Bottom Up vs Top Down - what’s the difference?

In business there are a lot of terms that get thrown around. People often talk about Bottom Up forecasting, or Top Down planning. What’s the difference - and which is better?  

Top Down

Top Down is a term usually used to explain that a particular forecast, budget or plan has been built based on looking at what the business as a whole needs to achieve, and then working backward to create a target.

Top Down is usually used to determine the overall business target, based on other external factors. For example, ‘to be number one in our market sector, we know we need to achieve $3M in sales this year’. You might hear people refer to things like a ‘birds eye view’ or a ‘30,000 feet view’ when they are doing their big picture planning.

Once you have that overall target number, you work from the ‘top’ down to create the other targets. So if the business has an overall target of $3M for the year, a target for a specific area or salesperson would be worked out by breaking that $3M down into pieced, based on what is needed to achieve that $3M business target.

Bottom Up

Bottom Up is usually used to refer to a forecast that is built based on what business is in your pipeline. So, you may have a target of $3M for the year – but how likely are you to achieve that?

You would start by looking at all of the prospects in your pipeline, then looking at how likely they are to close, and when. You would add up these figures, usually using some weighting for the likelihood of closure, to come up with a forecast number. You then compare this to your top down number.

So, most businesses have a regular cadence of comparing their bottom-up forecast to their top down target – to see how they are tracking. Being able to accurately forecast your sales month to month is a strong sign of a healthy business.

They are both important

So, as you can see – you need both. They work together to help you plan, and then to measure how you are travelling against that plan.  Understanding how to build a sales target and how to capture and forecast business against that target, is a key skill for anyone building a business.

Want to learn more? Our 12-week cohort course teaches you how to build a structured sales process, including how to track and manage your pipeline to achieve your targets.