Top-Down

Offtoa is a tool that produces and analyzes pro forma financial statements for your company based solely on your statement of business assumptions. One of the key assumptions will be how much revenue your company will generate by selling its product(s) to the intended market(s). The expression “Modeling Sales” means the set of assumptions that enable Offtoa to determine how much revenue you will produce.

Top-down techniques:

• Look at the overall target market and allow you to predict sales by estimating market penetration.
• Usually result in highly optimistic estimates.
• Usually seem like they are entirely reasonable because the entrepreneur says something like “look, all we have to do is capture ½ of 1% of the market, and see how much money we will make!”
• No educated third party (e.g., investors, lenders, board members) will believe your top-down estimates, nor should they. However, they are helpful in that they provide you with an absolute ceiling of reasonableness when you perform your bottom-up estimations.
• Some fools may believe these estimates because they are based on “market research.”

Only a few top-down approaches exist; they are:

• Predict market penetration by month.
• Predict market penetration by year.