Projecting Revenue, Margins & Drivers
Good forecasts come from drivers - units × price, margin trends, % of revenue - not from a blind growth rate.
- ✓Forecast revenue from operational drivers
- ✓Project margins and OpEx from history and outlook
- ✓Recognize operating leverage when you see it
Anyone can grow revenue 5% a year in a cell. A thoughtful forecast ties each line to a real driver, so the model tells a coherent story about the business.
- Revenue - best built bottom-up: units × price, stores × sales-per-store, customers × ARPU. Reflect cyclicality; bigger scale often earns a premium.
- COGS - usually variable with volume. If you have unit economics, project volume × cost-per-unit; otherwise hold gross margin roughly constant off history.
- OpEx (S&M, R&D, G&A) - often modeled as a % of revenue based on historical levels and outlook.
- D&A - % of revenue or , or a detailed schedule tied to PP&E.
- CapEx - % of revenue or a build-out schedule.
When revenue grows faster than costs, margins expand as the company scales - because fixed costs are spread over more sales. A business with high fixed costs has high : great on the way up, painful on the way down.
In order of preference: (1) management guidance, (2) equity research / consensus estimates, (3) historical trends + sector outlook when you're flying blind. Absent any signal, holding margins constant off recent years is a defensible default.
A revenue forecast that ignores the and working capital needed to support it isn't a forecast - it's a wish. If you're doubling units sold, the cash to fund inventory and capacity has to show up too.
Revenue grows 20% and EBIT margin expands from 15% to 18% at the same time. This is a sign of: