How to set a Revenue Target
Budgeting for revenue is one of the most important steps in running a successful business. It sets the stage for how much you can spend, invest, and grow over the year. But there’s no one right way to set a revenue target, it depends on your business model, goals, and the stage of your business.
Here’s a breakdown of some common methods to help you find what works best for your small business.
1. Trend-Based
This method looks at your past revenue numbers and uses them to predict the future. For instance, if you’ve been growing sales by 10% annually, you can use that trend to plan for the year ahead.
Why It Works:
It’s simple and quick to calculate.
Great for established businesses with predictable seasonal patterns.
Things to Watch Out For:
It doesn’t factor in major changes, like launching a new product or entering a new market.
Can’t be used for startups with no historical data.
2. Top-Down
With a Top-Down approach, start by setting a big-picture revenue goal (for example, $500,000 for the year) and then divide that target among your products and services.
Why It Works:
It gives you a clear direction and focus and is easy to remember the goal.
Keeps your revenue goals aligned with your plans for growth.
Things to Watch Out For:
It can feel unrealistic if you don’t have a plan to reach the target.
3. Bottom-Up
This method builds your revenue target from the ground up. You start by estimating what each product, service, or customer might deliver, then add it all together.
Why It Works:
It’s practical and based on what’s actually happening in your day-to-day operations.
Encourages you to assess your entire business and sets a clear sales plan.
Things to Watch Out For:
It can take time and might result in cautious estimates if you don’t aim high enough.
4. Contract-Based
If you work with clients on contracts or subscriptions, you can base your budget on revenue you’ve already secured.
Why It Works for Small Businesses:
It’s reliable and gives you a solid foundation to work from.
Ideal if your income comes from signed agreements or recurring payments.
Things to Watch Out For:
It doesn’t leave room for growth opportunities unless you account for new customers or upselling.
Which Approach is Best for Your Business?
The best method depends on your situation:
If you’re new and growing fast, a mix of top-down goals and bottom-up details can work well.
If you have regular clients or contracts, a contract-based approach gives you stability.
If you’ve been in business for several years, trend-based budgeting might suit you.
Many businesses combine these methods. For example:
Use contract-based budgeting for your reliable revenue.
Add growth projections for new customers using a top-down or trend-based method.
Get your team’s input to fine-tune the numbers with a bottom-up approach.
A Few Tips to Keep in Mind
Be realistic: Ambitious goals are great, but there needs to be a plan behind how you are going to deliver.
Stay flexible: Markets and customers change constantly. Regularly adjust your expectations for what’s actually happening.
Track your progress. Use tracking tools or dashboards to monitor revenue against your budget throughout the year.
Setting a revenue target doesn’t have to be overwhelming. By choosing the right approach, or a mix of them, you can create a plan that helps your small business grow sustainably.
Need help building a revenue budget tailored to your business? At Olive Business Partners, we’re here to make financial planning simple and effective. Get in touch to learn how we can support your success!