What is revenue leakage and how to prevent it

Knowing how to prevent revenue leakage is fundamental to maximizing revenue for any business. Unfortunately for many business owners who want to reduce revenue leakage, there are a variety of potential sources and solutions which can make it seem more complex than it is.

This is because the causes of revenue leakage include the likes of human error during manual entry tasks, outdated or inaccurate customer data, under-billing or pricing errors, and the likes of unenforced policy penalties. Not all may be at play at the same time at one company, but most firms will find some revenue leaking somewhere within their operations.

For some businesses, identifying and eliminating a small amount of revenue leakage will simply help them maintain an optimized performance. For other businesses though, it could be what turns an operating loss into a profit.

In this guide we describe exactly what revenue leakage is and the common causes of revenue leakage, as well as explain how to prevent it.

What is revenue leakage?

The term ‘revenue leakage’ refers to unnoticed or unaccounted losses of revenue from a business. The more such hidden leaks exist within a company, the greater the accumulated impact they have on revenue, particularly in the long-term.

Such revenue losses can be prevented, but due to their unnoticed or unaccounted-for nature, they often continue to undermine the bottom line and prevent businesses from absolutely maximizing their potential revenue. It is an issue that must be addressed by companies that are turning a tidy profit, let alone by those struggling to break even.

We touched upon some potential causes of revenue leakage above, so let’s look at those in more detail. These potential causes of revenue leakage include:

• human error

• inaccurate or outdated customer data

• under-billing or pricing errors

• unenforced policy penalties

Human error

Manual data entry is a major culprit, and some element of it can be unavoidable until such processes are automated. If automation isn’t possible, then data entry clerks must be equipped with all the latest information regarding pricing, upgrades, add-on services and any applicable fees and penalties. This issue can also lead to…

Inaccurate or outdated customer data

Not updating a customer’s account can lead to significant revenue leakage, preventing a business from being able to maximize revenue over the course of a financial year. It happens when a customer upgrades the services they use without being billed for them, or when a credit card expires leading to failed attempts at payment. There is software which can solve this problem, ensuring customers are billed for the services they use, and notifying you when customer credit cards are due to expire.

Under-billing or pricing errors

Similarly, inaccurate pricing data is also one of the common causes of revenue leakage. This often happens when promotional pricing continues to be applied after the promotion ends. The ideal solution here is an automated billing service which automatically switches the customer from promotional pricing to standard pricing, at the agreed date.

Unenforced policy penalties

Certain customer actions incur penalties, such as early contract terminations or additional one-off services. These can be a source of revenue leakage without a strict policy of enforcing such penalties or fees.

Ultimately, every cause of revenue leakage on this list must be identified before it can be solved, so a thorough review of such operations will help expose unnoticed sources of revenue loss. Many solutions to the issues then involve automation, especially when it comes to extracting accurately-billed payments from customers.

We can help

You can eliminate many causes of revenue leakage if you collect and reconcile invoice payments automatically through automated cash collection and reconciliation software available through GoCardless.

GoCardless is a global payments solution that helps you automate payment collection, cutting down on the amount of financial admin your team needs to deal with. Find out how GoCardless can help you with one-off or recurring payments.