Analyzing the Gap: The Revenue Differentiator that Bridges Top-down (Demand) with Bottom-up

“Are You Thinking Ahead?”

I’m sure you are after reading last week’s post and thinking about your financial future. We’ve talked about risks and obstacles that can be thrown your way in business. Accurate forecasts offer us different tactics to avoid the stress those risks Top-Down Meets Bottom-Upand challenges put on us. Now, sales are rolling in and each month you need to prepare for the next, increasing your sales and generating profit. The question is, which forecasting approach is best for your company?

A top-down approach is driven on market demand. An understanding of the market through historical trending data and/or the sales pipeline to gage expected revenue is necessary. Then, align your organization’s expenses. The challenge is whether or not the business is structured to capitalize on market demand–a high market demand means you may be losing opportunity if you don’t have the necessary resources aligned internally.

A bottom-up approach is driven on resource supply. It answers questions like “how many hours of work can I bill?,” “how many widgets can I get produced?” and “how much crop will my fields yield?” Estimate potential sales revenue of a product in order to establish the total sales figure.

Both of these approaches can end up with differing results, and there is an extra component to forecasting that enables you to compares those differences–the gap analysis. With only the top-down approach or the bottom-up, there is no comparison and it can be misleading with revenue or supply. Gap analysis allows for a more holistic view of the business. Viewing the difference between a Top-down and bottom-up can give you actionable intelligence. For example, more market demand means you can safely hire more people, or a constraint on resource supply could determine the possibility of raising prices to increase margins.

Each business’ need is unique based on the industry and market conditions.  But having the ability to view and compare all three models with ease could potentially give you a competitive advantage.

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Forecasting Certainty in an Uncertain World

When you picture your organization’s financial future, it shouldn’t just be an unattainable dream. Factor in every element that contributes to the future you desire: revenues, cash flows, accounts receivable and payable, overhead, salaries, benefits and capital expenditures. With a forecasting solution a dream becomes an achievable goal. It’s not always smooth sailing when you set a plan and try to follow it. In fact, it’s really challenging.

Environmental changes, interest rate shifts, customer behavior contradictions, supply issues, demand changes and other factors are unpredictable. They steer us away from the path we set out on. Factoring in changes to your forecasting system can seem daunting and stressful–pushing that dream further away from your future. Financial forecasts should make you feel safe, secure and prepared forecasting2for every for in the road.

The first step is accepting that risk and uncertainty happen in business. When the business drivers change, your business needs to adapt and accommodate the variables as quickly, painlessly and accurately as possible. 9Dots Forecasting makes it easy to adapt to the challenges that are thrown your way. Your forecast should take advantage of the past and provide predictability for the future in order to capitalize on opportunities for future growth. 9Dots has automated and streamlined the forecasting process allowing you to make frequent adjustments so that you utilize history, apply factors and drivers, and generate a more accurate, consolidated forecast reflecting the current run rate of your business. It eliminates uncertainties, and reduces the need for risky approximations.

9Dots has a proven record of providing managers with the ability to factor industry-specific challenges and projections into the plan, quickly and smoothly. Year-round planning and rolling forecasting, unlimited forecast versions, advanced business rules and modeling are just some of many features and capabilities the 9Dots Forecasting tool has so that you can achieve your goals and not just dream about them.