Ask any founder or CFO how to build a forecast, and you’ll likely hear about two frameworks: top-down and bottoms-up. But there’s a third—and equally important—pillar that too often gets overlooked: historical trend forecasting.
At DMW Advisory, we believe the most effective financial plans are not built from just one perspective. They blend all three—top-down ambition, bottoms-up execution, and historical trends that ground the assumptions in reality.
When used together, these approaches create a model that’s not just aspirational or operational—but fully informed, balanced, and adaptable.
What Is Top-Down Planning?
Top-down forecasting starts with the macro view—external factors like market size, growth potential, industry benchmarks, and long-term strategic vision. You begin at the highest level, then work backward into your internal plan.
Example:
“Our total addressable market is $1B. If we capture just 1% over the next two years, we’ll reach $10M in annual revenue.”
Top-down forecasting is a favorite for pitch decks and board meetings because it speaks to opportunity and ambition. But it often assumes perfect conditions—without always considering the internal resources or operational friction needed to get there.
Where it helps:
- Fundraising and investor storytelling
- Long-range strategic planning
- Setting aggressive growth targets
Where it can fall short:
- Lacks operational grounding
- Often ignores hiring timelines, team capacity, and cost structure
- Can be overly optimistic or unrealistic
What Is Bottoms-Up Planning?
Bottoms-up forecasting begins with what you know and control—your people, processes, and unit economics. It’s a model of what your business can actually deliver given current or planned resources.
Example:
“Each AE closes $25K/month in new MRR. We have 4 reps. If we add 2 more by Q3, we’ll grow from $100K to $150K in monthly revenue by Q4.”
Bottoms-up is highly useful for budgeting, team planning, and burn forecasting. It helps you stay tethered to reality. But without an overlay of ambition or outside market view, it can become too conservative.
Where it helps:
- Operating plans and team alignment
- Hiring and expense forecasting
- Budget vs. actual analysis
Where it can fall short:
- May underplay upside
- Doesn’t capture competitive pressure or investor expectations
- Can ignore macro market signals
What Is Historical Trend Forecasting?
Historical trend forecasting uses actual past performance to predict future results. Unlike top-down or bottoms-up—which often involve strategic projections—this approach relies on what has already happened and assumes similar behavior continues.
It’s especially powerful for identifying:
- Seasonality (e.g., Q4 spikes, summer slowdowns)
- Historical growth rates and pacing
- Revenue retention trends
- Cost stability (or volatility)
Example:
“Over the past 6 quarters, revenue has grown 8% QoQ. Applying that baseline growth rate, we can model the next 3 quarters with high confidence.”
Historical trend forecasting adds a layer of realism. It’s not about ambition or internal mechanics—it’s about what’s already in motion.
Where it helps:
- Creating baselines for budgets
- Validating the assumptions in your top-down or bottoms-up models
- Surfacing long-term shifts in performance
Where it can fall short:
- Doesn’t account for strategic shifts, product launches, or new team capacity
- Can perpetuate legacy inefficiencies or assumptions
- Not helpful in highly volatile or early-stage environments
Why the Best Operators Blend All Three
Top-down, bottoms-up, and historical trend forecasting each serve a different purpose. When you use all three together, you get a triangulated view of your future.
Here’s how they work together:
- Top-downprovides ambition: “Where could we go if we capture X% of the market?”
- Bottoms-upprovides realism: “What can we actually deliver with our current resources?”
- Historical trendsprovide grounding: “What has the business historically done—and is that changing?”
When these models are aligned, you have clarity. When they diverge, you have opportunity. The gaps between them are what drive strategic decisions.
For example: If your top-down target is $10M, but your bottoms-up plan says $6M, and your historical trends suggest you’ve only been growing 15% YoY—you now have a framework to evaluate what’s needed to close the gap.
At DMW Advisory, we walk clients through this reconciliation process. It’s not just about building a model—it’s about understanding what the numbers are telling you. Do you need to hire faster? Raise capital? Raise prices? Restructure GTM?
The interplay between ambition, capacity, and past performance tells that story.
How to Blend These in Practice
- Build each model independently.
Don’t try to smash them into one from the start. Give each its own space—then look at how they compare. - Use historical trends as your base case.
Let your actuals anchor the model. Use growth rates, margins, and cash flow patterns as a first pass. - Layer on bottoms-up inputs for tactical planning.
Map your hiring plan, funnel metrics, sales cycles, and ramp assumptions. - Overlay top-down ambition to test strategic stretch.
See what it would take to reach higher revenue targets. Pressure-test those assumptions. - Revisit monthly. Adjust quarterly.
Financial plans are living documents. Use actuals to recalibrate trend assumptions and adjust strategy in real-time.
Final Thought: Forecasting Is a Lens, Not a Guarantee
Forecasting isn’t about predicting the future—it’s about creating the conditions for better decisions.
The top-down model helps you understand what’s possible.
The bottoms-up model tells you what’s likely.
The historical model shows you what’s been consistent.
The space between them? That’s where strategy lives.
Whether you’re a founder managing burn or a leadership team scaling past $10M, this blend of perspectives gives you the clarity—and the confidence—to act.
