What is Top Line?
The top line, also called gross sales, usually refers to a company's revenue before subtracting discounts and returns.
How Does Top Line Work?
Let's assume restaurant chain XYZ had $1,000,000 in sales for the year. The company's top line is $1,000,000.
Depending on the context, 'top line' may be used to refer to gross sales or net sales. For example, if XYZ offered $30,000 worth of discounts throughout the year to senior citizens, student groups and people who redeemed a coupon, and also refunded $5,000 to unhappy customers during that time, XYZ's top line might be:
$1,000,000 - $30,000 - $5,000 = $965,000
Typically, the company’s income statement would show $1,000,000 of gross sales, then $35,000 in coupons and discounts, and then $965,000 of net sales. Either sales figure could be the 'top line,' depending on the conversation, so it's important to understand the meaning behind any colloquial usage.
Why Does Top Line Matter?
The top line generally does not account for the cost of goods sold, general and administrative expenses, or other costs (those are typically incorporated in the operating income calculation).