Start 2023 off right – Identify and Address Sources of Revenue Leakage
In August, we wrote about how to weather the coming economic storm and briefly touched on revenue leakage. At the time we noted that revenue leakage represents 1-5% of EBITA revenue (according to EY). It would be easy to assume that the main culprit is customer attrition, but that’s just one piece of the puzzle - it’s also about sub-optimized business processes that affect the bottom line.
Today, we take a deeper dive into the potential causes of revenue leakage and how usage-based billing can help organizations of all sizes to better realize and protect revenue - when every dollar counts.
What causes revenue leakage?
Many potential internal issues can contribute to revenue leakage, such as a sales funnel that isn’t optimized, a lack of alignment across departments, a lack of data synchronization, mistakes in inventory management, inaccurate tax realization, chargebacks, missed invoices or payments or even plain old human error.
Any of these issues can potentially cost your company 100s, 1000s, or even 10s of 1000s of dollars in revenue – money you have earned, that simply isn’t being captured.
What can leadership do - today?
You can start by following the workflow. Meeting with the teams across every stage of the process, from quote to cash, can help you identify and plug potential holes because effectively aligning business processes is both obvious, and overlooked. To be clear: this isn’t about assigning blame, but about looking for inefficiencies and areas of miscommunication. Once you’ve investigated, you can fix recurring issues. This could include anything from an update to your standard operating procedures, to developing a unified view of customer and service ops, to improved dunning communications for failed payments, or to a larger investment in automation.
Assess your foundational systems
You can’t address revenue leakage without addressing your pricing and billing strategies. While the subscription model had a time and a place, over recent years it has become clear that it simply doesn’t offer the agility and flexibility needed to keep pace with new revenue models (such as usage-based). In fact, the major causes of lost revenue tend to be inherent to the subscription system itself.
Consider these subscription billing pitfalls:
Serious potential for leaving money on the table via license under-utilization.
The process for acquiring additional licenses can be complex and time-consuming, hindering operational effectiveness.
More complex pricing models can’t easily be supported without expensive customizations.
Businesses can’t easily adapt to the changing needs of the organization or the market, thereby reducing operational agility and revenue potential.
By replacing simple subscription models with usage-based solutions, businesses can better align their complex operational models while vastly improving revenue retention and recognition.
What can usage-based systems deliver that subscription can’t?
Pricing models should not be constrained by a lack of system capabilities. Sophisticated usage-based models give organizations the utmost flexibility. Best-in-class usage-based systems stand out because you can throw virtually any scenario at them and they can test, capture and invoice for different tiers of customers.
Consider some example benefits of usage-based systems. You can:
Test and deploy many service dimensions, assessing which pricing models are most advantageous, helping you to capture the greatest amount of revenue possible.
Easily manage tiered pricing, by customer class or even by deal! This not only helps you capture more revenue, it also gives customers full visibility into their actual spend - a real win-win.
Account for new licenses, add-ons, upgrades and even pauses – not once, or twice, but across the entire customer lifecycle. This helps your organization to identify and collect all revenue dollars, while also improving accuracy (again, there is a customer benefit here).
Automate processes that previously required either human intervention, or expensive custom development. As in many functional areas, automation reduces the potential for errors and improves accuracy.
Address and fix any tax calculation errors. Businesses need to have the capability to calculate sales and use tax for different geographic areas, as well any sales and purchase transactional costs – down to the smallest amount due. Automating tax determination contributes to your quest to realize every earned or allocated dollar.
The benefits of usage-based systems don’t stop with the list above. They also include improvements to business processes such as dispute and recovery management, bill adjustments, revenue sharing and bill/invoice management.
In summary, addressing revenue leakage is a missed opportunity for too many organizations. This is money your company already earned, but the rigidity and inflexibility of subscription billing simply can’t support accurate, flexible and transparent revenue recognition.
Just ask yourself: what can my business accomplish by capturing an additional 1-5% of EBITA revenue?
Monetize360 can help you assess whether you’re ready for usage-based billing. Contact us at email@example.com to take the next step.”