Imagine brainstorming around turnaround strategy of a low performing company which has serious sales and operations problems. Finance professionals more likely will focus on the bottom line (profit) through cutting costs. Marketing and business development professionals mainly focus on the top line (sales) through effective sales & marketing management.
Most decisions in the business effect bottom line. Profit is the reason for businesses to live. Profit comes from top line (sales). This is also fact that top line and bottom line often contradict. Sometimes businesses sell products at its cost. If you try to make only profitable sales transactions then you will face a lot of problems: smaller market share, limited customer portfolio, poor customer satisfaction level, etc.
Which is more important? Top line or Bottom line?
In the short run you can increase bottom line with cost cutting (cutting salaries, advertising, etc). But this will not enable the business to grow. This will not provide long-term success.
Top line growth cannot be achieved immediately. But cutting costs is easier in the short run.
Traditionally Profit has been the most important performance measurement criteria. But today the modern, popular performance measurement systems including Balanced Scorecard consider not only bottom line but also other important criteria’s such as Sales potential (customer portfolio) of a business. Better customer portfolio and customer pipeline (top line indicators) contribute to better performance metrics, better valuations.
Why Top line is important?
– The greater the sales the greater the power.
– The more the sales the more the customers. Today’s customers will contribute future profitability of a company.
– The greater market share contributes to the brand power, brand positioning which is very important in the long run.
– The greater market share will enable you to gain negotiation power. This is key to business development.
– The greater market share will contribute value of the company. Sales is considered as the most important indicator to measure and compare businesses.
– This is very difficult to restore lost market position, lost market share. That is why every business must be careful with sales fluctuations. For example, for an FMCG company it can make a sense to keep its shelf share through selling at loss in short period.
Cost control is also important and shouldn’t be forgotten. Every business must strive to operate efficiently – with less resources (costs). Without effective, prudent management of cost structure growing sales can be meaningless.
However cost cutting is not so popular and attractive management technique today. Businesses try to achieve greater ROI with every AZN spent. And major focus today is SALES (Top line).
