GUEST BLOGGER - BOTTOM UP!
A new client asked the other day what I meant by “bottom up forecasting.” It is best explained by examining what it isn’t.“According to XYZ metrics, the market has grown from $125 million in 2006 to $147 million in 2007 and $163 million in 2008. We are conservatively projecting a 5% share of this market in two years.”
Does this shed any light on the who, how, what, why and when of landing that first sale? No. That information may have been gathered, but this macro approach doesn’t require any rigor.
A different approach makes sure you pay attention to what’s important.
A bottom up financial forecast includes of the price, the cost, and projected sales for each month. To price your product or service, you must know your costs and how you compare to competition. Your pricing strategy affects your marketing strategy which affects your sales strategy which leads to your sales forecast. A good business plan template takes you through the steps to validate your idea as an opportunity, and then leads you through developing the interacting marketing and sales strategies.
Great words alone can describe an awful business. Only by translating the words into numbers (the financial forecast) will you and others know whether this idea will make money.
What if the forecast says you can’t make money with this idea? Your plan and forecast will have done you a great favor: you found out the bad news on paper, not by losing a bunch of money. You can modify the business model (and reforecast) until you see results you like or give up on the idea.
If you’d like to continue this conversation, I’d love to hear from you. Contact me at cmcevoy@gowingspan.com or visit www.gowingspan.com.
Chris McEvoy is the President of Wingspan Thinking, LLC.
