The Great Debate, Candidate 1: Top Down

top-down-bottom-upLast week was a quick review of the Top Down, Bottom Up, & 9DOTS’ Gap Analysis approaches to financial planning. Now, let’s dig a little deeper into each aspect for a quick understanding during this budgeting season. You may be able to make a huge change for next year to gain competitive advantage.

You want to stay a top professional services organization. Making sure you aren’t spending too much (or too little) on staffing is imperative in making sure you are not wasting time, resources, or money. Lets focus on the first candidate:

Top Down.

“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.

To get into the nitty-gritty of top-down, check here. and in a few days we will give the run down on bottom-up!