Business bottom line basics

The bottom line of a company refers to an organization’s net profits or net income after all costs have been deducted. The bottom line can be found at the bottom of a company’s income statement. You can also represent the difference between the gross revenue and the net revenue as a percentage, which is known as a profit margin. Low-profit numbers are an indication that a company is not performing well. For stockholders, a bottom line is sometimes referred to as the earnings per share (EPS) profit.

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How the bottom line is calculated

To calculate the business bottom line, you first need to know your gross revenue or sales. This includes all types of income, including your total sales and any other income sources. Then, you deduct all of your expenses. On top of your operating expenses, this could include interest and depreciation. If you have your most recent income statement available, you already have your bottom line calculated. If not, you can calculate the bottom line manually.

Why your bottom line matters

Your bottom line gives you a way to measure your profitability for a specific period. This can give you a general idea of your success, but it can also help you determine what to do with the profits. Having the calculation lets you see how much is available for things like retained earnings, dividends, reinvestments and debt payoffs.

How to increase your bottom line

The financial bottom line can be a positive or negative figure. If it’s positive, companies can invest in new talent, product development or expanding operations. They can also pay stakeholders dividends or repurchase stock. If your company is seeing an increase in its earnings and/or lowering its cost, you’re improving your bottom line. This is especially important if you have a negative or low bottom line.

Increasing the bottom line is a simple formula — increase revenue and efficiency while cutting costs. However, it’s not always easy to make those changes quickly. Consistency and patience can get your bottom line moving in the right direction. Here are some bottom line business factors that can help:

1. Decrease your expenses
2. Increase pricing
3. Adjust existing finances
4. Find your ideal buyer
5. Hire the right talent
6. Add new offerings
7. Hire a financial professional

1. Decrease your expenses

Lowering your business expenses leaves you with more money leftover as profits. Review every expense you have to see if you can lower or eliminate anything. Here are some ideas for lowering your expenses:

• Move locations. Consider moving to a less expensive operating facility. Your lease is likely one of your biggest expenses, so dropping that number can help your bottom line.
• Shop suppliers. Finding less expensive suppliers can get you the items you need while lowering your costs.
• Reduce advertising costs. Focus on cheaper marketing methods, such as posting on social media platforms.
• Consider reductions in payroll. For example, when some companies are struggling to make profits, they institute hiring freezes. When employees leave the company or retire, those positions aren’t filled until the company can afford them.
• Use automation. Software that helps you automate time-consuming processes can streamline your employees’ schedules to maximize their wages.
• Compare insurance options. The rates change frequently, so getting quotes from multiple insurance companies can help you find the cheapest policies.

2. Increase pricing

Charging your customers a little more while also cutting costs can give you an even greater increase in your bottom line. Determine whether the price for the product or service you offer is fair and beneficial to your business. Calculate costs to make the product and add a markup percentage. In some industries, the markup percentage is small, ranging from 5% to 10%, while in other industries, the markup is higher. You want to stay competitive so you don’t lose business, but a small price hike could add up to significant profits.

3. Adjust your existing finances

Ask your bank if your business qualifies for a lower interest rate on your loan. If you’re established and have good credit, you may be able to decrease your loan payment with a smaller interest rate. Ask your accountant to investigate additional tax benefits that could also improve your company bottom line.

4. Find your ideal buyer

Buyer personas guide the best marketing strategies. This term refers to a business’s ideal buyers—the people who will buy your product or service. A good buyer persona strategy lowers costs because it keeps your focus on high-value customers. It allows you to focus your marketing efforts on those people who are likely to buy your product or service. This maximizes your marketing dollars and often produces much better results than marketing to everyone who’ll listen.

To find your buyer personas:

• Understand your existing customers’ demographics, preferred media outlets, locations and other information
• Use social media and analytics to track trends
• Evaluate your competition’s marketing, who they target and how
• Analyze customer complaints to learn more about their needs

5. Hire the right talent

Attract the best hires by evaluating and improving your Employer Value Proposition (EVP). EVP refers to the things that make employees want to work for certain companies. Your company culture, values, compensation packages and benefits all contribute to your EVP. When you hire great employees and do things to retain them, you can save money on turnover costs and keep your productivity high to maximize your profits.

6. Add new offerings

You can also improve your bottom line by mixing up the services and products you offer. Having a mix of high volume products, which sell in higher numbers but generally have lower profit margins, and low volume products with a larger profit margin but less frequent sales can help. Consider adding new options to your lineup to generate more income.

Offering a service to complement your product is one relatively easy option. For example, if you sell software, you might offer computer setup, software installation, software support and troubleshooting the software to your customers. This is an easy upsell when someone buys your product, and you can generate a significant amount of extra revenue.

7. Hire a financial professional

An accountant, tax professional or financial advisor can help you improve your bottom line. They can evaluate your current situation and make tailored recommendations based on your finances. They’re well-versed in finding ways to use your business income wisely. Your accountant can give you suggestions and keep you updated on how well those changes are helping your bottom line.

FAQs about the bottom line in business

What is the difference between bottom-line growth and top-line growth?

Top line and bottom line refer to the data’s position on the income statement — top line numbers are at the top and bottom line numbers are in the bottom position. Top-line growth refers to an increase in gross sales or revenues with none of your expenses deducted. Bottom-line growth refers to an increased profit after costs such as taxes, loans and salaries have been deducted.

Is the top line or bottom line more important?

Both figures have a place in analyzing your business. You can’t look at just one or the other to figure out if your company is doing well. While both help you measure your success, they do so in different ways. The top line shows how much your business is growing overall, while the bottom line reflects the efficiency of a company’s operating costs. You might have huge top-line growth, but if your expenses are high, your bottom-line growth might be very small.

Does the bottom line indicate how much money a company has earned?

While the bottom line does indicate net profit, it doesn’t give a clear indication of cash flow because it includes non-cash expenses such as depreciation. An example of depreciation is the declining value of machinery.

What is the triple bottom line (TBL)?

The triple bottom line is a term created by business advisor and author John Elkington. It refers to the social, environmental and financial impacts and benefits of an organization. The idea is that you shouldn’t only look at your profits. You should look at how your financial success also ties into your social and environmental impact. Here are the three Ps of TBL:

• People
• Planet
• Profit

Examples of a triple bottom line framework include evaluating energy efficiency and sustainability, fair distribution of labor wages, impact on communities and other factors.