Bottom Line vs. Top Line: Differences and Examples

Your top line is how much money you make without factoring in your expenses, while your bottom line is what you have left over after accounting for all your business expenses.

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Comparing your bottom line vs. top line can give you valuable insight into your company, helping you understand, from a financial perspective, what's working—and, just as importantly, what isn't.

Let's dive into what each of these figures represents, how to analyze and compare bottom line vs. top line, and how to increase bottom and top-line growth.

What Does Bottom Line Mean in Business?

Your bottom line is your company's total income after accounting for all of your expenses. In other words, it's the money left over after paying for all of the costs of doing business. 

As the name suggests, you can typically find this number at the bottom of your financial statements. Your bottom line may also be called net earnings, net income, or net profits.

You can calculate this figure by subtracting your expenses from your revenue:

Bottom Line = Revenue - Expenses

But why is it important to pay attention to your company's bottom line? You can use this metric to plan and evaluate a variety of business decisions—like when and how to expand into new locations, hire more employees, and, in general, fuel future business growth.

What Impacts Bottom-Line Growth?

Your bottom line is impacted by:

• Administrative costs and overhead of running your company, like rent and insurance premiums
• The cost of goods sold (COGS)—what it costs to manufacture your products or provide your services
• Depreciation
• Income taxes
• Interest payments on any loans
• Payments to vendors and other expenses, like subscription fees
• Payroll, salaries, and wages

Because it's impacted by expenses, your net earnings can change over time—even if your revenues remain the same. The reason? The more you spend, the less profits you retain, even if you pull in a stable revenue.

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What Is an Example of a Bottom Line?

Let's say you own a building supplies company that serves contractors in your community. In a given year, you generate a revenue of $1,500,000 and spend:

• $250,000 on administration costs and overhead, including rent, insurance premiums, and utility costs
• $500,000 on inventory
• $50,000 on local, state, and federal taxes
• $15,000 on loan interest
• $50,000 on vendor costs, like outsourced janitorial services, water delivery, and third-party installation contractors)
• $200,000 on payroll

This means your total expenses would be $1,065,000.

To calculate your bottom line, you would subtract your expenses from your revenue:

$1,500,000 - $1,065,000 = $435,000

This means your net profits for the year would equal $435,000.

What Does Top Line Mean in Business?

Your company's top line is made up of your total revenue or gross sales—without accounting for any expenses. In other words, it's how much money your business generated over a given period through your core operations—the sales you've made or the services you've provided.

And because so many of the calculations in your financial statements depend on your top line, it's listed on the top of your income statement.

Calculating your top-line revenue is easy: simply add up all of your revenue generated by your primary business operations.

In the example above, revenue of $1,500,000 would represent your top line.

What Impacts Top-Line Growth?

Your top-line number is your pure gross sales number. It's nothing more than the revenue you've generated through sales of your products and services.

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NOT included in your bottom line are the following:

• Business expenses
• Manufacturing/service costs
• Discounts
• Refunds
• Returns
• Appreciation
• Interest
• Investments
• Sale of company assets
• Other income that doesn't come from your primary business activities

What Is an Example of a Top Line?

Let's say you own a local auto shop. In addition to servicing vehicles, your business sells a limited stock of used cars. You also rent out a small portion of the property to a family friend who runs a woodworking business as a side hustle in exchange for paying you rent.

Each year, you earn:

• $125,000 from service visits
• $75,000 from car sales
• $50,000 from auto part sales
• $5,000 from renting space to your family friend

However, your total sales revenue would only amount to $250,000—the money you earn from rent doesn't count as part of your revenue (because it's not part of your primary business operations).

This means your top line would be $250,000.

Differences Between Bottom Line vs. Top Line

Your bottom line is the money you have left over after paying your expenses, while your top line is what you make without accounting for your expenses. 

In other words, your top line shows how much money you have available to cover operating expenses, like inventory, rent, utility bills, payroll, and taxes. And once you pay for all those things? You can check out your bottom line to see how much you have left over to invest in your business.

Your bottom line can tell you if you have the funds to hire new team members, buy new equipment, and pursue other business endeavors.

But that's not the only difference between these figures. Other differences include:

• How each number is calculated: Your top line is based entirely on your gross revenue, whereas your bottom line depends on your gross revenue minus your business expenses. This is the key difference between the bottom line vs. top line.
• Why each number is used: The top line gives you insight into your total revenue, which means you can track an increase—or decrease—in sales over each reporting period. The bottom line helps you compare your operating costs to your business income to determine how profitable your company is (which can also help you determine if your total costs are sustainable).
• When each number is used: Though both numbers are useful, newer businesses might focus more on increasing their top line to drive revenue and increase sales. On the other hand, older companies (or those not within growth phases) might focus more on maintaining—or reducing—their operating costs in an effort to increase the bottom line and ensure the business is viable in the long term.

Why Should I Pay Attention to My Bottom-Line and Top-Line Growth?

You can—and should—use your company's income statement to measure and analyze your top- and bottom-line growth. How?

• Top-line growth indicates an increase in gross sales. When this figure rises, it means you're experiencing sales growth and pulling in more income. This is a good time to check out what products or services are doing well and consider expanding them.
• Bottom-line growth indicates an increase in your company's profitability. When the bottom-line figure rises, it means you have additional money left over after paying all of your operating expenses. That means you can invest in growing your business. Whether that's hiring new team members, taking out a new lease, or something else.

But these line items don't always increase at the same pace. In fact, one might increase as the other decreases year-over-year. By analyzing these metrics, you can determine if this discrepancy is an issue, giving you the chance to make changes to protect your cash flow and improve your company's financial performance.

For example, your top-line growth might increase by a whopping 20% from one year to the next. On the surface, this might be cause for celebration; after all, this means your revenue grew by 20%. At the same time, your bottom-line growth might have remained the same—or, worse, it may have decreased by 5%, which means you've lost a portion of your profits.

This could happen if, for example, you introduced a new line of products that increased your COGS. While the new items were in high demand and sold easily (leading to increased revenue), the cost of purchasing raw materials to manufacture these goods ate into your profit margin. 

It could also happen if you invested heavily in marketing to get in front of new customers—and your marketing spend was higher than the revenue those new customers brought into your company.

Analyzing these figures would give you better insight into determining the profitability of your new products, helping you decide if they're still worth carrying.

How To Increase Top-Line Growth

You can generate top-line revenue growth by doing the following:

• Increase your prices: Raising the prices of your products and services can generate more revenue—as long as you don't price out your customers. For example, if you provide cleaning services for $40 an hour for eight hours per week, you would generate a revenue of $1,280 per month. If your rate rises to $50 an hour, your revenue would increase to a total of $1,600 per month—a difference of $320 per month.
• Introduce new product lines or services: New goods or services can help you capture a larger market share by giving customers more options. For example, a workers' comp agent can become licensed to sell property and casualty as well, leading to new opportunities for signing clients.
• Gain new customers/clients: Increasing your customer base can result in more revenue. For example, a restaurant can invest in marketing efforts and advertisements within the local community, generating sales through additional business.

How To Increase Bottom-Line Growth

You can increase your bottom line by doing the following:

• Reduce the cost of goods sold: Your COGS includes the cost of raw materials, labor, storage, shipping, discounts, and refunds for each of your products or services. Searching for better and more affordable vendors, optimizing your labor costs, and improving the quality of your products/services can reduce your COGS and increase your company's profitability. For example, a carpenter could invest in better-trained employees, which means jobs take less time—decreasing labor costs.
• Improve operating efficiency: Each of your company's expenses reduces your profits. You can improve this figure by taking cost-cutting measures like using automation to cut down on labor costs, shutting down unproductive facilities or venues, and reducing employee turnover. For example, a plumbing company can automate scheduling service calls, freeing up an employee to work on other tasks.
• Use tax benefits: Tax benefits, like credits and deductions, can reduce your overall tax obligations. By claiming these benefits (like deductions for employee benefits or the home office deduction), your business can save money, leading to increased profits. For example, an insurance agent can deduct the cost of continuing education materials and test fees.

FAQs

Is bottom line the same as EBITDA?

Some companies choose to include an additional line item below the bottom line on their P&L statements. This item includes the company's EBITDA, or earnings before interest, taxes, depreciation, and amortization.

The reason? By making this calculation, companies can analyze their cash profit to determine their actual cash flow and help persuade investors to invest in the business.

Also, the formulas are different. EBITDA uses net revenue (which is a company's revenue minus any allowances or discounts):

Net Income + Interest + Taxes + Depreciation + Amortization = EBITDA

Bottom line subtracts all expenses from a company's gross sales (or all of its primary income):

Revenue - Operating Expenses - COGS - Taxes - Interest = Bottom Line (or Net Income)

Is net income the same as gross profit?

Though net income and gross profit both measure profitability, they're not the same. A company's net income is determined by subtracting its total expenses from its revenue, while gross profit subtracts the cost of goods sold from revenue.

Compare Your Business's Bottom Line vs. Top Line to Become (or Stay!) Profitable

As a small business owner, you want to make sure your company has the cash flow, revenue, and profits to remain in business—or even grow. 

One way to do that?

Calculate your bottom and top lines to figure out what's working and identify areas you can improve to increase your profits.

That way, your business has more than enough cash to cover its expenses—and thrive.