Bottom Line vs. Top Line Growth

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.

  1. 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.
  2. 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.

Growing Revenue

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.

Growing Profit

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.

Conclusion

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.

The 1% Theory of Pricing

Pricing, in general, is a very under-utilized tool in most marketers’ toolkits. Remember the 4 P’s?

Price, Product, Promotion, Place

It’s the first one!

And today, I want to share with you a bit of wisdom that originally came to me from Rafi Mohammed, author of The 1% Windfall. In the book, Mr. Mohammed uses a simple example to illustrate a way of thinking about pricing that shows marketers and business owners just how important a tool it can be.

Think about the price you charge for your product or service now. What would happen if you increased your price by 1%?

Most people would answer something along the lines of “not much”. That’s because 1% sounds like a very small change. The same amount of people would probably still buy, and revenue would go up 1%. Not a big deal.

But let’s look at an example that illustrates why the “common” thinking might miss the big picture:

Say you sell Widgets for $100 a piece. For every Widget you sell, you have calculated that you earn a profit of $10, after all costs are accounted for.

When you increase the price of your Widgets to $101, a 1% increase, what happens to your profit? It goes up to $11, a 10% increase!

I think we’d all say yes to a 10% increase in our bottom lines. Yes?

When most marketers do think about price, we think that we can increase demand by lowering prices. But why aren’t we talking about higher prices?

If you can justify them, even small increases in the prices you charge can result in massive growth in your bottom line.

Do More with Less in 2016

“Do more with less.”

It’s usually not what anyone wants to hear. But in many companies, it’s the common theme around this time of year. When we’re setting budgets for next year, we want to grow, but we don’t want to spend more money to help accomplish that goal. So, we have to do more with less.

But I want to take the negative connotation away from the phrase for a moment. Because doing more with less does not mean you and your team have to work harder. It means you have to work smarter.

And we live in an age where working smarter is easy.

Technologies can automate tasks that used to be labor-intensive. They have given us access to a world full or remote help. They have made optimizing our advertising budgets easier.

We can do more with less, simply by identifying a few key opportunities in our day to day to work and taking the time to “fix” them.

Keys to doing more with less in 2016:

  1. Know that “Less” means lower costs, and “More” means higher revenue
  2. Prioritize the team’s responsibilities and look for tasks to eliminate
  3. Invest in technologies that can automate routine tasks
  4. Track all marketing spend and be ruthless about cutting unprofitable spend
  5. Encourage innovative thinking within your organization aimed at cutting costs
  6. Take advantage of outside help with projects not in your comfort zone

Doing more with less will lead to higher profits and quicker growth. So get started today!