Top-down Vs. Bottom-up Forecasting: Decoding Sales Forecasts

Sales Forecasts

The financial health of a company depends heavily on the sales it makes and the revenue it generates from the same. Sales is a set of activities that should be organized and planned to ensure a smooth and fruitful cash flow. Sales forecasts help you estimate the sales your organization is likely to generate over a specific period.

To get the best and most accurate results, it is important for your sales forecasts to be well-informed, and data driven. These forecasts prepare you to manage risks, anticipate demand, and leverage your sales operations.

There are two major approaches to making sales forecasts – top-down forecasting and bottom-up forecasting. The methodology you choose dictates your approach to making sales forecasts for your organization.

Let us briefly understand the two approaches and decode sales forecasts.

What Is Top-bottom Forecasting?

Top-bottom forecasting is a forecasting methodology that involves starting from a high-level perspective and tricking down to the fundamental specifics. In other words, it focuses on the core areas first, followed by other sales-related aspects of your organization.

Top-bottom forecasting allows you to predict your organization’s financial trajectory by gathering areas of essential intel first, such as the company’s historical performance, key economic indicators, industry growth rates, etc. After establishing these projections, you can divide them among your teams, departments, and product lines before preparing detailed sales budgets.

What Is Bottom-up Sales Forecasting?

Bottom-up sales forecasting goes the opposite way, focusing first on the granular aspects related to sales projections. It nurtures the wisdom of individual teams and departments within your organization, using their insights to make valid predictions and create sales budgets.

The core of bottom-up sales forecasting lies in seamless collaboration at the ground level. With each team rolling out its forecasts, this approach helps you customize your forecasts and weave them together to obtain a comprehensive financial trajectory of your organization.

What Are the Benefits of Top-bottom Sales Forecasting?

Here are some of the most important benefits of top-bottom sales forecasting:

  • It saves you time
  • It offers a positive viewpoint
  • It is directly aligned with your company’s core objectives
  • It is a simplistic approach
  • It ensures consistency

What Are the Benefits of Bottom-up Sales Forecasting?

Let us now have a look at a few major benefits offered by bottom-up sales forecasting:

  • It facilitates grounded goal setting
  • It involves detailed predictions
  • It increases employee engagement
  • It focuses on adaptability

Top-bottom Vs. Bottom-up Sales Forecasting: Which Is the Best?

While both these approaches have their own benefits and utilities, the alternative you should choose depends on multiple factors. Before making a choice, it is advisable to take into consideration factors like your organization’s size, the nature of your business, data quality, data availability, the need for employee involvement, and much more. You can always seek help from your company’s finance leaders to make the right call.

Make Seamless Forecasts While Embracing Modern Technology With VIZIO

If you wish to save time while making your sales forecasts and financial plans, VIZIO Consulting helps you implement the right software solutions equipped with modern technologies. Our FP&A solutions empower you to make the right assessments and foresee your organization’s financial future in the best way possible.