Drip. Drip. Drip.
That’s revenue leaking from your business.
Most businesses struggle with revenue leakage, whether through blunders, lack of oversight, or simple inaction. Nearly half (45%) of business leaders feel revenue leak is a systemic problem for their companies, according to a 2020 survey by Boston Consulting Group.
And it costs them. Anywhere from 1% to 5% of earnings before interest, taxes, and amortization flows unnoticed out of companies on a regular basis, according to EY (formerly Ernst & Young).
There are actions you can take to reduce and prevent revenue leak. You can stem the tide of lost revenue by rethinking outdated models to implementing new processes.
What Is Revenue Leak?
Revenue leak refers to revenue that your organization has earned or counted on earning but has not collected. This can be due to various factors, such as deal slippage, inaccurate billing, bad data, manual processes prone to human error, or unbilled services or products.
Revenue leak, also known as revenue leakage, often occurs because there are few systematic ways to accurately measure leak. According to BCG:
- 73% of companies do not have automated revenue assurance processes
- 64% do not have standardized revenue assurance tools in their enterprise data systems
- 59% do not devote any full-time staff to revenue assurance.
In short, most organizations don’t have anyone, or any program, to ensure that revenue is accounted for.
Why Is Revenue Leak Important to Measure?
It’s critical to identify where your organization is leaking revenue so that you can diagnose the problems and plug the holes. Not only that, but putting a dollar amount on the leak will help you assess its impact on your business and recoup the lost revenue. This is particularly critical for SaaS businesses, as they rely on this money to fund top-notch customer service, innovation, research, and growth.
How do you calculate revenue leakage?
Calculating revenue leak begins with reviewing your revenue operations systems and procedures and identifying where expectations and reality don’t align.
“It’s all about spotting risk early,” says Maya Connet, Director of Sales at Clari. She notes that if you have visibility into what’s happening in your pipeline, you can manage that risk and prevent the revenue from leaking.
To start, companies might look at:
- Where and how data is tracked, and whether the information captured is accurate and up to date
- How handoffs typically work and whether there are any typical delays or hiccups
- How frequently discounts and other pricing changes are implemented
- Churn management
- How well accounts are handled after a sale, including whether the company is capitalizing on opportunities to sell additional products to or upgrade services for clients
Examples of Revenue Leak
Organizations can inadvertently lose revenue in a variety of ways. A few of the most common include:
- Manual data entry. Relying on spreadsheets and employees manually entering data or processing invoices leads to mistakes. In fact, the general accepted error rate for manual data entry is 1%, notes Quality Magazine. For example, the number of hours worked on a project were underreported, add-on services or upgrades weren’t noted, or general pricing was miscalculated. Or, perhaps applicable fees or penalties were not recouped. Whatever the cause, relying on spreadsheets and manual data entry leads to underbilled clients and lost revenue.
- Slipped deals. Let’s say a deal gets delayed in the sales cycle for a variety of reasons. Chris Ford, a manager for Clari’s commercial and emerging sales engineering team, notes that one of his customers “saw a surprising drop-off between stage 1 and stage 2 deals in the sales funnel, and they didn’t know why.” Perhaps a deal needed the Chief Financial Officer’s signoff, but the CFO wasn’t included in the conversations. Or perhaps important stakeholder signatures weren’t sought until it was too late. That deal might slip from one month or one quarter to another. Or, notes Wesley Metter, a mid-market account executive at Clari, if a rep requests a discount for a customer, but the approval from finance takes two weeks, the customer might move on and abandon the deal entirely. All of those situations lead to leaked revenue.
- Lack of a shared source of truth. It’s possible that your organization is using different systems to capture and look at data across verticals, meaning key information—and, ultimately, revenue—is lost in translation. When data is recorded, viewed, and analyzed in a shared source of truth (SSOT), that ensures all information across the revenue operations team is accurate, and everyone is working off the same data and system.
- Discounts. Discounts are a tried-and-true method for enticing new customers. They’re often used as part of a service trial or applied based on the length of a contract. But if you offer discounts without considering the bigger picture, such as the impact on revenue and forecasting, you may give up more than you get.
- Customer churn. SaaS relies heavily on repeat customers to drive revenue predictability. Therefore, it’s imperative to stay on top of renewals to ensure a contract with a veteran client doesn’t accidentally lapse, resulting in lost revenue. A revenue operations platform can help revenue teams regularly assess the health of their customers to ensure low churn and boost renewals. Clari, for example, can pull together data such as net promoter scores, customer satisfaction scores, customer health insights, and sales activity data and apply AI analysis to provide users with real-time, 360-degree snapshots into the customer experience.
- Missed opportunities for upsell or cross-sell. Clients’ needs constantly evolve. Revenue teams should keep in close contact with all clients, continually looking for opportunities to improve the customer experience and expand contracts. You could be missing opportunities to upsell or cross-sell to valuable customers, leaving money on the table.
How to Prevent Revenue Leak
Your organization can take several actions to stop losing revenue now and prevent future leak. For example:
- Automate your data capture. Using a tool to capture deal data automatically is a key step toward ensuring accuracy. A revenue operations platform like Clari, for example, can cull data from a variety of sources, including email, calendars, CRM, and more, creating that shared source of truth that is up to date at all times.
Ensure data transparency and leverage AI insights. Revenue teams should regularly review deals in their pipeline to prevent deal slippage, looking for signals of whether they are healthy. Clari, for example, ensures accuracy, transparency, and accessibility by automatically capturing data from a variety of sources (like CRM, email, Outlook, and more) and presenting it in an SSOT that everyone within the organization can view. Using sophisticated AI and machine learning, it also can analyze current and historical data to produce actionable insights for teams. Clari’s CRM Score, for instance, can help reps quickly spot deals at risk of slipping by ranking deals and highlighting risky ones in red, thereby providing opportunities to course-correct to protect revenue.
- Streamline communication and improve handoffs. The entire revenue team needs to work together to move a prospect along the sales funnel. This requires excellent communication and seamless handoffs. Everyone from marketing to sales to customer success needs to be on the same page, looking at the same information. Automation helps ensure that deal information is accurately updated in real time. Tools that gather this information and present it in a single, unified format across teams are critical for promoting effective communication and collaboration.
Revenue leak doesn’t have to be a thorn in your organization’s side as long as you have the right processes and tools in place. See how Clari can help you stay on top of your pipeline and prevent revenue leak.