Revenue leakage – not a friendly term. A leak of any kind is never good, but a leak of the revenue kind can be devastating to profits. Just what is revenue leakage, how does it impact recurring revenue organizations, and how can you prevent it?
Revenue Leakage Defined
Revenue leakage is the unnoticed or unintended loss of revenue from your company. While leaks can come from both the revenue and the expenditure side, most commonly, revenue leakage refers simply to not billing (or under-billing) your customer for products and services provided. How big a problem is it? Statistics surrounding revenue leakage vary, but estimates indicate that most companies stand to lose between 1 and 5 percent of their earnings before they can be realized. For enterprise companies, this type of loss can add up to a significant impact to the bottom line. Here are four ways to prevent revenue leakage.
Accurately Account for Commercial Contract Changes
If there’s one constant in the subscription billing/recurring revenue business, it’s change. Customers will buy new licenses, add-on a product or service, upgrade to a higher level of service, or pause the service for a time. If you’re not equipped to capture, track, and accurately bill for these changes during your customers’ life cycle, you risk revenue leakage on a number of fronts.
Your ability to adapt and account for changes will keep revenue flowing to the bottom line, not leaking out before it can even be counted.
Eradicate Revenue Errors
If you are using spreadsheets to track your recurring revenue business, you could be leaking revenue and not realize it. Data entry errors in spreadsheets can be associated losses in the billions because of an extra zero, a misplaced decimal, a careless cut and paste maneuver, or a hidden row of data. More spreadsheets, more duplicate data entry, more opportunity for error, and the greater the risk of revenue leakage.
Spreadsheets are not the only culprits: pricing errors can also occur when customer contract pricing is not enforced, or when unearned or inappropriate discounts are applied during invoicing. It’s vital to have a system in place that enforces your business rules, and leads to accurate, error-free billings.
Consider a Tiered Pricing Model
Offering your service at different price points can help increase potential revenue. Tiered pricing models are often used in recurring revenue models to help give different options for potential customers, framing the reference for the price points.
Tiered pricing helps you make more money, broadens your potential audience, gives customers a choice, and helps maximize value of your offering—preventing revenue leakage.
Leverage Usage-Based Billing
Revenue leakage may also occur when you’re not able to efficiently and accurately track and bill for different usage. If you can’t accurately track and bill for consumption-based services, you could be missing out on a significant revenue stream.
Usage-based billing helps ensure you’re correctly charging for your services and never leaving potential revenue on the table.
Maximize Revenue with RecVue
Revenue leakage doesn’t have to be an inevitability of doing business. Our agile monetization platform gives you control over all aspects of your recurring revenue from innovative pricing models to monitoring and reporting on financial performance. Leave no coin unturned with RecVue.