Revenue loss can often go unnoticed as it does not have any physical signs. However, it can create long-term negative consequences for your business if it goes unchecked. Revenue leakage is the unnoticed or unintended loss of revenue that often happens due to underbilling.
According to MGI, 42% of companies experience revenue leakage, which is an alarmingly high number. Many businesses won't notice their revenue drop until it's happened for months or even years. It's a slow process that only becomes immediately apparent when it's too late. A steady drip of revenue loss can add up to hundreds of thousands of dollars and significantly impact the bottom line.
It’s easy to miss invoicing opportunities in subscription businesses as it involves several moving parts like multiple purchase streams, different billing dates, multiple product packages, etc. Missed renewals are another big reason for revenue leakage. If you're not paying close attention to your revenue, you might miss the warning signs of a problem that could put your business at risk. This is especially true in the case of businesses that manage their billing manually or use outdated billing systems.
But the question remains as to why revenue leakage occurs and how to spot it, which could help you prevent it in the future. A proactive approach to revenue assurance will give your organization the confidence to scale.
Reasons You are Losing Revenue
It is easier to keep track of your invoices when you offer simple subscriptions, but as you grow and scale and your billing models get more complicated, it gets increasingly difficult to ensure that you are tracking and billing your customers correctly.
As your business grows, you have to offer customers more complex billing structures. This becomes especially important if your customers expect a personalized experience or consumption-based billing models. If your company hasn't upgraded to a more advanced billing system you will inevitably miss out on some opportunities to bill them accurately and end up losing revenue.
1. Manual Billing Processes
Does your organization still use spreadsheets to calculate billing? If so, this is one of the reasons why you are losing revenue. Manual billing processes are not only cumbersome and prone to errors, but it also takes up a lot of administrative overhead. Human error while manually tracking time or creating invoices can often be hard to detect and result in revenue leakage if certain important terms of the contract are missing or erroneously entered.
It's difficult to generate detailed billing reports when working with manual data. Manual billing systems are not designed to manage complex billing models or automatically adjust invoices for overages, surcharges, and discounts.
2. Billing Inaccuracies
As I mentioned earlier, generating invoices manually is inefficient and error-prone. Often companies that invoice manually lose track of the billing cycle and miss invoicing customers. This can have a significant impact on your bottom line. You may be under or over-billing your customers without realizing it. Underbilling affects your revenue and over-billing may create distrust amongst your customers and can even lead to churn.
This necessitates switching to an automated billing system that generates invoices by pulling from real-time data especially if you are looking to scale. Billing automation ensures accurate, reliable billing every single time and removes revenue loss associated with manual billing.
3. Varied Pricing Requirements
If you're a global company with international customers, it can be hard to keep track of all the different payment methods and contract terms if your billing system is not optimized. Errors made while manually updating pricing can also affect revenue.
Sometimes your customer support team might enter into special contract terms with some customers where you offer different pricing terms. In these cases, unless you have an automated process that can track these special contracts and update pricing accordingly you may be losing revenue.
4. Involuntary Churn
Sometimes your customers’ payment attempt fails due to lack of funds, expired or lost cards, and other unintentional reasons. A failed payment may not be immediately obvious to the customer, and so they cannot take any action to remedy it, which leads to them churning unknowingly. Involuntary churn is easy to slip through the cracks as it is often invisible to the company.
In other words, you not only miss out on that failed payment but you also lose out on any future money that would have been paid to you. Creating an automated dunning strategy to avoid this revenue loss due to a completely preventable issue is important. An efficient dunning strategy will retry failed payments or automatically update the cards on file with an automatic account updater feature.
How to Recover Revenue Leaks?
One of the first steps you can take to reduce revenue leaks is automating your billing process as it reduces manual billing errors and helps recover failed payments. Switching to a modern billing solution that enables reliable, efficient usage-based billing processes will help do exactly that. Here are a few ways to ensure you are not leaving any money on the table:
1. Eliminate Revenue Errors by automating your billing
If you are still using outdated billing methods to track your recurring revenue you may be leaving money on the table without even realizing it. Incorrect manual data entry can lead to huge losses in revenue. Errors like misplaced decimals, extra zero, or a copy-paste error can sometimes be a cause for huge losses. It's time to ditch the spreadsheet and manual billing methods if you want to reduce and eventually eliminate revenue leakage.
2. Accurately Account for Contract Changes
You should have systems in place to track, capture and accurately bill your customers throughout their customer lifecycle whether they add a new license, pause subscription, upgrade services, etc. You should also ensure that any unearned or inappropriate discounts are not applied during invoicing.
Your billing system should be able to adapt and account for contract changes during your customer’s lifecycle and ensure there are no leaks in recurring revenue.
3. Manage Involuntary Churn
Involuntary churn can form a large part of your revenue loss especially if your billing processes are not automated. You can start by switching to automated contract renewals as this can reduce revenue loss to a great extent. Most customers also find this to be more convenient. You can also try revenue recovery tools like automatic account updater that tracks and updates expired cards and helps with retrying failed payments, and dunning management.
4. Leverage Usage-Based Billing
If you are running a SaaS business, offering consumption-based pricing doesn’t just set you apart it has become a requirement to stay competitive. If you cannot accurately track and bill for usage you are losing recurring revenue. A modern billing system like LogiSense has a rating engine that accurately calculates usage data, personalizing your pricing per your customers’ needs. Leveraging usage-based billing will help ensure that you are never leaving potential revenue on the table whether you use tiered, time-based, volume usage, or multi-dimensional pricing models. Offering your product at different pricing tiers can also help increase your potential revenue.
5. Use real-time reporting
One of the many reasons you may be losing revenue is a lack of visibility and real-time reporting. An outdated billing system that cannot give you your sales, finance, and customer service teams transparent reporting may be missing out on areas that are losing revenue. Choose a billing system that provides you with real-time reporting and transparency and allows you to identify small leaks to combat huge losses.
6. Support a Dynamic Pricing Strategy
You need a flexible product catalog that can evolve with your business model to ensure you don't leave money on the table. Your billing system should allow you to adjust pricing without any issues or delays.
If you have special contract terms your billing system should enable a dynamic pricing solution that seamlessly integrates into your internal database and calculates product pricing. Dynamic pricing allows you to create pricing rules for your products and services and launch new monetization strategies. A good dynamic pricing strategy will not only allow you to adjust prices to maximize revenue, but also to detect price elasticity and generate more sales.
I hope this has given you some food for thought when it comes to preventing revenue leakage. Our intelligent billing system can help you identify gaps in your revenue model, and put into place an end-to-end approach to managing your billing operations that will make your monthly forecast a reality. Contact one of our billing experts today to find out how LogiSense can help you recover lost revenue and remedy some of the pain you are experiencing with your current billing system.