What approach does a revenue projection model utilize?

• A. Top-down method based on historical growth rates
• B. Bottom-up approach using various factors to estimate revenue
• C. Random sampling of market trends
• D. Estimate based on competitors’ revenues

Answer: (B)

The bottom-up approach is an effective method for revenue projection as it involves detailed analysis of various factors that contribute to a company's revenue generation. This approach begins at a granular level, focusing on specific components such as the pricing of products or services, customer acquisition rates, and market demand. By aggregating these individual estimates, the model provides a comprehensive projection of total revenue.

Utilizing this method allows for a more tailored and realistic forecast because it considers internal insights and operational capabilities. It aligns closely with the company's actual business strategies and market conditions, making it highly adaptable to changes in the business environment. This detailed scrutiny helps ensure that the revenue projections are rooted in reality rather than relying solely on broader historical data or external estimates.