Revenue Leakage
Revenue Leakage is the unexpected loss of revenue from your business that hinders its expansion and profit margin.
When businesses fail to investigate the sources of revenue leakage, it has a significant impact on their operations. It is an unintentional loss that happens without the knowledge of business owners or drivers.
This leakage can come from both the revenue and expenditure sides. It can be the result of not billing or underbilling the customers for the service or products provided. It can also be the result of unearned discounts and billing mistakes.
A business stands to lose between 1 and 5% of its earnings through revenue leakage. The losses can be from a variety of sources, depending on how your organization works.
According to MGI Research, 42% of companies experience revenue leakage. Recognizing revenue leakage in your company is essential because it’s the only method to maintain the profit margin.
The intensity of revenue leakage depends on the working procedure and type of business.
There are two main areas of revenue leakage in any business.
Under-utilization of resources
Inefficient use of resources in a service business results in reduced profits. These resources include the tools used to run a business as well as human resources. When you do not use the provided resources for your company, it will lose money.
The team's efficiency is low
There is a business principle that says there is no such thing as cheap talent. Sometimes, many businesses hire unskilled employees to save on labor costs. But this backfires on the organization as they are unable to bring the expected and suitable profit to the organization. Besides hiring skilled employees, organizations should also invest in training their staff regularly. This will enhance their skills and advance their operations.
Causes for Revenue Leakage
Inaccurate and outdated customer information
If the customer data is inaccurate or outdated, then the seller may have insufficient or wrong data. This will impact future predictions of the volume of services or products they need to serve. For example, customers have some service subscriptions with your business. Assume you have 50 customers, but your business only charges 30 customers. The payment for 20 customers will be left on the table, resulting in a loss of revenue.
The manual process of data entry
Creating manual invoices creates lots of problems. As the creation of the invoice will delay, there are chances that some of the add-on services will be omitted. Subscription and service-based businesses need to have an automated payment and invoicing system. This will benefit them with automated renewals as the default process.
Missed or underbilled appointments
Businesses risk losing money without an automated tracking and payment system. As they can fail to send invoices to clients at the time of sale. Different clients can have different ills requirements based on the country they are operating. Without an advanced payment setup, businesses can face issues while receiving international payments. Sometimes businesses can underbill their customers by more than the original amount they need to pay.
Missed penalty fees
Many businesses have penalties that customers have to pay if they breach a contract or subscription. When these penalties are missed by businesses, it results in leakage of revenue.
Discounts or pricing errors
Promotional pricing that remains active after an introductory period is over is another kind of leakage. When clients receive discounts even when they do not meet the requirements, this is another fault that causes leakage.
How do business advisory services help businesses prevent revenue leakage?
Advanced AI techniques
Business advisors are experts at offering the best methods to expand firms and increase their profit margins. They are experts in determining the insights of the business. They use the most advanced AI techniques to help find the main cause of it in a particular business.
Data Capture and Automation
Business advisors help businesses with advanced technologies that help them record payments and invoices automatically. As a result, there is a lower chance of underpayment or non-payment, which shields businesses from this leakage.
Different business perspectives
In any scenario, a different perspective always helps. With businesses too, a different perspective on expenses can help reduce a lot of unknown costs. Business advisors assist businesses in the same way. Sometimes business owners might not be able to identify the cause of it. Here, a business advisor’s new perspective and expertise can help.
Revenue Leakage Audit
No matter how well you have implemented prevention measures for revenue leakage. You will still need to study and analyze each business process to find and stop income leakages. An audit of this leakage can be quite useful in this situation. Business advisors are experts in auditing revenue leakage.
Transparency of data
To inherit this leakage strategies, your business data must be transparent and up-to-date. Transparent data also helps keep clients in the loop and is one of the best ways to keep them interested. If customers are well-informed about the jobs done and billing expectations. This will result in fewer queries asked by clients and make your work smoother.
There are different types of business advisors available. Click to learn about them and which one you need for your business.
Is your business dealing with this leakage issues or not generating the expected results or profits?
Don’t worry; we can clear up any confusion you have. Whether it’s about how business advisory services can benefit your company and prevent it. Call us now for a FREE consultation.