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October 18, 2013 at 12:10 AM
Top-line growth is important. If your top line isn’t growing as fast as the market is, you’re losing market share — and opportunities. If your top line is growing faster than the market, then you’re gaining market share — a really good thing.
Revenue growth is an indicator of how your business is doing. But by itself, revenue isn’t a great indicator of success. Much of the time it’s in indicator of something else: your ego.
Look at me! I’m big! It’s easy to increase revenue. If you dropped your price to something equal or less than your low-priced competitor, you could easily increase 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. You’d get to talk about your revenue number and impress people at dinner parties. A lot of your competitors would likely be impressed, too.
But profit is a better measurement of the success of a business. I’ve heard entrepreneurs say it this way: “Sales are 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 I assure you, profit will make you feel much 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.
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 that generate billions in revenue but 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!