Lesson 4 of 10 · All lessons in this module
- Competitive strategy and positioning
- Strategy over the life cycle and addressable markets
- Generic strategies in practice: capacity, moats and two kinds of focus
- Revenue drivers: bottom-up and top-down
- Pricing power
- Operating costs and operating leverageVideo lesson
- Operating profitability and working capital
- Choosing a profit margin, cost components and price elasticity
- Capital investments and capital structure
- FCFE, net capex and financing across the life cycle
This lesson is part of the 2027 curriculum. You are following the 2026 curriculum, where it is not taught in this form. Switch if you are sitting the exam under the 2027 curriculum.
Lesson 4 of 10 · 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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