Lesson 3 of 8 · All lessons in this module
- Company research reports and the analysis framework
- Determining the business model
- Revenue drivers: bottom-up and top-down
- Pricing power
- Operating costs and operating leverageVideo lesson
- Operating profitability and working capital
- Integrated case: reading a marketplace from GMV, take rate and mix
- Capital investments and capital structure
Lesson 3 of 8 · 14 min
Revenue drivers: bottom-up and top-down
Revenue analysis breaks sales into drivers: bottom-up into volume and price or per-unit measures, top-down into market size and market share, so the analyst can see what really caused growth.
In short
- Analysts usually start with revenue (banks are an exception: balance sheet first). A driver is a cause that explains the level of and change in revenue.
- Bottom-up: revenue = volume × price, or by product line, segment or region, or units × revenue per unit (stores × sales per store, members × fee).
- Top-down: revenue = market size × market share, or a function of GDP growth. The two approaches are usually combined.
- Choose drivers from the business model. A volatile driver (oil price, interest rates) is not a wrong driver.
- Market share = revenue / market size. The share the company does not have shows sales potential. Platforms are measured on GMV and take rate.
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