Gotransverse
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Aug 31, 2021“When you have a business built on recurring revenue, revenue leakage becomes a recurring problem. Any time you have a recurring revenue or subscription-based model, the causes of lost billing revenue tend to be built into the system. To stop the leaks, you need to identify what aspects of your billing infrastructure need to be changed.” - James Messer, Founder and CEO, Gotransverse, in Forbes.
This month in Forbes, Gotransverse Founder and CEO James Messer tackled the messy topic of revenue leakage, which is especially problematic for businesses using recurring revenue models. To illustrate the severity of the issue, Messer cited research from MGI that estimates 42 percent of companies experience revenue leakage, along with research from EY that says companies tend to lose 1 to 5 percent of realized EBITDA to that leakage. And, to really bring the point home, Messer did the math for you:
“If you are a $100 million company, that translates to losses from $1 million to $5 million annually. If you are a billion-dollar company, that could be $50 million per year.”
That’s a lot of money to lose track of, and there are a lot of ways it can happen, including outsized expenses, delays in earnings or cash flow, and other issues. But, said Messer, “One of the most significant sources of revenue leakage is improper billing, which can come from unbilled goods and services, underbilling, late billing and billing errors.”
You can read the full article in Forbes, but here, we’ll give you a preview of Messer’s insights into how billing errors cause revenue leakage and, more importantly, how to stop up those leaks and avoid leaving money on the table.
Common Sources of Revenue Leakage
While every business’ situation is, of course, unique, Messer identified four common billing problems that lead to revenue leakage:
- Goods & Services Not Billed: The first is simply not billing (or not billing enough) for goods and services rendered. This could happen for a variety of reasons, most of which can be traced back to different departments within the organization having different information about the terms of the engagement.
- Invoice Errors: Besides leading to loss of revenue, incorrect invoices cause payment delays, administrative headaches, and customer dissatisfaction.
- Lost Renewals: A key part of recurring revenue models is ensuring renewal is frictionless for both the customer and the business. When renewals are poorly managed, this leads to costly customer churn.
- Delays in New Offerings & Changes: In today’s business landscape, the ability to evolve quickly is key to success. “If your billing system is preventing you from being competitive and meeting customers’ changing needs,” said Messer, “you are losing revenue.”
Plugging the Leaks
So, how can businesses ensure these common issues — and others — aren’t leading to revenue leakage? The answer, Messer said, is automation:
“Automated billing systems can help fight revenue leakage. With the proper automated workflows, the system can address challenges such as keeping track of terms and tiers, updating customer billing profiles and automating renewals and dunning.”
To get you started, Messer noted four areas to pay special attention to when automating billing.
- Validate Your Data: Garbage in, garbage out, right? So be sure contract terms match billing settings, all products and services correspond to the right billing rules, and the mediation engine is running smoothly.
- Optimize & Automate Recurring Billing: Too much billing-related revenue leakage is the result of manual errors. Automation—along with full transparency and regular audits—will minimize those errors and keep revenue on track.
- Isolate At-Risk Customers: Minimizing churn requires keeping a close eye on customer behavior. Identifying those whose payments are late or delinquent, automating renewals, and identifying expired credit cards before payment is due are all ways to ensure at-risk customers are able to pay their bills quickly and in full.
- Maintain Billing Agility: As you set out to automate your billing system, said Messer, be sure you’re considering future as well as current needs. The right system will grow and change with you, rather than holding you back.
“Cloud systems and emerging technology enable new business opportunities and new revenue models,” said Messer in conclusion, “but the technology is only helpful if adapted to your needs.” At Gotransverse, we specialize in helping our clients automate key billing processes in order to minimize revenue leakage and empower growth at a rapid scale. To learn whether our billing platform is the right technology for your organization we invite you to take a virtual tour today.