As the saying goes, “Revenue is vanity, profit is sanity…”
Growing your topline revenue in business just isn’t enough. In fact, it’s entirely possible to grow yourself out of business, if you don’t keep an eye on your profit margins.
Profitable growth > fast growth.
And if you successfully implement some of the strategies below, you will be on track for both profitable and fast business growth.
The Difference Between Top Line vs. Bottom Line
The top line represents revenue from sales, while bottom line refers to profits after business expenses have been covered.
Strong revenue growth is an indication of a solid strategy – your company has successfully differentiated itself in the market, and there is a demand for your product or service.
Whether or not enough of that revenue flows through to the bottom line is usually more of an indication of effective execution.
What Is Business Bottom Line Growth?
Growth in the bottom line means that a company is becoming more profitable, while a decrease in the bottom line means that it’s losing money. It’s entirely possible to increase the top line revenue while the bottom line stays flat or decreases, which is why it’s not enough to measure revenue alone.
10 Ways to Improve your Business Bottom Line
1. Adjust the pricing
Increasing prices is one of the fastest ways to increase your bottom line, because 100% of the increase is additional profit.
When looking at pricing, it’s important to consider the value you are providing customers. If you are providing good value for the price, your customers will remain loyal. To adjust prices appropriately, consider the following:
- What are your costs? (specifically, your gross profit margin)
- Have your costs changed since you last adjusted your prices?
- Who is your target customer and what are their expectations?
- Is the value that you provide far exceed what you charge?
- What are your competitors doing in terms of pricing?
- How does the quality of your product, service or experience compare to those competitors?
- If you were to increase prices, would your new profit per transaction more than make up for the risk of losing a few price sensitive customers?
Once you’ve taken these things into consideration, you can start to adjust your prices accordingly – and there are many ways you can do that. You may want to introduce a tiered pricing model, adjust products individually, adjust prices seasonally, or adjust across the board.
2. Create new opportunities
Creating new opportunities could include a marketing strategy to increase leads… but if you’re only thinking about marketing and analytics, you might be missing out on more creative ways to grow.
Creating business opportunities could also include growth strategies such as: diversifying your offerings, expanding your product line to sell more to existing customers, creating strategic partnerships, or even acquiring another business that can provide you with access to a new marketplace, talent base, or competencies that you don’t currently possess.
It’s difficult to see these opportunities when you are engrossed in day-to-day business operations. To keep a strategic mindset, schedule time to away from your business regularly to create the time and space to think. A coach can also provide great insights on strategies to improve your top and bottomline growth.
3. Reduce interest payments
While it sometimes makes sense to leverage debt when growing a business, interest payments can pile up quickly, so it’s important to remain prudent in managing your cash flow and balance sheet.
Whenever possible, use more cash upfront when making purchases, and exceed the minimum required payments to accelerate debt payoff. While this will reduce your current cash position, it will significantly reduce the amount of interest expense you incur in the long run, so it’s a bottomline-booster for companies that have the cash available to do it.
If you don’t have the resources to prevent or eliminate debt, there are still steps you can take to toward interest reduction. Even in high interest rate markets, it’s worth shopping around for the best loan rates, exploring opportunities to refinance, or negotiating with existing creditors. Never underestimate what you can achieve by calling around!
4. Employee training
I often ask the CEOs I coach, “where do you see profit leaking out?”
A majority of the time, their answer includes something to do with employee training.
It could be that lack of training is causing employees to be slower or make more mistakes, and that diminished productivity is eating away at the bottom line.
It could also mean that the business is overly reliant on the business owner or other key staff, because no one else can do what they do. This significantly impacts the capacity and top line growth potential of the business, not to mention you are under-utilizing capable team members who would be able and willing to take on more responsibilities if you invested the resources to train them up.
5. Automate everything
The benefits of business automation are clear: automation helps streamline processes, reduce labor, prevent errors, and increase efficiency.
Where can your business use automation?
It could be utilizing specialized software for data entry, financial tasks, marketing and customer relations tasks, scheduling, reminder systems, managing inventory, or creating reports.
Of course automation rarely (if ever) replaces the need for human oversight, but here’s how I think about it:
Systems run the business. People run the systems. (make a call-out quote?)
6. Cross-sell and upsell
I’ve heard it said that it costs 6 to 10 times more to get a new customer than it does to keep and grow an existing customer. After all, these are buyers who already know, like and trust your brand, and are most likely to buy more of your products or services.
Ask yourself these questions:
- Do we have customers who could be doing business with us more than they are now?
- Do we have customers who don’t even know everything we offer?
- What could we do to better educate and serve our best clients?
- How much of our marketing campaigns and efforts should we be investing into our existing database?
Before you think “market share,” think “wallet share.”
Upselling and cross-selling are effective and enjoyable ways to generate more sales, by putting the focus on your best customers.
7. Understand your brand
Your brand is more than a logo and slogan—it’s who you are as a company, what you do, and why you do it. When customers understand these things about your business, they’re more likely to choose you over competitors.
Branding is a powerful tool when it comes to improving the bottom line because it can help you attract new customers, differentiate your business from competitors, and develop customer loyalty.
Equally important – it helps you to get clear on who your customers are not.
Trying to build a brand that is all things to all people is a race to the bottom. Getting clear on your core customer and brand promises will help you to stay focused on finding the right customers, and focusing your energy and resources on serving them with excellence.
8. Don’t stop learning
As Warren Buffett says, “the more you learn, the more you earn.”
But what do you need to learn about? Here are a few questions to help you craft an effective education plan that will impact both top and bottom line growth:
- What would it take to be able to charge a premium for your product or service?
- What skills would make you more effective as a leader?
- What weaknesses are limiting your business’s growth?
- Who is the person I need to become to run the business I want to have?
Once you have a list of areas you’d like to grow or improve, ask yourself: What do I need to learn about this?
From there, craft a learning plan that is going to work for you. It could include books, audiobooks, podcasts, videos, seminars, ecourses, mentors or coaching programs!
9. Work smart by making smart investments
Though it might sound counterintuitive, sometimes increasing “expenses” can actually be margin boosters.
For example, you might think your business can’t afford to hire great people… so you stay stuck wearing too many hats and running the constant risk of burnout.
On the surface this seems logical, because payroll is considered an overhead cost on the income statement. However, if you add up the amount of time you spend doing various responsibilities, then assign a dollar value to those tasks (that is, what it would cost you to pay someone else to do it), you’ll likely realize that you are spending far too much time working below your skill set. After all, if you are drowning in low-value tasks that are getting in the way of doing high-value tasks, then not hiring, automating or outsourcing those responsibilities is costing you a fortune.
So working smarter means you consider the difference in an investment and an expense – realizing that investing into payroll, technology, outsourcing or systemization can all produce a positive ROI (return on investment) and boost your bottom-line growth.
10. Get paid
Is your business the most generous bank in the world?
If you are allowing your accounts receivables to pile up while your clients delay paying their invoices, then you are basically giving them an interest-free line of credit. Ouch.
Here are a few tips to improve your bottom line by making sure you get paid in a timely fashion:
- Have clear payment terms in writing
- If you take progress payments, ensure there is profit in every payment. Don’t wait until the end of the project to recoup all your expenses and turn a profit!
- Get invoices out quickly – don’t wait until the end of the month
- Offer easy payment methods
- Stay in touch with customers who are behind
- Mix up your approach – if invoices are generally sent via email, perhaps it’s time for a written notice or a phone call
- Train accounts receivable specialists, equipping them with collection scripts that are respectful, so you can preserve the client relationship while being firm on payment terms
- Consider charging a penalty for payments that are severely behind
Lastly, if you are in a cash crunch, you can also offer discounts for quick payments, although I don’t recommend discounting as a long-term strategy, as it erodes profitability.
There literally hundreds of ways to grow your bottom line, but these ten big ideas will help you get started. To learn more about how to scale up your business profitably, apply for a complimentary coaching session.
How Do You Calculate the Bottom Line?
The bottom line, or net profit, is calculated by subtracting all costs from total revenue. There are two types of expenses on your profit & loss statement (P&L): Cost of Goods Sold (COGS) and Overhead.
What are Costs of Goods Sold, aka, Variable Expenses?
This includes expenses that are directly associated with producing and selling a product or service – most commonly including materials and direct labor costs. In other words, these expenses are directly tied to transactions, so they fluctuate in proportion to sales revenue.
What is Overhead, aka, Fixed Expenses?
This includes expenses such as marketing, research and development, administrative costs, rent, utilities, insurances, etc. While these expenses might fluctuate throughout the year, they do not change as a direct result of sales, so they are considered overhead
Revenue – COGS – Overhead = Net Profit.
How do you increase top line and bottom line?
Top-line growth refers to revenue, so in order to increase the top line, you must bring in more sales.
To increase the bottom line, or net earnings, you need that revenue to convert to profit. That may require reducing costs, but it’s important to understand that you can’t cut your way to growth. So a scalable business needs other strategies in place to increase the bottom line, such as finding ways to operate more efficiently, and making sure the company is executing on it’s priorities consistently.
The benefit of increasing efficiency and execution is that it also increases your business capacity – that is, your ability to handle more business without continuing to increase expenses.