The difference between growing sales and net profit. Why it's important for business owners to adopt a different focus for each.

When you are running your business, growing sales and growing profit are related but have distinct objectives in business. We want to teach you that they require different strategies and focus areas.

See below a breakdown of the main differences and why strategy is important when dealing with these:

1. Focus - What you should prioritise and consider in your business strategy.

• Growing Sales:

  • Focuses on increasing the total revenue by selling more products/services or charging higher prices. Sometimes business owners are blinded by this and forget that profit is a key metric to monitor and aspire to keep the business sustainable.

  • Prioritises volume and market share. This is important because some start ups focus on capturing market share at the expense of incurring a net loss in revenue (expenses outweigh the revenue). What comes to mind is tech start ups that lose money at first to then recover those loses through future profits (Amazon, Facebook, are prime examples).

    
    

• Growing Profit:

  • Focuses on maximizing the bottom line (net income) by improving efficiency, reducing costs, and optimizing pricing strategies. This is tied to operational frameworks, pricing of your goods and services and how efficient you use assets in the business to generate sales. Depending on your industry you want to maximise the use of assets to generate sales. The more effective the use of assets to grow sales, then you have the option to improve efficiency of those sales by reducing costs or expenses that are not necessary in the business.

  • Emphasizes financial sustainability and return on investment. This is very important for small business owners because, unlike businesses with the backing of investors or VCs, it is your own money at stake and if you manage to make your business sustainable so that profits provide the additional capital to grow, then you're on the right path.

    
    

2. Key Metrics - These are the numbers and ratios that you need to understand from your accountant.

• Growing Sales:

  • Revenue growth.

  • Number of units sold.

  • Market share or customer base size.

  • Number of clients obtained via acquisition or buying another business.

    
    

• Growing Profit:

  • Profit margins (gross, operating, and net).

  • Return on investment (ROI).

  • Cost of goods sold (COGS) and operational efficiency.

    
    

3. Strategies - These are tied to your business strategy, frameworks and execution.

• Growing Sales:

  • Expanding into new markets or geographies.

  • Launching new products/services.

  • Increasing advertising and promotional activities.

  • Offering discounts or sales incentives.

    
    

• Growing Profit:

  • Cost reduction (e.g., streamlining operations, negotiating with suppliers).

  • Improving pricing strategies (e.g., bundling, premium pricing).

  • Increasing operational efficiency.

  • Reducing waste or inefficiencies in production.

    
    

4. Potential Trade-offs - This is where business owners make the decision depending on their risk vs reward appetite and how much capital they can invest.

• Growing Sales:

  • Higher sales do not always translate to higher profits if the costs (e.g., marketing, discounts, or operational expenses) increase disproportionately.

  • Businesses may sacrifice profit margins to achieve higher sales volume.

    
    

• Growing Profit:

  • Can involve limiting sales growth by focusing on high-margin products/services.

  • May lead to reduced market share if cost-cutting affects customer experience or product quality.

    
    

5. Timeline - this is where you set SMART goals and establish a reasonable timeline to achieve them.

• Growing Sales:

  • Often a short-to-medium-term goal, as increasing revenue is usually more straightforward and faster to measure.

    
    

• Growing Profit:

  • Can take longer since it often involves structural changes, operational efficiency improvements, or long-term investments.

    
    

6. Risks - Depending on what stage in life you are in and investment level, the risk you accept is up to you.

• Growing Sales:

  • Risk of overextending resources (e.g., expanding too quickly).

  • Increased reliance on low-margin or discount-driven sales.

    
    

• Growing Profit:

  • Risk of alienating customers by cutting costs (e.g., reducing product quality or customer service).

  • Risk of limiting growth by focusing too heavily on cost efficiency instead of expansion.

Conclusion

While growing sales is about expanding the top line (revenue), growing profit is about ensuring the bottom line (net income) is healthy. Ideally, businesses aim for a balance—sustainable sales growth that contributes to profitability without eroding margins.

If you want to know contact us at admin@cmgadvisory.co.nz and we will assist you in determining the right framework and execution plan to ensure your net profit is a reflection of a sustainable growth in sales or revenue.