What does revenue leakage mean?
Businesses that lose money because of mistakes in their finances or management are said to be “led” in revenue leaks. Revenue leakage can come from many different places, depending on the business and its field. Often, no one notices it. Most of the time, departments like bills and finance are to blame, even though many businesses regularly go through thorough financial analysis and inspection.
Like words
- Leaks in revenue
- Leaks in the revenue pipeline
- Loss of money
The Risk of Losing Money
The amount of money a company loses because of revenue leakage can be significant. How much a business loses will usually depend on how big and what kind of business it is. However, many people think that businesses with revenue leakage problems can expect their profits to drop by as much as 5% as a direct result.
Common Reasons Why Money Is Losing
Companies may lose money for several different reasons.
System and process flaws
If a business has terrible financial processes or systems in place, it may eventually lose money. People make mistakes when they do bills and other tasks by hand and often waste a lot of time and money. Spreadsheets usually have data that was entered by hand, and that data often has mistakes or is missing.
Price Mistakes
Price mistakes can look like many different things, but one of the most common is giving customers discounts that last after the discount time is over. A different pricing mistake happens when a customer gets a discount based on a required amount or volume, even when they don’t meet it.
Discounts and not following through with prices
Not all workers can give discounts to customers, and there are times when that’s a good thing. Lax discount policies are bad for businesses because they let discounts happen without being checked. Often, the discounts are too significant and don’t make the business any money.
Pricing and billing that don’t match up
Prices should be pretty consistent across the board unless there are exceptional circumstances, like many orders, that call for a deal. It’s the same with bills. Let’s say that a company doesn’t charge the same prices and fees to all of its clients. That way, customizing each price and charging at different times will probably waste time and money.
Not Using Software for Data and Analytics
If a business has to combine data from many different separate sources, it might be hard to get valuable information from its customer data. This could lead to asking too little for the goods or services offered. Businesses can keep an eye on their data and cash flows with the help of data analytics to find strange patterns or deals that are past due.
A complicated pricing structure
There are several ways complicated pricing systems can cause money to be lost. In one way, they can be challenging for customers to understand, making them pick a different product or service that is simpler to understand and compare. They might miss out on the best deal or value because of this. Also, complicated prices can make it hard for customers to figure out how much they are spending, which can cause them to spend more than they are meant to. If customers think they aren’t getting enough for their money, they may be more likely to quit their subscriptions. This is especially bad for companies that offer these services.
Examples of Revenue Leakage
Besides the usual reasons listed above for lost revenue, here are some others:
- Missed payments and invoices
- High cost to get a new customer
- Not keeping track of jobs correctly
- Policies that aren’t clear or can’t be reached
- Policies not followed
Unearned deals are a common way that money is lost. Assume that a business that sells software has a rule that says customers who buy more than 100 copies of that software will get a 10% discount. Now, if the customer buys the software to give each employee a license and then has to cut back on staff, leaving them with only 90 workers but still getting the 10% discount for buying more than 100 licenses, the software company is losing money.
Where to Look for and Stop Money Leaks
It’s not all bad news; fixing income leaks is often a simple process. But you have to follow a specific process.
Find the bad guy.
First, companies need to figure out where their money is going missing. Many businesses start their search with the top accounts, but that’s not always the case.
The account most likely to cause income leakages isn’t always the one with the most significant bill; more often than not, it’s the one with the most complicated contract and terms.
Businesses need to talk to their executives, who are closest to the functions of making and collecting money, to find an income leak accurately.
Look at the processes.
It’s time to follow the processes to find the exact source of the problem once a leak has been found. It’s possible that a payment wasn’t made or sent on time, it wasn’t paid according to the terms set out, or that staff members forgot to update the systems.
Make changes to how things work.
Now that the exact spot where money is being lost has been found, changes can be made to how things are run to stop any more damage. For instance, if invoices are not paid on time, make sure that late payment fees are added to all of them and that customers are sent regular emails to warn them of what will happen if they don’t pay on time.
Lower the cost of getting new customers.
Advertising and marketing can cost a lot of money for businesses, so keeping customer acquisition prices low can help them avoid losing a lot of money. Ultimately, businesses can protect their income and keep a healthy profit margin by keeping the costs of getting new customers low.
Change how you set prices.
It is essential that the pricing plan fit the service and how the customer uses it. For instance, looking at data on how a service is used might show that there is a chance to charge based on consumption or use. If a business switches from a flat rate to a consumption- or usage-based billing strategy, like tiered pricing, it might make more money from customers who use more.
Make prices stick
Pricing mistakes can happen if you don’t keep an eye on your customers’ contracts or if you add savings that you haven’t earned when you quote or bill. Businesses must have a way to make sure that their price rules are followed and that their invoices are correct and free of mistakes.
Make it automatic
Many problems that lead to lost income can be fixed by automating tasks. Great ways to use automation are to automatically send emails, like follow-up emails on invoices, make invoices automatically, and get manager approval for time spent on administrative chores.
Validation of data
When you validate data between different applications, you ensure the data you enter in each one is correct. Failures must be reported on time to the right area to fix them before the final bill is sent.
Use a tool for revenue intelligence.
A revenue intelligence tool helps teams that work on revenue find trends in their sales data so that they can spot possible problems and look into them further. Rev ops can use this knowledge to fix mistakes and keep money from being lost. A revenue intelligence tool can also help businesses make more accurate sales predictions and better plan for the future.
What does a revenue platform do to stop revenue leaks?
One way for businesses to stop revenue from leaking is to handle subscriptions better. Recently, pricing models based on subscriptions have become more common. Over the past ten years, the revenue from these models has grown by 437%. There are many good things about this billing model, but when you handle and renew subscriptions by hand, you often lose money.
By using a CPQ, businesses can stop losing money and instead focus on making the most of their profits. Dealhub’s CPQ system gives companies a way to make money that makes it simple to handle a growing number of subscriptions and renewals. This is done by using the “sales playbook,” a collection of and sharing of the best sales techniques to make the registration process more accessible, more organized, and more under control.
