The top line and bottom line both come from your income statement where the first line (the top line) is your total revenue, and the last line (the bottom line) represents your business’s profit. Both are important measures of financial health, as your top line is the money you can use to cover expenses, pay people, etc., and the bottom line represents how much money your business keeps after paying all of your expenses and taxes.
Since they both come from the income statement, the top and bottom lines are related by this formula:
- Bottom Line = Top Line – Expenses
In an ideal situation, your top and bottom lines will grow together, where the top line grows faster than expenses. But sometimes one will grow while the other declines. For example, a recession can hit your top line sales, but you can still grow the bottom line by cutting expenses.
Other times, you can grow the top line by investing with a small business loan, even though it will decrease near-term bottom line due to higher expenses now that you make monthly payments to the lender. In the long run, the investment will grow both top and bottom line together.
Top Line Revenue vs. Bottom Line
Top line is your total sales (also called revenue) and bottom line is the total profit (also known as net income or net earnings) you get after subtracting all costs from the top line. When your company experiences top-line growth, it means there’s an increase in sales. More revenue allows for increased investment in advertising, new product development, and hiring.
What is the Bottom Line in Business?
The bottom line is a business’s profit, the net income after deducting all expenses from the top line revenue. Bottom line expenses can include:
- Cost of goods sold, including direct labor and materials.
- Fixed overhead and administrative expenses.
- Interest charges on loans and other debts.
- Depreciation and amortization charges.
- Federal, state, and local income taxes.
The Triple Bottom Line
Some businesses add what is known as a triple bottom line, which means they measure their performance by both financial health and the impact on society, including the people as well as the environment. The triple bottom line is sometimes referred to as “the triple Ps”: profit, people, and planet.
Companies that consider the social good aspect of their business are known to resonate more with some consumers. By emphasizing social responsibility and environmental sustainability, companies can build stronger connections with their audience.
Why Top Line and Bottom Line Matter to Investors and Lenders
Top and bottom lines both matter to investors and creditors, but investors will look for growth since they get paid out of the bottom line, and lenders want stability to ensure you will make regular loan payments.
Investors put money into your company in return for equity, meaning they get to share whatever the company earns. That’s why they’ll focus first on the bottom line and your ability to grow it, but they don’t count out the top line.
Depending on how your top line is growing, investors will want to see different actions to make sure the bottom line grows and they get paid:
| Situation | What investors want to see |
| Steady top line growth | Control expenses |
| Stagnant or declining top line | Cut costs or open new sales channels |
If the top line is growing steadily, investors want to see you control expenses and not waste money that could instead drop to the bottom line. If your top line is stagnant or declining, investors will want you to find new sources of sales or to cut costs so that the bottom line doesn’t suffer.
Meanwhile, lenders will look for stability more than growth potential because a stable top line and bottom line means you’re more likely to repay the loan in full, which is how the lender makes their money. The lender’s payments come as an expense (before the bottom line), so they’ll be determining their willingness to invest based on your ability to pay each month.
Accounting tip: Interest on loans is an expense that you subtract from the top line to get to the bottom line.
Ways to Grow the Top and Bottom Lines
Although growing the top line makes it easier to grow your bottom line since you don’t need to cut as many costs, you can still grow the bottom line even when your top line declines. There are different strategies you can take depending on the current and foreseeable economic conditions, like recessions and strong economies.
Grow Top and Bottom Lines During Recessions
It may seem counterintuitive to grow your top and bottom lines in economic downturns like recessions, but these strategies can help you do it:
- Launch in new markets and product uses.
- Use sales tactics to increase price paid.
- Bundle products vs slashing prices.
- Invest in marketing.
- Improve your efficiency or change your business model.
Launch in new markets and product uses
Entering new markets can boost your top line when the new market revenue more than compensates for the decline in your current market. This can be a new geographic market where you reach new customers. And it’s even better if they’re a similar demographic to your current audience, as you’ll already have the experience in advertising to them and meeting their needs.
You can also lock in lower lease payments during a recession, boosting your bottom line through lower fixed costs as the economy recovers. Since your top line represents your total company revenue, you can break it down with this formula:
- Top Line = Number of Items Sold * Price Per Item
New geographic markets aren’t the only way to grow your top and bottom lines in recessions. There may be creative ways consumers can use your products too.
Finding a new use for a product is a fantastic way to increase the number of items sold in recessions. Joseph McVicker took his company‘s product, originally intended as a wallpaper cleaner, and turned it into one of the most popular toys of all time. McVicker simultaneously boosted his bottom line profitability thanks to accurate COGS since he was able to cut the detergent costs out of the product.
Another great story was in 1925, where the Textile Bag Manufacturers Association increased sales of cotton sacks for flour, sugar, and seeds by promoting their reuse as a fashion item. They encouraged people to sew them into clothing, even distributing booklets like fashion magazines with tips on how to turn flour sacks into wardrobe items. It became so popular that the commodity producers printed fashion designs on their sacks to attract shoppers from other brands.
Sales tactics to increase the price paid
Instead of trying to increase prices during a recession, use sales tactics to upsell and cross sell customers into higher-priced items. Streaming services are a great example where they charge a bit more for you to watch the same programs without ads. Compared to the overall cost, the additional amount is tiny, but you feel like you’re getting a great value while the streaming service is growing their top line.
Bundle products vs. slashing prices
Let competitors resort to slashing prices in an attempt to entice customers and erode their top line. This makes it harder for them to raise prices when the economy recovers. While they cut prices, you can try bundling as a way to discount multiple product purchases. When done well, it can grow your top line with more items sold and possibly bring you more customers.
This is especially powerful when the bundled products are complementary, like laundry soap and fabric softener. Laundry soap is a necessity, while softener is a luxury and an upsell. By giving a discount for buying both together, instead of individual discounts, your customers get a larger total savings or at least a larger perceived value by saving on both depending on the deal.
If the bundle picks up, it can grow your overall top line by gaining customers from other stores that discount just one or the other. Because it costs roughly the same to service a customer buying one product versus two, it also prevents your bottom line from suffering if they had skipped the softener.
Invest in marketing
Companies that invest in marketing during recessions may come out ahead compared to companies that scale back, and they tend to grow both their top and bottom lines over the long term. This is especially true if they build their brands while competitors get forgotten.
This is a great time to negotiate lower rates from ad sales reps who are hungry for business, as other businesses stop marketing altogether. This boosts your bottom line with the reduced expenses and keeps you top of mind for consumers who can help you grow your top line as they try out your brand.
Improve your efficiency or change your business model
Recessions are also a great time to improve your efficiency with capital improvements, like investing in new machines with an equipment financing loan. Interest rates usually fall during recessions, so you can boost your long-term bottom line by locking in a low rate that keeps your expenses low as the economy recovers.
Bonus tip: Use a Section 179 deduction or bonus depreciation when you buy new machines. This will decrease your bottom line in year 1 because of the higher depreciation expense, but you’ll pay less tax and boost your bottom line in future years. Plus, depreciation is a non-cash expense, so you can reinvest the cash into your business.
New equipment will also help you save on maintenance costs and make your business more efficient, so you don’t need to spend as much on labor or utilities. You can even save on rent costs if the new machines are smaller and you can reduce your leased square footage. Altogether, the savings can offset the interest expense from a loan, allowing you to grow your bottom line even if your top line declines temporarily.
Changing your business model is another idea. An example could be a restaurant leaving an expensive retail lease and using a food truck loan to start anew. This lets them take their food to customers rather than relying on customers coming to them. That’s one of the reasons why food trucks boomed following the great financial crisis. Diners want deals but also want a fun experience.
Money saved on labor and utilities with a food truck offsets interest expenses from the loan to grow the bottom line. Plus, these businesses can grow their top line by serving customers in new areas, like taking the truck to office parks for lunch hours and soccer fields for dinner time. They can even serve the late-night crowds coming out of entertainment venues. And this is just one example.
Grow Your Top and Bottom Lines in a Good Economy
Each of the ideas above can also grow your top and bottom lines in a good economy. For example, increasing prices gives a direct lift to your top line. Just be careful and make sure you test any increase to see if it causes a drop in the number of items sold, which lowers overall revenue.
Strong economic conditions can open you up to even more opportunities for growing your business. Here are two strategies to boost your top and bottom lines in a good economy:
- Increase consumption.
- Invest in new marketing capabilities.
Increase consumption
Increasing customer consumption grows the top line without raising prices by getting them to buy more per purchase or use more each time they use your product. Sometimes consumers use more product when they have more of it on hand.
This is one of the reasons why paper product companies say that “one roll is equal to multiple,” and why they list specific numbers of sheets inside the box or container. People may use extra sheets of paper towels when there’s more in the garage, but they’ll likely use every last square inch of the last sheet when there are no more left.
This means you could boost the top line with larger packages since consumers may be more likely to go through your product faster and more frequently. Then you can negotiate volume discounts with suppliers to boost your bottom line as well. You could even create new marketing slogans that encourage consumption.
A similar idea is to invest in a new form or new packaging that causes people to use a little bit more each time. For example, a toothpaste manufacturer could hire a design firm to create the molds for a “fresh new look” with a slightly wider opening. Think about how you apply toothpaste: It’s likely based on the length of your brush and not the total amount of paste.
With the wider opening, customers now use more each time they brush and the new look attracts more customers, both of which can boost the top line. Plus, the wider opening could make it easier to fill tubes and help you save on manufacturing costs. Further, the new design could lower printing and packaging costs, giving a bump to the bottom line as well.
Invest in new marketing capabilities
Investing in new marketing capabilities drives additional sales for your top line when times are good. It also helps you find more cost-effective marketing channels so you can keep your bottom line healthy in the next recession.
As technology continues to develop, learning new systems and techniques will boost the bottom line with cost savings from fewer people needed to manage your advertising.
Both top line and bottom line indicate the financial health of your business and are related by the Bottom Line = Top Line – Expenses equation. With the right growth strategies, you’ll keep both measures growing through any economy.
