Imagine keeping money in your pocket that has a hole at the bottom, unnoticed. Revenue leakage is that hole for your business which remains invisible until it becomes bigger causing severe loss for your company. And what’s more serious is that most of the time the business owners remain clueless about the sources of such leakage while it slowly leads your company to significant loss.
To give you a clearer picture, recent studies have shown that nearly 1 to 5 percent of the EBITDA (Earnings before Interest, Taxes, Depreciation and Amortization) of companies is subject to revenue leakage.
From start up to growing businesses – revenue leakage can occur at any stage and needs your immediate attention. But what can be better if you can prevent it, even before it starts?
Yes, you heard that right, in this blog we are going to tell you those golden secrets to keep revenue leakage at bay! But before that, let’s define what exactly is this revenue leakage.
What is Revenue Leakage?
Revenue leakage is exactly how it sounds – the unintentional loss of revenue from your business that usually remains unnoticed.
While in most cases revenue leakage occurs due to the billing related errors such as not raising invoices for multiple reasons, not charging the customers the correct amount etc., there can be other reasons too which can cause significant revenue leakage for your business.
How to Stop Revenue Leakage: Causes and Prevention
As you often remain unaware about the revenue leakage of your company, it is more important to know the causes so that you can prevent it even before it can occur.
We are going to list out the common causes of revenue leakage and how to prevent those as early as possible-
Data Entry Errors
Let me give you an example- suppose the service cost for any product is US $3000, but by mistake it is typed as US $300. This may seem as a blunder but unfortunately, this is a common error while manually entering hundreds or thousands of data. And if it happens frequently, you can imagine the amount of revenue leakage due to the data entry error itself!
The only way to prevent such errors is to automate the process. And if you already have an automated billing system, you don’t need to worry about such errors!
This is again very common in case of the manual invoicing. Some of the frequent errors related to invoicing are – outdated costs of products or services, high discounts on the products which didn’t get corrected later, missed invoicing for delayed payments, invoicing errors during subscription upgradation or other changes in subscription plans and many more. These can be preventable for a handful of customers, but if your customer base is large, then the only solution is to automate the invoicing process.
Undefined Payment Terms
Undefined payment terms not only delay the payment flow but also it contributes to the revenue loss of your business. For instance, payable upon receipt terms – it implies the customers will pay after receiving the invoice but this doesn’t ensure how fast they are going to pay after receiving the invoices. The good news is that you can easily avoid such revenue leakages by defining trade credit and other payment terms. If you have an existing billing system, then make sure you can implement monetization-based policies to make your task easier.
Changes in Commercial Contract
For any business, especially for the subscription-based or recurring revenue-based ones, change is the only constant. And unless your pricing models, payment terms, licenses, SLAs etc. are up-to-date, chances are there that you will have risk of revenue leakage. The ability of your business to quickly adapt with the changing pricing terms, conditions, and models will help you stop the leakage in revenue in such cases. And a sound subscription billing system can help you in this considerably.
Lack of Tracking
Behind every product and service provided by your business, there are a series of tasks. Making blueprints, reviewing customer feedback and working on that, updating products or service plans, spending time and money on sales and marketing tools – every single thing counts no matter how granular those are. And the gap between right tracking of the money, time and resources invested and the existing pricing can be a major reason behind the revenue leakage. It is advisable to have a well-defined structure of your entire workflow as well as keep track of the analytics & insights of your billing and related metrics so that at least you can detect such issues at the earliest.
Higher Customer Acquisition Cost
While high customer acquisition rate drives the revenue of your business, you need to keep a check on your customer acquisition cost. Is it higher than the result you are getting? Or, are you investing in the right way? Often the acquisition cost to achieve a handful of customers drains out a significant portion of your revenue. And in order to prevent this, you need to set up benchmarks for every single activity or spending invested for the customer acquisition.
The Bottom Line
As you can see, revenue leakage is mostly driven by the flaws, errors or ambiguities in the billing related activities. And unless you automate your entire billing and invoicing process, there is very little in your hand to prevent such loss. The top-most automated billing systems not only eliminate all such risks but help you optimize the customer billing cycles, your business revenue and most importantly, allows you to detect any chances of such leakage in the near future and prevent it as early as possible.
Muvi Billing, the enterprise-grade subscription billing software for websites and apps, provides an all-in-one solution for automated billing & invoicing, smart record keeping, multiple monetization models, and customizable taxes. Additionally, Muvi billing works as your own policy engine and offers 40+ payment gateways support, multi-currency, multi-language and many more!
Thinking of trying it? Take a 14-day free trial now (you don’t need any credit card)!