In the business world, there has always been the talk of whether enterprises should grow their top line or their bottom line. But what exactly do both these terms mean?
The top line pertains to the gross sales or revenue of the company. An increase in the top line can mean an uptick in sales or clients. On the other hand, the bottom line refers to the income of the company after expenses and income taxes have been subtracted from the revenue. The bottom line is otherwise known as the company’s net earnings or net profits.
Simply put, the top line shows the performance of the company in raising sales of its products or services. Meanwhile, the bottom line pertains to the efficiency of the business in keeping costs down while being able to drive sales. So, which line should businesses focus on?
In the long term, it can be detrimental for a company that only looks at the top line over the bottom line, or vice versa. In the case of manufacturing, growing the top line calls for an increase in production to generate more sales. However, this will entail more materials and equipment, thereby adding costs. Similarly, encouraging more clients to sign up for your services will require additional personnel, which will involve spending on more resources and applications that your growing workforce would use, as well as increasing people in sales. When hiring employees, there are costs incurred; such as recruitment costs, training and providing benefits. In return, these expenses will eat up into the revenue, and may not result in additional income/profit.
Meanwhile, increasing the bottom line can involve cutting expenses. This can either compromise the quality of the product, or prevent your business from exploring growth opportunities. For service-related enterprises, scrimping on labour, materials or equipment can make your clients feel unsatisfied with what they have paid for. Using unreliable suppliers, partners or materials can put your quality of products or services at risk. As a result, your clients may switch over to your competitors, while you risk losing a talented workforce.
In both scenarios, it will be hard to sustain business growth.
Therefore, entrepreneurs and executives need to focus on a mixed approach to improve both the top line and the bottom line, as they influence each other greatly. Though this may seem like a difficult undertaking, it can be achieved by rethinking the strategy on marketing, product value and enhancing the efficiency of your workforce.
Three ways to raise both the top line and the bottom line:
1. Be strategic in your marketing to win the right clients – Your marketing strategy needs to attract the right clients, or the people that can contribute to the long-term profitability of your business through their purchasing behaviour. To do this, you need to make use of content that opens up the interest of your audience, and gives them the reason to purchase from you. Once you have them on-board, form relationships with them to ensure repeat business. It is crucial to check the return on investment (ROI) of your content and your strategy to achieve efficiency and effectiveness in your expenses. With this approach of quality over quantity of clients, you promote sustainable top line growth, while also benefiting your bottom line.
2. Know your service or product’s value to your clients – When you form relationships with your clients, strive to know the benefits or reward that they get from your product or your service. This will guide you in correctly pricing your products and services, as well as directing your investment toward the attributes of your product/service that your clients enjoy. As a result, they will likely promote your product/service to others, without adding to your marketing costs. Focusing on the client benefit of your product or service can also protect you from losing clients if you need to raise prices to grow your bottom line. Furthermore, it can help you determine potential areas for expanding your product/service and your business.
3. Engage your workforce in pursuing growth – Identifying the client benefit of your products and services can help you discover potential opportunities for innovation, or new revenue streams. For this to be successful, you need to engage your workforce through your company’s initiatives. Make sure that they understand the organisation’s goals in innovating, so that they are willing to work hard to reach it. This requires continuous communication, so encourage them to provide feedback on your initiatives and offer their own ideas in tapping new revenue streams. Remember to show appreciation for their efforts to ensure employee retention while expanding your market.
Written by bottomline Managing Director, Donny Walford