Building Revenue Projections

Revenue Projections Are Educated Guesses

No projection is accurate. But projections are not meant to be accurate — they reveal whether your assumptions produce a viable business, and surface the key drivers to focus on.

Bottom-Up vs Top-Down

Top-down (weak): "The market is $10B. We'll capture 1% in year 3. That's $100M ARR." Meaningless — says nothing about how.

Bottom-up (strong): Built from acquisition mechanics, retention rates, pricing, and expansion. Falsifiable and actionable.

Building a 12-Month Projection

Start with: starting customers, monthly new customer acquisition, acquisition growth rate, monthly churn rate, ARPU, and expansion rate. Project month by month, compounding each variable.

Assumption Documentation

Every projection must explicitly state its assumptions. Undocumented assumptions make projections unfalsifiable. Document: starting point rationale, growth rate basis, churn benchmarks, pricing assumptions.

Three-Scenario Planning

Always build three scenarios:

• Conservative — half the growth you expect, higher churn. "Can we survive if things go poorly?"
• Base — best realistic estimate
• Optimistic — everything goes right. "What's the upside?"

The gap between conservative and optimistic reveals execution risk.

Cash Runway

Cash runway = current cash / monthly burn rate. 13+ months is comfortable. Under 6 months requires immediate action.

Key Takeaways

• Bottom-up projections from acquisition/retention/pricing mechanics are more credible than top-down market share calculations
• Always document every assumption — undocumented assumptions make projections misleading
• Build three scenarios to understand the range of outcomes
• Cash runway = current cash ÷ monthly burn — keep above 12 months
• The value of projections is not accuracy — it's identifying which assumptions drive the outcome