A leaky faucet gets fixed right away, so why are revenue leakages a thing? If you’re not getting paid for the work you’re doing and profit is slipping through the cracks, there are two questions you must ask. Where and why?
What is Revenue Leakage?
Revenue leakage is when your company is losing money due to errors, gaps in processes such as pricing, billing, contracts, or collections or by being inefficient. It’s often invisible from the dashboard, widely present across our systems and teams. And 100% fixable.
Why is Revenue Leakage Happening at My Company?
At one point, it’s not rare for B2B SaaS and affiliate companies to discover that they are losing a small part of their yearly income. This loss is usually around one to five per cent of their annual revenue.
For example, this can happen if their charge model is not optimized for their pricing tiers. If they charge based on how much people use something, they might lose even more money. And when we talk about B2B software and subscription-driven businesses, losing even one per cent is a hefty sum
So what may cause revenue leakage at my company?
- Human error
- Invoicing and charging errors
- Bad pricing strategies
- Fraud
- Incomplete reporting
- No standardized processes
People work, and they make mistakes. When your employee fails to do a follow-up to a hot lead once, that’s an honest mistake. If it keeps happening, then you need to re-evaluate your process and such employees. Payment processors like Stripe can have strict security measures that can protect you. But they can block legitimate payments from your clients, causing dissatisfaction and confusion. Regularly check your blocked payments and clear them from valid sources.
Speaking of paying, offering the bare bones of your product for a hefty price and only adding features as an add-on does more harm than good. SaaS products should offer roughly 80% of their functionality for a regular price, and the rest should be an optional upgrade. The goal here is to have a healthy user base, not a short-term profit. And just like casting a wide net on a market can poke holes, so too can your faulty reporting.
Failure to realise how to read and gather info leads to wrong decisions, which poke holes in your profit bag. Interpreting data and comparing it to the actual situation is how you will know if your reporting works. Lastly, if everyone in your company is doing things their way, nobody is on the same page. Standardisations remind everyone that they are on the same team, working for the same goals. Profits and happy customers.
When a company grows, it can lose sight of or fail to juggle everything, making it partner up with exterior testers like TestPapas to validate how revenue leakage is impacting customer journeys and potentially reduce costly billing errors before changes go live. Any error caught before it’s live is a hole plugged. And, as mentioned earlier, the questions remain about “Where” and “Why” this happens.
How to Prevent Revenue Leakage?
As we saw, some of the leakage can be a human factor, others can be related to the product or systems in place, more of an organisational factor. Which leads us to the question: “How can we prevent it?”
Improve Data Accuracy
Organisations need to take care of their revenue data just like they do with financial controls as data is a strategic asset they have. It is really important to have sources of truth for revenue data. Checking systems regularly to make sure they match up. Checking what people are allowed to do and what they are billed for is in line with each other. When checking that everything is working properly, companies should also test software to make sure it is working correctly for the things that affect revenue.
Introduce Lightweight Controls, Not Bureaucracy
Controls do not have to hold teams back. Yes, rules are needed for approving things, automatic warnings when something goes wrong, and regular checks to find problems early on. The main thing anyone wants to be able to see is what is going on with controls, not to make it harder for teams to do their job with controls. Controls should help teams, not slow them down with controls.
Align Incentives Across Teams
Sales teams, product teams, and finance teams usually try to achieve things. This is where problems can happen. When looking at the numbers, like how much money the company actually gets to keep and how much it really sells something for, it helps sales teams, product teams, and finance teams work towards the same goal.
Streamline the Lead-to-Cash Cycle
The Lead-to-Cash Cycle is the process of finding new customers and getting money from them. Revenue Leakage happens when there are mistakes or issues at any point in this process.
For example, if the sales team is not doing the job of following up with leads, this can cause Revenue Leakage. If the pricing team is not setting the prices, this can also cause Revenue Leakage. If the billing team is not sending out invoices on time, this can cause Revenue Leakage, too.
If the dev team is not implementing changes, maintenance, and updates, revenue leakage occurs. If your support team is not available and on point, leakage occurs. As you can see, whenever someone is not doing their part, the company is drifting in troubled waters, and they start to flow in, threatening to sink the ship.
Closing Thoughts
Revenue leakage never disappears completely. It responds to attention and discipline. Teams that treat it as an ongoing operational risk, rather than a one-time cleanup, protect margins and gain clearer control over growth.
