Top Line Growth vs. Bottom Line Growth: What's the difference?

By
Writers@Aspire
Published
August 16, 2022

Companies often publicly declare their top line (net revenue) and bottom line (net income). Microsoft declared its FY22 top line to be $51.9B and bottom line to be $16.74. But people still confuse both. Top and bottom lines hold different meanings on an income statement, but they both are crucial for business growth and the scope of investments. 

In this blog, we explore what top and bottom lines signify for your business, how they’re different, and how you can calculate and use them in your business analysis . 

What is the Top Line?

The top line signifies your company’s net revenue from sales and other business operations before deducting any operational costs. It reflects your company’s performance in terms of generating sales and revenue.

Companies aim to grow their top-line revenue by introducing strategies to increase sales and maximise cash flow. An increased  top line means your company has achieved more sales in a quarter or year. It’s a direct reflection of your company’s market performance.

The top line is used to: 

  • Determine the company’s performance in a specific period 
  • Indicate what strategies are contributing toward the growth
  • Reflect your product’s demand in the market  

What is the Bottom Line?

As the name suggests, the bottom line resides at the end of the company's income statement. The bottom line refers to the company’s net income or profits after deducting all operational costs. These costs include: 

  • Costs of goods sold
  • Overhead and administrative expenses 
  • Depreciation and amortisation charges 
  • Income Taxes
  • Interests on loans and debt 

You can try to increase the bottom line by increasing revenue or cutting costs. The bottom line determines how efficiently a company utilises its resources and manages costs to gather profit. 

It plays a crucial role in business financial decisions. For instance, if you share a new marketing strategy with your manager, they might ask you, ‘how does this affect the bottom line?’. They mean how this new strategy will contribute to the company's overall profits. If it increases the bottom line, the strategy is good. If it doesn’t, then it’s better left on the table. 

A company can use the net income or the bottom line for multiple purposes such as: 

  • pay dividends to stockholders
  • Repurchase stock
  • Retire equity
  • Expand the business, improve the product

Calculate your Top Line and Bottom Line with This Simple Formula 

The top-line revenue comes from adding sales revenue with earnings from other business operations. The bottom line, on the other hand, has a dedicated formula:

Bottom Line = Top Line (Net Revenue/Gross Sales) - Operational Costs  

Suppose your company’s gross revenue was $50 B for the first quarter. To calculate the bottom line, subtract your operational costs from the revenue. These include taxes, overhead expenses, salaries, marketing budget, direct material costs, etc. Assuming your operational costs were $23 B, your bottom line or profit would be $27 B. 

$50B (Gross Revenue) - $23B (Operational Costs) = $27B (Profit/Bottom Line)

Use this to return dividends to your shareholders or expand the business — don’t forget to celebrate; it’s a great profit margin. 

Top Line vs. Bottom Line Growth - Which is More Important?

Top-line growth depends on sales and revenue. While achieving this, your operational costs will increase. You can hit your targeted top line sooner if you invest in sound marketing and efficient sales tactics. 

On the other hand, bottom line growth depends on utilising resources efficiently to secure a profit margin. Growing the bottom line generally means cutting costs. 

So, should you focus on increasing your top line or bottom line?  

Hint: This may be a trick question. 

To answer this, let’s understand the relationship between top and bottom line.

The Tug-of-war Relationship: Top Line vs Bottom Line

Your company can improve the bottom line by managing expenses and cutting costs. You can analyse staffing costs, tighten employee expenses with corporate cards, approval flows, and reduce recurring costs. 

But if you keep cutting costs for too long, you’ll miss out on effective resources and strategies that are crucial for your company’s growth. It risks future revenue growth and,also, profit margins in the long run. 

On the other hand, you can try various strategies to boost top line revenue. You can use advanced digital marketing and SEO, improve product and website design and use a product-led sales approach. But these techniques would burn a massive hole in your pocket. 

The relationship between the top and bottom lines is such that increasing one may decrease the other and vice versa. 

So, you must come of out of the top line vs bottom line mindset. Maintain a ratio of revenue to profit closer to 1. This way, you’ll secure a sustainable revenue and profit. 

When Should You Use the Top Line and Bottom Line in Your Analysis?

Both top and bottom lines are significant during different stages of business growth. For newer companies and startups, the top line revenue growth is more important. During this time, try all possible tactics, use investments in strategies and hire the best talent to grow your brand. 

During this stage, the bottom line takes a back seat. And it’s crucial too, as investors look at top-line growth while picking companies for funding. 

But once the company is well-established in the market, sales can become stagnant. Now, you can’t be impulsive with funds. So, make the most of whatever resources you have to secure maximum profit margins as they are essential for sustainable business growth. 

At the end of the day, there’s no hard and fast rule as to when you should analyse the top or bottom line. 

Want to attract investors? Show off your sales with the top line. Want to retain investors? Secure the bottom line. Both are interrelated, and you should be prepared to use any of them depending on the situation.

How Can You Increase Your Top Line as a Business?

Increasing your top line means using your resources at their full capacity to produce maximum revenue. You can implement various strategies to skyrocket your revenue. 

Below are some tips to accelerate your top-line growth:

1. Find Your Target Customer 

You can’t sell to everyone; you’re not Google. Your marketing efforts will fail if you don’t have an Ideal Customer Persona (ICP). Target customer helps you determine tone of voice and messaging so you directly speak to your ideal customer. 

For instance, if you’re selling social media marketing software to a B2C audience, your target customers would be influencers. But for a B2B audience, your target customer would be a decision maker in a company or agency like a CEO or CMO.

Jot Down your ideal customer’s industry, verticals, and challenges to create an irresistible offer. This way, you sell more and grow faster.

2. Try New Marketing Strategies

Once you narrow down on your ideal customer, ensure they know about your product. Use modern digital marketing techniques and AI to become your ideal customer’s first choice when they go to shop. 

Invest in platform based marketing so you promote your brand where your ideal customer hangs out. For B2B business brands, LinkedIn should be your first choice, followed by Twitter and Facebook. If you’re a B2C brand, Instagram and Facebook may be the better option. 

3. Create Referrals and Promote Word of Mouth

Word of mouth is one of the most effective lead gen strategies. B2B buyers are most inclined towards referrals. Create an incentivised referral program that motivates your existing customers to bring in new ones. 

Pop in discount coupons, freebies, or extended subscriptions in exchange for an invite. Be bold and ask for testimonials on your service or product. Then, post them on social media. They are a sign of customer satisfaction and attract more customers without spending a dime. 

Once you collect your testimonials, create a 'wall of love' to display all the positive experiences your customers have had, just like we at Aspire have done with our customers.

4. Increase Productivity Among Employees

Employees are directly responsible for the company’s growth. Create training programs for your employees and add performance-based incentives to drive them to do better. Vital programs help develop functional skills and align employees with the company’s goals. When they become subject matter experts, let them publicly talk about your brands on podcasts and their personal accounts to raise awareness for your brand. 

5. Maximise Cashflow

When it comes to increasing revenue, open all sources of cash flow. Make the most of accounts receivable, investments, and inventory. Focus on equity financing as it’s safer than debt financing. If you have a large amount of obsolete equipment that you don’t plan on using, consider selling those assets to maximise cash flow. 

6. Acquire or Merge with Smaller Companies

Consider acquiring or merging with other smaller companies. This strategy has certain prerequisites like you must be fully established in the market. Also, a new acquisition requires hefty investment and invites risk. But if you're ready for that, this strategy lets you enter new markets to increase your overall revenue. 

7. Get an all-in-one business account by Aspire 

When you expand the business and increase revenue, you may consider hiring more employees to manage your expenses. But it would ultimately increase operational costs. In this case, you need a scalable business account that can keep finance costs to a minimum. As the name suggests, Aspire’s all-in-one business account supports borderless payments, allows multi-user access and accounting software integrations, and provides cash management. 

It’s perfect for growing businesses as it takes care of finances while you run the business. Accounting integrations are cherry on top as with them, you can close your books twice as fast. 

How can You Increase Your Bottom Line as a Business?

Increasing the top line doesn’t always result in profit as it also shoots up the operational costs. If you want to secure profits, then focus on increasing the bottom line. 

Below are some tips to accelerate your bottom-line growth:

1. Automate Mundane Tasks

There's no point in spending time on mundane tasks when you can use automation. For instance, automate your billing and invoicing with Aspire. It schedules payments for the due date so you can optimise your cash flow. 

Moreover, it’s integrated with your accounting software, so you record transactions effortlessly. Your recipient will also be notified when they receive payments. Imagine how many hours you save on clearing multiple invoices in a month. You can invest these precious hours in other essential business tasks. 

2. Upsell and Cross-sell

A 5% increase in customer retention can boost profit by 25%. That’s because bringing in new customers is harder than retaining older ones. You have to apply marketing strategies and sales tactics for different stages of a buyer’s journey —which costs money. 

Consider how much money you spent on attracting a customer from the beginning to the end of his buyer’s journey. It works well to increase the top line since you’re getting more sales. But upselling and cross-selling becomes a great way to boost your bottom line without spending too much. 

3. Control Overhead Expenses 

Overhead expenses directly influence your bottom line. They include your rent, utilities, insurance, travel, office supplies, and all other payments you must make, even if you’re making any sales. Reduce these costs by reviewing your contracts regularly, outsourcing whenever possible, and analysing your account statement for unnecessary payments. 

Commonly, recurring payments include SaaS subscriptions which are monthly deducted from your credit card. Employees may purchase a subscription that goes overlooked and keep eating up money from your account. 

Try leveraging corporate cards to solve this problem. They give you real-time visibility and control of all expenditures. Distribute these cards amongst your employees and bid adieu to countless OTPs and receipts for each purchase. Adjust spend limits on this corporate card anytime and avoid expensive surprises on your spend reports. 

4. Tighten Your Credits 

Multiple delinquent client accounts reflect your company’s loose credit terms. Late paying customers disturb your cash flow. Fix this by tightening your credit terms or issuing interest on late payments. 

If someone holds payments for a chronically long period, charge a 50% advance before beginning a new project or subscription. Remember, you’re running a business, not a charity. 

5. Set and Stick to Budgets 

Budgeting can save you from a lot of overflowing expenses. And it shouldn’t mean maintaining a series of excel sheets throughout the quarter, which you dread to look at by the end. 

Use Aspire to make budgeting easy. Set spending limits on your aspire app and receive notifications every time you’re about to cross them — it’s much like a guardian. Deploy budgets across your team, and appoint owners to monitor their team’s expenditure. This way, you delegate budgeting while still being in complete control. 

And you don’t even have to set aside money for emergencies. In case you need an urgent top-up on your cards, Aspire allows interest-free credit. With Aspire covering your money matter, you entirely focus on business growth.

Conclusion 

Whether a business wants to increase the top line or bottom line, Aspire has solutions for everything. Increase your top-line growth with Aspire's all-in-one business account, corporate cards, and multi-currency account. To increase the bottom line, choose to set budgets and manage expenses. 

Sign up today and supercharge your business growth with Aspire. 

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