IB Interview Question: How to Project Revenue?
Hi, would like some help on this common interview question on how to go about projecting revenue for a company. It would be great if someone here could run through the typical thought process of projecting revenue for a company in any industry. Some specific examples would be good. Thanks!
Yeah I would like help on this topic too
If you're going to be granular, there are two prevailing methods on how to project revenue for a given company:
Bottom‐Up: Start with individual products / customers, estimate the average sale value or customer value, and then the growth rate in product sales and sale values to tie everything together. For example, with Pepsi, projecting out the revenue growth on their specific food and beverage product lines, then subsequently finding the sum to get to your revenue.
Top‐Down: Start with “big‐picture” metrics like overall market size, then estimate the company’s market share and how that will change in coming years, and multiply to get to their revenue.
Thanks for this!
I would echo Finance Bueller but also for quick and dirty models sometimes you plug in an assumed sales growth rate and go from there. Its not the most accurate but def happens. The above is def a better interivew answer tho.
The absolute easiest is simply taking the growth rate of the industry and applying to your model (don't say this).
It obviously depends on the industry and whether it is capital intensive or service based. Capital intensive businesses derive revenue from how the market reacts to their investment.
Service based businesses typically have a platform and react to an increasing or decreasing demand market. In the case of service based businesses, you can look at past performance, the demand from their market and new investments in people and extrapolate a revenue growth rate.
Capital intensive businesses are different. The revenue equation will simply be units x price. From that perspective, you can ascertain an expected demand and related production capability and then evaluate price.
As in all interview questions, the goal is to have a supportable answer but not something so specific that it can be torn apart. Don't ever be afraid to take a moment and then answer. That moment feels 100x longer to you than anyone else. Worst thing to do is rush a bad answer. Might as well walk out of the room.
Cool, thanks for the answer!
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