Our last blog post was a quick run down about how to make it through budgeting season (the worst season of all!) There are tools to make budgeting season easy peasy & it only requires a LITTLE BIT of Halloween Hocus Pocus. You may be able to make a huge change for next year to gain competitive advantage. Tool number one: the Top Down approach.
“Top-down forecasting works well when the market forces on various product items or sales areas are similar. For example, if the markets for baseballs and baseball bats move together, it makes sense to predict their sales together. Many times, individual products will not generate sufficient data for forecasters to make meaningful predictions.The larger amount of data on more items will make patterns easier to see and provide a more accurate forecast. Top-down forecasting works well for budget and strategy planning because it successfully predicts the big picture of overall sales.”
“One of the benefits of top-down financial forecasting is that it avoids statistical outliers—the data-swings—common to lower-level facts and figures. Because of this, a top down approach offers companies a broader picture of revenue potential and can help them identify sales patterns.” (quickbooks)
A top down approach is driven on market demand. Keeping track of historical trending data and/or the sales pipeline to gauge 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. Combine employee planned hours, billing rates, and planned revenue data with potential revenue. The result is a revenue model driven directly from planned and unplanned data.