Top-line growth is important. If your top-line isn’t growing as fast as the market you’re losing marketshare and losing opportunities. If your top-line is growing as fast (or faster) then your market your gaining market share, and that’s a really good thing.
Revenue growth is an indicator as to how the business is doing–especially as a sales organization. But by itself revenue isn’t a great indicator of success. Much of the time it’s in indicator of something else: Ego.
Look At Me! I’m Big!
It’s easy to increase revenue. If you were to drop your price to something equal or less than your low price competitor, you could easily increase your revenue, couldn’t you? Your value proposition would be even more compelling at a lower price. You’d get the bragging rights that come with massive growth, and maybe even double digit growth. You get to talk about your revenue number and impress some people at dinner parties. A lot of your competitors would likely be impressed too.
Revenue growth alone is not the best measurement of the performance of a company. It’s often a better measurement of ego.
Profit is a better measurement of the success of a business.
I’ve heard entrepreneurs say it this way: “Sales is vanity. Profits are sanity.” And that statement is true. Revenue may make you feel good because it allows you to proudly throw around a big number. But profit makes you feel even better.
Profit is what fuels real growth. It’s what allows you to expand, to hire new people, and to create new value for more customers. Profit means you aren’t making empty sales.
Profit is what gives you the security that you can survive a downturn in the market. Profit is what ensures that you can continue into the future.
Profit is a greater representation of how you’re running your business. A higher gross profit number is an indication that you are both creating and capturing value. A higher net profit number likely indicates that you’re running a sound business.
We talk about revenue, but we don’t talk about profit. Revenue is for bragging. Profit is personal.
Beware the Giant Dwarfs
It’s easy to be impressed by companies that measure their revenue in billions of dollars, especially when they talk about billions more in growth. But it’s much harder to be impressed when you look at companies generating billions in revenue who are unable to squeak out even a dollar of profit on the other end. Not even a single dollar? That’s more than vanity. It’s insanity.
If you are a $3 billion dollar company and you can’t squeak out one dollar of profit, you’d be stronger as a $2 billion company making 100’s of millions in profit. This is as true for these giants dwarfs as it is for your business.
The trick is to grow top-line and bottom-line at the same time. Then you’ve got an interesting business. But if you have to choose, give up some top-line growth for bottom-line growth.
Subscribe to my weekly podcast In the Arena.