So you heard this term a lot if you’re an entrepreneur, top line vs bottom line. Have you ever really figured out or took the time to understand what this really mean? And did you ever stopped and thought about if you should focus on the top line part of your business or the bottom line? These are all important questions any business owner should ask himself at least once in a while, and really understand why they mean.
What are Top line vs Bottom line?
Top line – It’s the revenues generated by a company or what you might call the gross sales. That’s obviously just how much money is coming in the door, before any expenses are deducted out.
So when you hear a company says its top line revenues are such and such, you know that’s their entire gross revenues.
Bottom line – The bottom line is the income that is left after all expenses have been deducted. You might also call this the company’s profit.
Some of the expenses that are usually being deducted are things like loan repayments, loan interests, administrative costs, taxes and even salary to employees. So there could be a big difference between the Top line revenues and the Bottom line revenues.
I used to think Bottom line revenues are all that matters
I am not a veteran in business yet, and have been running my own company for the past 6 years now, which to some will sound like a lot and makes me an expert, but to most, i’m still a newbie, figuring out things as I go.
When I first started out I was obsessed about my bottom line. I used to think ” what good is it to bring in 100K per month in revenues if you only keep 20K at the end of the day? ”
Boy was I wrong.
As I matured and learned and figured things out as I go, I changed my mind and decided that Top line revenues are much more important for the business. And I think you should agree.
I actually learned this from my biggest mentors Gary Vaynerchuck and it instantly made sense to me, I can clearly say that from that moment my businesses started to change and pick up and grow. Why? Let me explain the thought process.
When you focus on your bottom line, you are not focused on growth. YUP, sounds silly maybe, but it’s just the truth. When you are as the leader of your company only or mostly think about how much money you have left at the end of the year or quarter, you are hurting the business.
You do this because most likely you stop yourself from spending on certain things like marketing and new hires because in your head, they are too expensive. But you can’t think clearly about the upside these things will bring to your business and how much they will improve it in the long run.
When you start focusing on the long run, and how to get more clients, how to get more sales, how to hire the best people to help you get there, the profit will come.
Now obviously don’t get me wrong. You need to handle your financials and not just spend spend without any logic. But I much rather run a company that brings in 1M in top line revenues per year with 10% profit than a company that brings in 400K in gross revenues and keeping 50%.
Sure, in the latter you end up with more money in your pocket, but you don’t have as much room for growth.
You can always increase your prices, cut a few unwanted employees, cut costs down and optimise to increase your bottom line later. Getting new customers and increasing sales is MUCH MORE difficult than you think.
In general, too many entrepreneurs only look at the short term gains they can make or how quickly can they exit and make their moms proud. I much rather think long term and I plan on building a business that will live much longer than I am.
Some of the benefits of focusing on Top line revenues:
- When you focus on Top line, you usually have more money to spend on innovations, or acquiring new clients and increasing sales. It frees your mind to come up with awesome new ways to increase your business and keep it one step before your competition. It takes money to make money, that’s a given.
- It’s much easier to size down if needed and lower your monthly costs or just increase your prices a little bit to increase profit than it is to get new clients and get new money coming in.
- Thinking long term is by far the best way to go in business. If you’re only in it to make a quick buck, you’re not worthy of the game.
What’s your take on this? Are you in it for the long term? Or just trying to make a buck and move on? Comment below to start a discussion