Top-Down vs. Bottom-Up Forecasting: Which One to Use and When

Whether you're launching a new product, planning next year's budget, or pitching to investors, forecasting is the compass that guides your business decisions. But there’s often a key question that causes confusion: Should you forecast from the top down or build it from the bottom up?

Both approaches can get you where you want to go—but the right one depends on how you like to navigate.

Let’s break it down in plain terms.

What Is Top-Down Forecasting?

Think of top-down forecasting like looking at the map from 30,000 feet. You start with the big picture—like the total market size or company-wide revenue targets—and then divide that number into smaller chunks for teams, products, or regions.

How it works:

Let’s say your company aims for $10 million in revenue next year. With top-down forecasting, you might allocate that target across departments based on historical performance. Maybe marketing gets $2 million, product A gets $4 million, and so on.

Why companies like it:

It’s fast and straightforward.
It aligns with leadership’s strategic vision.
It helps set high-level goals and keep everyone marching in the same direction.

But there are trade-offs:

Top-down forecasting assumes the world will behave like it did last year. If your market shifts, or a new competitor enters the scene, those historical assumptions may fall flat. And frontline teams might feel like the goals don’t reflect their reality.

What Is Bottom-Up Forecasting?

Now imagine zooming into street view. Bottom-up forecasting starts at the ground level—your sales reps, marketing campaigns, or production schedules—and builds up to the company-wide forecast.

How it works:

Your product team might forecast how many units they expect to sell next quarter, multiplied by expected price. Your customer service team may estimate staffing costs based on call volume. All of these projections are added together to create the full business forecast.

Why teams love it:

It’s rooted in real data and team insights.
It’s more accurate for operational planning.
It can adapt to changes in the market quickly.

And the downsides?

It takes time—lots of it. Plus, if each team uses different assumptions or tools, you could end up with a messy, inconsistent forecast that’s hard to align with the company’s strategic goals.

So, Which One Should You Use?

It depends on what you’re trying to achieve.

Use Top-Down Forecasting When:

You’re setting high-level company goals.
You need a quick snapshot for investors or leadership.
You don’t yet have detailed historical data (common for startups).
Strategic alignment is more important than granular precision.

Use Bottom-Up Forecasting When:

You have access to detailed, team-level data.
Accuracy is crucial (think budgeting, staffing, or supply chain).
You want buy-in from teams doing the work.
Your business is mature enough to forecast at the product or regional level.

Why Not Both? (The Hybrid Approach)

Here’s a little secret: some of the best forecasts use both approaches.

A hybrid model starts with a top-down target from leadership, then invites teams to build bottom-up projections. The two views are compared and adjusted until they meet in the middle.

This gives you the best of both worlds:

Strategic direction from the top
Realistic input from the front lines

It also creates a feedback loop where leadership understands constraints on the ground, and teams understand where the business is headed.

Final Thoughts

Forecasting isn’t about being 100% right—it’s about being directionally correct and making informed decisions with the best data available.

Whether you’re flying high with a top-down model or rolling up your sleeves with a bottom-up build, the most important thing is this: choose the approach that fits your business stage, your goals, and your resources.

And don’t be afraid to adapt. Forecasting is part science, part art—and like any good forecast, it should change when the weather does.

Search This Blog

Abhishek Sen