Bottoms Up Revenue Model
A bottoms up revenue model builds revenue projections starting at a highly granular level using unit economics such as # of units sold, price per unit, customer acquisition cost and average revenue per customer.
Example
Ex. Let’s say a company has $100mm in revenue and 100 customers and it costs ~$1mm to acquire a customer.
This means they have roughly $1mm revenue per customer. Now, let’s say they lose ~10% of their customers per year, and have forecasted $15mm of sales expenses next year.
So, for next year you would multiply 100 Customers * 10% to determine that 10 customers will leave next year. Then multiply this by the average revenue per customer of $1mm to determine that the company will lose $10mm of revenue. Now our base for next year is $90mm
We will now use the customer acquisition cost of $1mm and divide the $15mm of sales expenses for next year to determine that the company will add $15mm of revenue next year from 15 new customers.
Revenue next year = $100mm (last year’s revenue) - $10mm (attrited revenue) + $15mm (new customers) = $105mm in revenue next year
In the room
Bottoms-up is what you'll actually build on the job, because it ties revenue to drivers you can defend like customers, price, churn, sales spend. Being able to explain why it's more credible than top-down is a strong answer.