What this forecast captures (and what it doesn't)
This is a top-down, growth-rate-driven forecast. It captures the four levers that drive ARR change: new ARR, churn, expansion, and time. It does not capture:
- Seasonality (Q4 enterprise close vs Q1 budget freeze)
- Cohort retention curves (older cohorts churn differently than recent)
- Pricing changes mid-quarter
- Channel-specific dynamics
For a deeper forecast, run a bottom-up pipeline-driven model in parallel and reconcile.
How to use the three scenarios
The base case is the point estimate. The conservative and optimistic bookends model a ±20% miss on each lever. Use the band — not the point — when communicating to a board. "We expect $5.4M next quarter ± $0.4M" beats "We expect $5.4M next quarter" because it sets expectations and leaves room for normal forecasting noise.
Bottom-up reconciliation
If your bottom-up pipeline forecast and this top-down forecast diverge by more than 10%, one of them is wrong. Usually the bottom-up is too optimistic (sales bias) or the top-down assumes growth that doesn't reflect the current pipeline reality.