When you hear the term 'top line' with respect to financials, it refers to total revenues or sales for the company. In contrast, when you hear about 'bottom line', it refers to the net earnings or profit of the company, most often what is known as EBITDA, earnings before interest, taxes, depreciation, and amortization.
Which is more important to focus on to benefit the practice?
Both are important. Top line growth is important as it indicates that you have a thriving, growing practice that provides products and services that your clients are willing to pay for. However, as you will see in the following example, if your focus is solely on top line growth, it is customary to see practices expend many resources growing their top line revenue, only to find at the end of their year that they have little or nothing to show for their added commitment and work.
For example, if you have a practice with $1,000,000 in revenue per year and your profitability is 5%, your bottom line is $50,000. If you focus on growing your top line by 10%, but you change nothing about your management, you will likely achieve $1,100,000 in revenue per year, at 5% profitability, or $55,000.
However, if your focus is on growing your bottom line, and your practice achieves $1,000,000 in annual revenues at 5% profitability, with bottom line profit at $50,000, and you work to improve profitability from 5% to 20%, the following is the result. Your bottom line will be 20% of $1,000,000, or $200,000. Thus, by focusing your resources on growing your bottom line, your earned $145,000 more in earnings or profit by focusing on growing your bottom line.
Remember, both top line and bottom line growth are important. Work equally to growth both. But, most practice owners don't realize the impact of a bottom line or profitability focus in growing their opportunities.
