Turn The Tide On Revenue Leakage
Revenue leakage is the difference between revenue sold and revenue recognised. It sounds simple but it is actually a huge threat to organisations, with the ability to cause significant revenue losses. The problem with revenue leakage is that it can happen at any stage of the customer lifecycle, and even a small gap can add up to billions.
Andy Campbell, Global Solution Evangelist at FinancialForce, explains how companies can turn the tide on revenue leakage.
A single unified system
The gap between revenue sold and revenue recognised will vary depending upon the industry, however, for a services business, it might typically be between 5% and 8%. This sounds small but if organisations spot the gap and address even just 50% of revenue leakage they could end up making some significant impact on the bottom line. The big issue is that usually organisations often don’t notice the leakage until it is too late. The problem is that disconnected systems and feedback loops hide the leakage so unless an organisation is actively looking for the gaps, they won’t see them.
There are many areas where revenue leakage can occur, and at every stage in the opportunity to cash process. Some are easier to find than others and a single unified system will eliminate the likelihood of problems that can cause revenue leaks from arising, addressing the issue at source. For example, if you are delivering projects for a customer, there could be an issue with time worked but not invoiced. Or you could be providing services to a client and miss the opportunity to sell additional products that the customer would have happily purchased to use up their unspent budget. These are easy problems to fix but they fall through the gaps when data isn’t managed effectively and if you do not have visibility of the entire process. This can come down to an overreliance on bolt-on systems like spreadsheets that just aren’t up to the task of collating complex data from multiple inputs.
It is also a problem of siloed business teams. When each team works separately and handles their data individually, gaps arise because there isn’t one centralised process or format. Different functions operate without awareness of the consequences of their actions on other departments. For example, the finance team may need a member of the project delivery team’s hours to invoice a client, but that member hasn’t put their hours in correctly or the spreadsheets may be formatted differently. As a result, the finance team might process the wrong figures, and an incorrect invoice is produced, which translates into revenue leakage in the form of payment disputes and delays, write-offs and poor customer satisfaction. This is actually quite a simple problem to solve that can be achieved by implementing a comprehensive and agile delivery platform, that can track all aspects of the organisation’s sales, operations and finances and provide a true 360 business view.
The next step is for organisations to truly understand their data by using real-time analytics. Using past data to inform future decisions is like not going outside on a sunny Wednesday because it rained the Wednesday before – it doesn’t make sense. But this is what many companies have traditionally done to inform their future decisions.
Instead, businesses should use real-time analytics to understand current profitability and make informed decisions based on accurate data. This is vital for keeping projects on track, resolving issues, managing resources and maintaining profit margins, all of which impact revenue. Furthermore, by analysing data in real-time any potential revenue leakage will be identified before it has a chance to cause damage. For example, if you have a good understanding of the true cost to serve customers, this can be taken into consideration and used to ensure that any future work with the same customer can be priced more effectively.
The second element of this is that real-time data enables more accurate forecasting, which means that businesses can predict capacity, utilisation and backlog using scenario-based formulas. These can be tailored to be specific to a particular organisation, which in turn gives a greater understanding of resource scheduling. Forecasting in this manner means that organisations can optimise staffing and ultimately identify and correct potential issues in advance. This minimises the chance of revenue leakage occurring where, say, costly external contractors or expensive internal resources need to be brought onto a project because cheaper internal team members are not available. It is also particularly important to ensure effective cash flow forecasting that is so vital for many growing companies.
The final step organisations should take to prevent revenue leakage is to ensure that billing is as simple as it can be. The most important element of this is to make sure that all pricing and billing processes can be accommodated so no matter what the customer uses, the process will be seamless from the opportunity through to the final invoice. An agile, single platform that can support the entire billing process from the beginning right through to revenue recognition and customer renewal will drastically reduce the risk of mistakes.
Furthermore, by using a single platform, all of this data can be linked up with the organisation’s financial systems, meaning that invoices will be processed on time and correctly. When these systems are kept separate and information is stored in different silos, data gets missed, for example, reimbursable expenses and billable hours. Prioritising billing in this way also helps improve customer satisfaction if the customer is presented with invoices correctly and on time. Some customers may require itemised bills, whilst others may prefer consolidated account level invoices. By providing customers with what they need, in a format that is easy for them to process, the chances of errors and delays in payment will be reduced. A single customer record of this kind will not only minimise revenue leakage but also improve customer retention by preventing disputes and simplifying processes across the board.
Revenue leakage often occurs because organisations cannot see it and aren’t looking for it. This is usually because the problem is obscured by the design of their current systems. However, if organisations take a step back and examine their operational processes, there are some changes that can be made with relative ease. While overhauling systems to implement new platforms may seem like a big task, these unified platforms and systems have been designed for ease of use. And the benefits of reducing revenue leakage far outweigh any potential negatives. After all, the result could be the turning of the tide on billions of pounds saved instead of lost.