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  • Writer's pictureAndy Hamer

Revenue Leakage Vs Cost Cutting – Your Money Down the Drain!

As businesses face tough times due to economic softening, the management often cuts costs, especially in sales and marketing, under the impression that they do not need to invest as much in these areas. However, companies should always watch their costs, which means having reserves when revenues drop, allowing them to maintain sales and marketing activities and expenditures to stay in the forefront of every customer's mind when they are ready to spend money.

While cost-cutting may be a quick fix, businesses are missing the real trick by failing to understand that revenue leakage is always present. Revenue leakage is the unintended loss of revenue from a company due to various reasons such as poor reporting, inaccurate data entry, lack of sales discipline with discounts and service charges, lack of centralized records, and inaccurate invoices. By resolving revenue leakage, businesses may save more money than cost-cutting.

According to industry sources, businesses leak about 1-5% of their EBITDA in revenue. Additionally, Clari Labs' research uncovered that 14.9% of revenue is earned but has yet to capture, putting revenue targets at risk and damaging company valuation. HubSpot’s statistics show that most businesses permit 2 to 5% of their revenue to leak. A 5 % loss in revenue could have a considerable impact on a multi-million-dollar company.

Business guru Brian Tracy once said, "Every dollar you save in expenses is a dollar in increased profits." Companies need to understand the causes of revenue leakage, such as manual processes prone to mistakes and inefficiencies, spreadsheets, inaccurate or outdated customer information, unclear or inaccessible policy information, underbilling, pricing errors, and unenforced policies, including penalty fees.

To stop revenue leakage, businesses can take practical steps such as tightening up their invoice management and automating it to prevent manual errors, automating as much admin as they can to avoid manual mistakes, making time tracking easier, dropping software that doesn't serve them, and implementing automatic renewals.

Companies can prevent revenue leakage by centralizing their data to eliminate errors, automating data capture, and integrating their business systems to understand data and analytics. For example, single enterprise platforms like Salesforce provide solutions for professional services companies, giving them a more well-rounded view of their business.

Businesses should be proactive in reducing and preventing the impact of revenue leaks by meeting with their team, analyzing where the leakage is happening, and making a plan to combat it. A business advisor with decades of experience can help facilitate the necessary due diligence to resolve revenue leakage.

In conclusion, revenue leakage can be better than it sounds, resulting in lost money for businesses. Companies must be aware of revenue leakage and take proactive steps to prevent it. While cost-cutting may be a quick fix, resolving revenue leakage may save money in the long run.

If you're concerned about revenue leakage in your business, it's time to take action. Don't let money continue to slip through the cracks unnoticed. Consider seeking the advice of a business advisor with experience in revenue management and process improvement. With their expertise, you can identify the root causes of revenue leakage in your business and develop a plan to eliminate them.

Remember, revenue leakage can significantly impact your bottom line, which you can't afford to ignore. By working with a business advisor, you can proactively address the issue and save your business from unnecessary financial losses. So don't wait any longer; take the first step and reach out to a trusted advisor with decades of business experience today.

You can book a free 60-minute discovery session.

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