Growth is growth, until it’s not. When people talk about growth as it relates to companies, they could be talking about two distinctly different things.
- They could be talking about top line growth, or growing revenue. The company made $1 million in sales this year compared to $500,000 last year.
- They could be talking about bottom line growth, or growing profits. The company had profits of $100,000 this year compared to $75,000 last year.
Either way, the company is growing. And sometimes, companies do both at the same time.
But the distinction is important, because strategies for top line and bottom line growth are often different. And when it is your job to grow the company, it is important to know what type of growth you are after.
When your goal is growing the top line, you want to drive more sales and revenue per sale. You might do this with more advertising, discounts and promotions, new pricing, loyalty programs that encourage follow up sales, etc.
You might not worry here so much about your profits. Lower prices might eat into your margins, but they also might attract new customers and take some market share away from your competition.
You can also grow revenue with new products. Introducing new products gives your current customers more to buy from you and draws in new customers that were not as interested in your other offerings.
When your goal is growing the bottom line, you have to focus on profit margins. You can do this in a number of ways.
First, you might optimize your marketing spend to lower the dollar amount you are spending to drive each sale. This might mean eliminating unprofitable spend or reallocating dollars from one channel to another.
You also might cut products from your portfolio that do not add much to the bottom line. They might be popular, but if they’re not making money, they are hurting your margins overall.
Next, you might look to cut other costs from your operations. How can you streamline sales, customer service, R&D, etc. to get more value?
Finally, you can play with pricing. If you can afford a price increase without losing customers, it’s a quick way to improving your profit margins. A 1% increase in price can drive huge profit increases.
Some of the strategies that you select to pursue might have a positive impact on both the top and the bottom line. But growing revenue might hurt profitability. And growing profitability might hurt revenue, at least in the short term. So it’s important to know the difference.