We have often heard of the term “Revenue Leakage” being used frequently in the business world. But what does it mean, how can we identify revenue leaks, and what loss does it cause to businesses? Well, if we have to explain it simply, think of your home’s plumbing system as leaking, but one that is undetectable to the naked eye. You can’t even think about your home being in a vulnerable state until one day the roof falls, and everything’s messy with water and debris.
That’s precisely what revenue leakage does to businesses. It’s the silent loss of revenue from your company. According to research, 42% of enterprises experience revenue leakage, often at a staggering rate. On the whole, companies lose an average of 9% of their total annual revenue.
There are potential reasons behind why it happens, and we’ll explain how you can prevent it from happening by using CRMs like HubSpot. Let’s read into understanding it well!
In simpler words, it’s the lost revenue from the company. This term is often confused with revenue loss, which typically occurs upon the completion of the sale and can be identified by checking. However, the revenue leakage can happen at any stage of the customer journey. And if it remains unnoticed, your business efforts will be in the red zone.
This can be a silent killer for your progress in the business. You have heard of the phrase “one step forward, two steps back.” This can happen with your business if there’s revenue leaking.
Revenue leakage is also the biggest challenge for RevOps professionals, Salesforce Admins, and other teams working on revenue generation.
Whatever bad happens, there’s a reason behind it; similarly, in the case of revenue leakage, there are a bunch of factors which play an important role. Let’s have a look at it one by one:
Most businesses are still doing data entry manually, which is a significant contributor. Some of this can be avoided if these ways are somehow automated. And if in the worst-case scenario, automation can’t be done, data entry clerks must be aware of all sorts of the latest info for the pricing, upgrades, add-on services, and applicable fees and penalties.
If you forget to update a customer’s account, it can be a significant factor in revenue leakage. This way, there’s no chance that your business would be able to maximise the revenue over the course of a financial year. There are ways this happens; if a customer upgrades the needed services which they have been using without billing, or if a credit card expires, which leads to a failed payment. However, there are many software programs with which you can get rid of this issue. This will notify you every time a customer is billed or when their cards are going to expire.
Another reason which also plays a big part in revenue leakage is inaccurate pricing. Let’s suppose you forget to turn off the promotional pricing after the promotion ends; your sales would be in trouble as a result. The solution to this is having an automated billing service which automatically takes the customer from promotional to the standard pricing after the offer finishes.
There are many customer actions which lead to penalties, just like the termination of the contract in early stages or any additional one-off services. This can also contribute to the revenue leakage without having a strict policy for diminishing such penalties.
All the factors are explained in the list; first, they have to be identified before they can be solved. Therefore, a detailed review of all these related operations is required to expose the reasons behind the loss of revenue.
Another thing to consider is that not everyone is proficient in using tools or CRMs, which can lead to errors and revenue leakage. The good part is that HubSpot is leading the way to assist businesses by fixing these issues, allowing everything to be tracked and managed accordingly.
It’s understandable that whenever your business’s revenue leaks, profits are going to be shrunk. If you are losing 5% of your total revenue, it directly reduces your bottom line by a similar amount as well.
Your growth metrics would ultimately suffer as a result. Like many business owners, focus on growing Monthly Recurring Revenue (MRR). These numbers will surely perform poorly in the case of having a revenue leakage.
The harm is caused in the long run. Some customers’ incorrect bills won’t cost you for a month; it’ll keep you haunting until someone finally notices the error.
And if you have less money, you can’t hire new people, or develop better features or expand the business into new markets. That’s how your competitors would have an edge on you. Also, you’ll have a difficult time retaining good investors, as they also keep an eye on the companies that are experiencing revenue leakage or not.
When your company is facing revenue leakage, there will be an additional burden on your team. Your finance team would be spending extra time tracking down and fixing the leakage instead of focusing on something strategic.
These costs are hidden but are real. They can potentially drain your team’s focus and energy from the needed activities.
Certain signs can help you identify the areas where you can understand how to identify revenue leakage. Let’s have a look at them one by one:
These are the signs that you should never overlook:
A sudden drop in your business’s Average Revenue Per Account (ARPA) without any certain reasons
Sudden complaints coming from customers on billing issues
Revenue is actually running short of forecasts
Your services don’t match the billing amount
A simple formula to calculate your revenue leakage is here:
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Potential Revenue- Actual Revenue = Revenue Leakage |
For Example: $400,000 - $375,000 = $25,000 (Revenue Leakage)
We have gone through the signs you shouldn’t be missing, but it’s equally important to know where to look for them. Check out the following areas:
Alignment of Contract to Billing: You have to check if the customers billed are matched well with their contracts. Have a thorough analysis of the missing price increases, forgotten add-ons, or incorrect pricing.Now, after finding out about the revenue leakage, we’ll be explaining the top strategies to prevent it from happening. Let’s have a look.
Start with the basic checks and balances in your billing processes. Form a strategised workflow when it comes to discounts, changes in pricing and adjustments related to billing. Because when there are a bunch of people to review the important financial decisions, a few errors can occur.
Also, hold certain people responsible for the entire billing process. They should be able to do the audits regularly to make sure the billing matches your contracts
Now, we know that manual billing can make mistakes. Therefore, gradually move towards automated billing. As this would lead to:
No errors in calculationsThat’s how automation can even stop the revenue leakage from happening from the start.
You can also create a centralised database for the contracts, which can be easily connected to your billing system.
Also, you should have stored all the relevant terms, the date for renewal and special conditions in the same place. Don’t forget to set the automated alerts for the increased prices, renewals of contracts and other important dates.
Never forget to review the templates for contracts, removing the ambiguity to avoid any confusion in future billing. As we know, when you have clear contracts, revenue recognition is very easy and accurate to do.
Never forget to clean your customers' data from time to time. Also, ensure that the information is fully updated so the invoices reach the right people. Create one source of truth for keeping the customer information easily accessible to all teams.
Integration of your systems is also critical to let the data easily flow between them. When your billing software, CRMs like HubSpot and subscription management systems share the data smoothly, chances of revenue leakage are very low.
Revenue leakage isn’t only about losing money; it slowly eats your business’s efforts, growth, profitability, and long-term stability. And, if you don’t pay attention on time, small leaks lead to big losses that affect your ability to innovate, hire, or even compete.
Don’t worry, it’s not something you can’t control. With strong financial controls, clean data practices, and automated billing systems, you can plug leaks before they start.
At Team CloudSource, we specialise in helping companies do exactly that. As a Diamond Solutions partner, our HubSpot implementations and Revenue Leak Audits identify weak spots, streamline processes, and activate automation to ensure your revenue flows precisely where it should for optimal growth.
Stop revenue leaks now, and your future profits will thank you.
Profit leakage is another term for revenue leakage, which refers to the unnoticed loss of revenue from your company. These leaks can happen at any stage of your business.
What are the three types of Profit?Three types of profits occur in businesses:
Any business with recurring billing, subscription models, or complex pricing like SaaS, manufacturing, telecom, and professional services is at risk.
How often should a company perform a revenue leak audit?A quarterly audit is a good baseline for fast-growing businesses, while mature companies can review biannually. The key is consistency
Can automation really eliminate revenue leakage?Automation dramatically reduces human errors and flags discrepancies early, but it works best when paired with clean data and clear processes.