Top-Down Assumptions

One method of estimating sales is to start with an initial customer acquisition figure and apply a fixed, month-over-month growth rate. For example, assume you will acquire 1,000 new customers in Month 1 and increase that number by 10% per month for the next 12 months. This is what I refer to as a "Top-Down" sales estimate. And while it's a simple and fast way to forecast revenue, it lacks the informed, strategic content of a "Bottom-Up" estimate (covered in the next section). That's why I recommend setting up top-down estimates as a target setting exercise.

Start by checking the box to activate the Top-Down Sales Targets feature. The next row will indicate the month when sales are set to begin based on assumptions for your primary business model. Next, enter the starting number of sales or customer acquisitions you expect to generate in the first month of sales. Then enter the month-over-month growth rate for each year.

The table will display revenue and sales figures that incorporate your assumptions about pricing, repeat customers, and returns. Note that the content of the table will change depending on which primary business model you selected. For example, if you have a marketplace, the results will show seller acquisition numbers. If you have a SaaS model, the table will show the number of new subscribers.

If you do not activate the bottom-up sales feature, you will have the option to input your customer acquisition costs (CAC). Enter the CAC for each year of the model.

Enter the CAC and the grey calculated field will calculate your total annual cost of customer acquisition.

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Continue to the Sales Funnel Strategy: Bottom-Up Assumptions section for a more thorough method of predicting sales. If you want to stick with the Top-Down estimate, make sure you deactivate the bottom-up customer acquisition feature, then continue to entering COGS for virtual products and SaaS or physical goods.