Revenue Leakage: Definition and Examples

Companies invest heavily in sales and marketing, but many of them forget to protect the generated revenue. Their sales teams do a good job and earn the business a continuous stream of income. A closer look into the company systems will reveal the company could be losing thousands of dollars through revenue leakage. 

The loopholes through which revenue leaks could be billing errors, unclaimed discounts, penalties, and waivers. Revenue leakage is a common phenomenon across all business sectors. Each company needs to rethink and develop strategies for preventing revenue loss. They may need to upgrade their systems and use modern technologies. 

What does revenue leakage mean?

A company generates revenue from multiple streams, but often, some of it is never collected. The reason could be that no one in the company is aware of its existence. It could happen because a product was never priced correctly or due to errors in accounting. No matter how big or small it can be, all earned but not collected revenue in a company is what is called revenue leakage. Your company needs to consistently monitor all its sales processes to identify any leaks and stop them. 

CRM is important in this process but performing manual data checks and updates is a lengthy and tedious process. The best solution is to automate your data capture processes. One of the tools you can use for this purpose is the data capture tool from Revenue Grid. It captures and saves data automatically to your CRM. This is data generated from multiple communication tools, emails, and calendars. 

Key causes of revenue leakage

A company could be losing massive revenue due to loopholes in its processes or incorrect data. There are a variety of reasons that can cause this to happen. 

Errors in pricing

A company can lower the cost of its products during a promotional season. However, the management forgets to readjust the prices after the season is over. Another reason could be offering purchase discounts to customers who don’t meet the threshold. The company continues making sales but loses a lot of money at the same time. 

Using wrong customer information

The company could be using different channels to connect with customers. One customer can make multiple purchases through multiple channels. If information about the customer is inconsistent throughout the system, the company will lose revenue from them. Customer data should be consistent across the company systems. 

Reliance on manual processes

Manual processes are prone to errors such as duplication of invoices or failure to invoice. If no invoice is created or sent to a customer, the company will never get paid for products or services delivered. The company should invest in creating automated processes to minimize errors.

Under billing

Lack of smooth flow of communication could lead to underbilling. If the sales team makes or closes a deal, the information should be updated immediately with every relevant department. These can be the accounts, warehousing, and delivery departments. 

Poor flow of information

There should be a smooth flow of information from the production department to all the rest. The cost of production might rise, prompting the department to raise the cost of products. If this information fails to reach the sales team in time, they will continue using the old price and thus cause multiple revenue leaks.

How to stop revenue leakage

If nothing is done to stop revenue leakage, your company could continually lose thousands or millions of dollars. You should invest in tools or processes that help eliminate leakage to increase your company’s revenue collection. Here are different strategies to stop revenue leakage.

  • Create standardized billing terms: Do not create and send bills any time of the day or week. If your bill is once a week, have a specific billing day. The same applies when billing monthly. 
  • Modernize your systems: As long as you continue using manual processes, you will continually make errors. Modernize your systems to create automated processes and minimize or eliminate errors.
  • Create standardized processes: Do not create too many different types of discounts. Instead, have a standardized way of discounting. Know when to stop giving discounts and the value of purchases a customer should make to get discounts. 
  • Standardize your pricing strategies: Your company could be dealing with thousands of goods, each with a different price. Regardless, work with a streamlined pricing process. 

Conclusion

Companies work harder to generate revenue, but a lot is lost in multiple ways. It is never collected due to various loopholes in the system. It could be due to underbilling, wrong pricing, or never billing. The management needs to invest in revenue leakage prevention by upgrading its systems and streamlining billing and pricing strategies.