Are you tired of chasing revenue without seeing a profit?
The answer lies in understanding the difference between your top line and bottom line. You’ll find both on an accounting profit and loss (P&L) statement, but to no surprise based on the names, they’re located at the top and bottom of that statement. But they are more than just finance buzzwords and represent the core of your business’s financial health.
Top line and bottom line refer to two critical financial metrics in business. The top line represents a company's total revenue or sales, while the bottom line indicates its net income or profit after expenses. The top line shows growth potential, while the bottom line reflects profitability.
Whether you're aiming to boost sales or tighten your profit margins, understanding these key metrics can make or break your success. With the right accounting software, you can easily track these figures and get a clear picture of your revenue, expenses, and net profit.
For small and medium-sized business owners, knowing how to balance both can mean the difference between simply surviving and truly thriving.
In this article, we’ll dive into what the top line and bottom line mean for your business and how ways to unlock the next level of growth.
First, the term top line references that the figure is at the very top of a P&L or income statement. It’s there because it reflects a company’s gross sales and revenue before anything else is taken away, such as expenses, salaries, and other forms of overhead.
Top line growth means there has been an increase in gross sales and revenue over a specific period. When you achieve top line growth, you’ve brought in more customers, sold more to your existing customers, and have made more sales than the previous month or year.
However, it's essential to note that top line growth doesn’t necessarily mean the company is more profitable—it only indicates an increase in sales, not a reduction in costs.
Just like your top line, the bottom line, also referred to as net income, net profit, or earnings per share (EPS), is listed at the very bottom of your P&L or income statement. It reflects your company’s net revenue after every expense has been subtracted from your gross sales, including the cost of your products and services that were sold, administration expenses, salaries, and overhead.
Bottom line / Net profit = Total revenue (top line) - expenses.
Bottom line growth means increasing your company’s net profit by reducing costs, improving efficiency, or optimizing operational processes. In other words, even if your revenue remains steady or if it declines, improving your bottom line can make your business more profitable.
Top line and bottom line growth might sound similar, but they play very different roles in measuring a company’s success. Here are the key differences between the two based on their focus, financial metrics and strategy to grow them.
Let’s look at two real-world examples to understand how companies can achieve each type of growth.
Google's parent company, Alphabet, in July 2024, Google’s parent company, Alphabet, reported a significant increase in its quarterly revenue, showcasing strong top line growth. The company’s revenue reached $74.6 billion for the quarter, driven by a surge in advertising sales on platforms like YouTube and a growing demand for cloud services.
By boosting sales across its key business segments, Alphabet effectively increased its total revenue, demonstrating successful top line growth.
Earlier this year, FedEx reported a notable increase in net profit, demonstrating strong bottom line growth. This improvement was primarily due to better cost management and improved margins in its largest business unit, FedEx Express.
By reducing operational expenses and streamlining processes, the company managed to boost its profitability, even with a sales decline. This effective cost control allowed FedEx to enhance its net income, reflecting successful bottom line growth.
In order to improve your gross sales and revenue, you need to increase your customer count and your average sales per customer. To increase the profit, you need to improve your costs and operational efficiency. Here are some ways to grow your top and bottom line effectively.
If you don’t already have an ideal customer profile (ICP) or buyer persona, create one. Look at your current customers and see what they have in common when it comes to their industry, titles, verticals, and challenges, and use that to create the profile(s) of who is best suited to buy your products and services. Further, explore how you can expand your reach to more people with similar persona.
Explore untapped markets, target new demographics, or expand geographically. Marketing campaigns, partnerships, and online presence can help reach more potential buyers.
A small bakery that primarily sells locally could expand its customer base by offering online orders and nationwide shipping. By setting up an e-commerce platform and partnering with delivery services, they can reach customers beyond their local area, tapping into new markets.
Targeted cross-selling and upselling strategies can significantly boost your top line. In fact, it's easier to get an existing customer to size up their order or buy some more products rather than selling to a new customer as they already know about your brand, products and services.
So, offer complementary products, premium versions, or bundles that add value as you finalize a deal with a new customer or retain an existing customer.
To get an idea of what products or services you can cross-sell or upsell, listen in on your sales team’s calls to see how they’re pitching each product and what customers are expecting. Knowing everything about your product helps you to formulate a solid strategy.
Diversify your offerings by introducing new products or services that cater to customer needs. This can help you capture more market share and attract different segments of buyers.
A coffee shop that primarily sells beverages can introduce baked goods, sandwiches, and snacks. By adding such options, they can attract customers who want more than just coffee, increasing their average sales per customer and capturing a larger market share.
Once you have your ICP(s) and know your products, it’s time to create a playbook of personalized, targeted, and strategic messaging to reach out to the segments of your prospect list that are most likely to buy your product.
Personalization is the key to increasing your top line growth because no one wants to receive a cold email or call that could be directed to anyone, so those are ignored in favor of targeted messages.
Take the time to look at each person’s LinkedIn account and see who you have in common as a connection, or if they’ve posted a recent article you can reference, and then mention that in your sales outreach along with the pain points they’re most likely experiencing based on your research.
As you’re having conversations, you’re forming connections and networks with the people you talk to, and creating a referral or partner program through those connections can lead to increased sales from other sources.
This can be a formalized partner, reseller, or channel program, where companies sell your products or services for you, or something as simple as offering your customers or connections an incentive on new customers or sales that come in when they recommend you to someone who trusts them. These referrals work to expand word about your offerings and company and can also increase your top line growth by bringing in more revenue.
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Take a look at your price margins and consider if your current prices are truly covering the costs of your overhead. Yes, you want to stay competitive with pricing in the industry, but there may be wiggle room to increase your prices a bit to increase your bottom line.
Prioritizing products or services that offer higher profit margins allows a business to increase overall profitability.
For example, a cafe might introduce premium, specialty coffee drinks that have a higher markup compared to regular coffee, or a software company might promote a premium subscription tier that offers additional features with minimal added costs. This focus can help boost profits without requiring a significant increase in sales volume.
Increasing sales is one thing, but getting paid for those purchases is another. Ensure your payment terms are on point. It may be worth it to your finance department to bring on a collections person (or outsource collections to a company) to ensure invoices are paid.
Reducing expenses directly increases your net profit. This can include renegotiating supplier contracts to get better prices, minimizing utility and office costs, or cutting down on non-essential spending.
Many companies may not have ever considered becoming 100% virtual, but the pandemic has shown that some positions can easily be done from home instead of in an office.
Removing the cost of an office lease could bring a strong boon to your company’s bottom line growth. If closing your physical office isn’t a possibility, consider having your employees telecommute for one or two days a week to decrease the costs of running your office for those days.
Whatever you can automate or outsource to someone else for less money than the cost of your own time, do it. And with generative AI tools, automation is super easy these days.
For example, by automating your sales and marketing emails with automation tools, you take away the time that you’d have to spend creating a new email each time, which increases sales productivity and contributes to improving your bottom line. You can automate inventory tracking, invoicing, and a whole range of business activities in such a manner.
Understanding the difference between top line and bottom line growth is key to building a successful, sustainable business. By combining strategies for growing both, you can ensure your business not only grows but thrives.
Whether it's boosting sales through new marketing campaigns or trimming expenses, finding the right balance will keep your business healthy from top to bottom. So, keep your eye on both lines and watch your business soar!
Check out our comprehensive guide on financial analysis to learn more about how to evaluate your top line, bottom line, and everything in between.
This article was originally published in 2020 and has been updated with new information.
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