals close faster than expected. Worst case: If key prospects stall or drop out. Most likely case: Where the current pipeline trends realistically point. This isn't playing it safe — it's playing it smart. What happens when you adopt this approach? Your sales team knows exactly what they’re working toward. Leadership has confidence in the numbers. You shift from chasing targets to executing a clear, strategic plan. Because at the end of the day — sales projections aren’t about predicting the future, they’re about engineering it. Would love to hear from my network — how do you balance optimism and realism in your sales projections? Let’s discuss. #SalesLeadership #StrategicProjections #RevenueGrowth #SalesStrategy

Understanding TAM, SAM, and SOM is critical for fundraising. Investors don’t just want to see a big number—they want to know how you’ll capture it. 1️⃣ TAM (Total Addressable Market) – The total revenue opportunity if everyone bought your product. 2️⃣ SAM (Serviceable Available Market) – The portion of the TAM you can realistically reach with your product, geography, and capabilities. 3️⃣ SOM (Serviceable Obtainable Market) – The revenue you can actually capture in the near term based on your current sales, marketing, and execution strategy. How to Calculate It: ✔ Top-Down Approach – Start with a big, reputable industry report, then narrow it down by segment, geography, and competition. ✅ Best for: Enterprise SaaS, Fintech, Consumer Tech (where industry benchmarks exist). ❌ Weakness: Often inflated and overly optimistic—investors WILL challenge it. ✔ Bottom-Up Approach – Start with real numbers from your business: pricing, target customers, and realistic adoption rates. Build from actual sales data or pilots. ✅ Best for: CPG, DTC Brands, Marketplaces, B2B SaaS (where early traction validates demand). ❌ Weakness: More conservative—could underestimate total opportunity. ✔ Value-Based Approach – Estimate the value your product creates and price accordingly. Focuses on cost savings or revenue gains for customers. ✅ Best for: Deep Tech, Healthcare, AI, Climate Tech (where demand isn’t based on volume but impact). ❌ Weakness: Can be tricky to prove early without strong case studies. Key Takeaway: Investors prefer bottom-up or value-based approaches. A $100B market is meaningless if you can’t show how you’ll get your first $1M. ----- I'm Katie Dunn, an Angel Investor, Board Director, and Startup Advisor. I prepare founders for fundraising, and they gain confidence, resources, and connections. Check out my LinkedIn Strategies for Founders guide (link in Featured Section).