Your Top-Down Target Is Fantasy. Your Bottom-Up Target Is Timid. The Gap Between Them Is Your Strategy.

Every founder has done the "1% of a $10B market" math. Every founder has also done the "we closed two deals, so maybe eight next year" math. Both are wrong alone — and the space between them is the most useful number in your company. How to set MRR and ARR targets that actually shape your go-to-market, for B2B and B2C.

Revisit the whole thing quarterly. Rerun the bottom-up math with real numbers. Watch the gap, is it closing because your bets are working? Photo by Cooper Hofmann / Unsplash

There's a moment every founder hits, usually late at night with a spreadsheet open, where they have to write down a number. Next year's revenue target. And there are exactly two ways founders produce that number, and both of them, done alone, are wrong.

The first way is the fantasy math. You take the market size — someone's $10 billion TAM slide — and you carve off a modest-sounding slice. "If we capture just 1%..."

Congratulations, you're a $100M company. On paper. The fantasy math feels rigorous because it involves big numbers and percentages, but "1% of the market" is not a plan. Nobody wakes up on a Tuesday and executes "capture 1%." It's a wish wearing a spreadsheet.

The second way is the timid math. You look at what actually happened, two deals closed last quarter, painfully, and you extrapolate gently. "So... eight to ten deals next year?" This feels honest because it's grounded in reality. But it quietly encodes all your current weaknesses as permanent facts. Your bad conversion rate, your nonexistent outbound, your underpriced product. The timid math assumes all of it stays exactly as broken as it is today. It's not a target. It's a surrender with a date on it.

I've watched 500+ startups do this dance, and here's the thing the finance-blog guides never quite say: you need both numbers, and the whole point is the gap between them.

Run both. Then stare at the gap.

The top-down number is your ambition, sanity-checked against the market. Not "1% of TAM", that's lazy. The honest version: given the customers who actually fit your ICP, at your actual price, what would a genuinely successful year look like? Say it comes out to $1M ARR.

The bottom-up number is your operational reality, built from the unit math of your funnel: leads × conversion × deal size × your actual capacity. Say that math, done honestly, comes out to $340K ARR.

Most founders treat that $660K gap as an embarrassment, evidence that either the ambition is delusional or the execution is weak. Wrong. The gap is the single most useful number in your company, because closing it is literally what "go-to-market strategy" means.

Think about what could close a $660K gap: More conversations per week (a capacity bet, maybe a first sales hire). A better conversion rate at one funnel stage (a process bet, fix the leakiest step). A higher price (a positioning bet). A new channel (a distribution bet). A different segment with bigger deals (an ICP bet). Every one of those is a strategic decision with a cost, a risk, and a timeline. Your GTM strategy for the year is simply which two or three of those bets you're making, and how much of the gap each one is supposed to close.

Founders who skip this exercise still make those bets, they just make them by vibe, and never know whether the bets were sized to the gap. Founders who do the exercise walk around with a sentence like: "We need $660K of new ARR beyond current trajectory; $400K comes from doubling founder-led outreach capacity, $200K from fixing demo-to-proposal conversion, and if the price increase works, we have margin for error." That sentence is a strategy. "Capture 1%" is not.

The B2B version: your target is a number of conversations

If you sell B2B, your bottom-up math is deal math, and I want to walk it all the way down, because founders always stop too early.

Say the target is $500K ARR and your average deal is $20K. That's 25 deals. If you close one in four proposals, that's 100 proposals. If two in five real conversations turn into proposals, that's 250 conversations. Divide by fifty working weeks: five real sales conversations a week. Every week. All year.

That's the moment the target stops being a number and starts having a physical shape. Because now the question isn't "can we hit $500K". It's "who is having five sales conversations a week, and where are they coming from?" And at the early stage, the honest answer is usually: you, and the constraint isn't the market. It's your calendar. A founder doing product, hiring, and investors does not accidentally find time for 250 conversations. It gets scheduled or it doesn't happen, and if it doesn't happen, the bottom-up forecast was fiction all along, just fiction with nicer formatting than the top-down kind.

One more B2B-specific warning: lumpiness. When 25 deals make your year, one enterprise whale can be 20% of the target, which means one slipped deal in December can be the difference between a great year and a board conversation. So build the B2B plan on the deals you can count, and treat the whale as upside, never as the plan. A target that requires the whale isn't a target. It's a hope with a deadline.

The B2C version: your target is a channel question

If you sell B2C, the math inverts. No committee, no proposals, it is about volume.

Revenue = traffic × conversion × price × retention. Walk that one down and it gets uncomfortable in a different way.

Say the target is $500K ARR at $10/month. That's roughly 4,200 paying customers holding steady, except customers churn, so to hold 4,200 you'll need to add meaningfully more than that across the year. Say your visitor-to-paid conversion is 2%. To add the customers you need, you're looking at hundreds of thousands of visitors.

And there it is, the real question, the one the target was hiding: where do a few hundred thousand of the right visitors come from, at a cost per customer that doesn't eat the $10?

That question is your B2C go-to-market strategy. Paid, content, virality, partnerships, retail. Each channel is a bet with a different Customer Acquisition Cost (CAC), a different ceiling, and a different timeline. The bottom-up math doesn't answer the channel question. Its job is to force you to ask it with real numbers attached, instead of six months from now, after the "build it and they'll come" phase quietly fails.

The other B2C truth the annual target obscures: churn compounds. In B2B, a lost deal is a bad month. In B2C, a leaky retention rate silently taxes every future month, you can hit every acquisition number and still miss the year because the bucket has a hole. So the B2C target needs a retention assumption written down explicitly, not buried in a formula. If you can't state your assumed monthly churn out loud, your ARR target is decorative.

MRR is the dashboard. ARR is the destination.

A quick word on which metric to set the target in, because founders overthink this.

Set the annual target in ARR, t's the language of planning, boards, and investors, and it's stable enough to build a year on. Run the business in MRR, it's the monthly feedback loop where you find out, within weeks, whether last month's bets worked and where churn shows its face first. ARR tells you whether you arrived; MRR tells you, every single month, whether you're still on the road.

The trap is treating ARR as just 12 × MRR and calling it done. That equation only holds if nothing changes — no churn, no expansion, no seasonality — which is to say, it never holds. The annual target is a destination; the monthly number is the speedometer. You need to be looking at both, and they are not the same instrument.

Targets are hypotheses. Treat them like it.

Here's where this connects to everything else I write about, because it's the same discipline all the way down.

Your Day 1 revenue target is a guess — exactly like your Day 1 ICP is a guess. The point of writing it down, decomposed into weekly behavior and named bets, isn't that the guess will be right. It's that a decomposed guess fails informatively. When you miss, you'll know which assumption broke, the conversation volume, the conversion rate, the price, the channel, and you can fix that one thing, instead of standing in December wondering what happened.

So revisit the whole thing quarterly. Rerun the bottom-up math with real numbers. Watch the gap, is it closing because your bets are working, or are you quietly sliding the top-down number down to meet reality and calling it "refined"?

The founders who hit targets aren't the better forecasters. They're the ones whose targets were built out of behavior they could actually control, conversations scheduled, funnel stages measured, bets named and sized. A target you can't decompose into this week's behavior is a wish. A gap you can't explain is a strategy you don't have yet.

Write both numbers down. Name the gap. Then go pick your bets.