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What is the one thing common about rot, fires, and roof leaks? The longer you let it fester and grow, the more structural damage it can cause.Similarly, ignore at your own peril when your B2B SaaS business loses revenue in the quote-to-sales transactional workflow.
At the time, a few instances of missed invoices or underbilling may seem like petty change.
But, slowly these red flags of smaller leakages are sure to snowball into disastrous business cash flows and tanked profitability.
Think about it. Allow revenue drips to happen over a period of time, and it will result in an incredible amount of monetary damage - making it tough for your business to bounce back from here.
So what really is revenue leakage, what causes it, and how can your business prevent the leak from impacting your bottom line? Read on to find out more.
What is revenue leakage?
Revenue leakage is an unintentional drip in lost income. It is revenue lost due to pricing errors in quotes and contracts, incompatible invoicing systems, inaccurate billing, or any other renewal or billing errors.
Around 42% of companies
experience some form of revenue leakage
And it happens more often with businesses (like SaaS companies) that are driven by recurring revenue or ongoing customer relationships.
Luckily, revenue leakage can be easily prevented by connecting your ERP systems directly with a subscription management solution such as Younium.
Why fixing revenue leakage is a #1 priority
A B2B SaaS business with complex pricing across different customers was in a hyper-growth mode, yet it struggled with unbilled or underbilled services.
Its salespeople were offering clients free services that were only supposed to be shared for a fee. Meanwhile, bills were periodically being issued without taking into account the late payment fees outlined in the contract.
So, even if the business sold a hundred dollars worth of services, it didn't automatically convert into equivalent revenue owing to revenue leakage.
Does this struggle with revenue drip sound like something your B2B subscription company faces too?
You are not alone. The average SaaS business leaks 1-5% of its EBITDA in revenue.
Manual processes and bad data are the primary causes of such leakages.
Manual billing alone leads to a 12% to 15% error rate. It also doesn't help that most SaaS businesses do not invest in centrally managed contracts, pricing, and invoicing systems.
When these errors/leaks add up, across several dozens of SKUs, thousands of transactions, and hundreds of customers, you end up with big losses.
Depending on the size of your business, the compounded recurring revenue leakage can vary greatly. But, for the sake of an example: assuming your yearly revenue is 5 million-euro. Plug the leakage and you save up to Euro 250 thousand per year.
In the current business environment, this can mean that you don't need to make difficult choices and cut back on expenses to keep your B2B SaaS business up and running (and growing).
6 best practices to fix revenue leakage
- Assign senior customer success managers to higher revenue accounts: Such dedicated resources will help drive more targeted conversations with clients. For example, you could start engaging in discussions about contract renewal 6 to 3 months before the notice period.
Also, you may integrate customer success tools with subscription management tools like Younium to get updates on the client contract and platform usage status. This enables you to have more informed and strategic conversations. Tech investments, to this effect, will be well worth the resultant churn reduction.
- Monitor customer behavior to see if they are using the product optimally: It helps to know how your platform is used by customers. If they don't seem to get the full value from your solution, it can lead to customer dissatisfaction and churn. So, during the customer lifecycle, make sure that they are getting the requisite guidance and support to gain optimum bang for the buck.
- Share new product features (especially the monetized ones) that are released with your existing client base: 16% of revenue growth on average comes from your existing clients. Therefore it is best to keep them updated on all newly launched features to increase their TCV and happiness score.
- Apply indexation: Applying indexation to the pricing, to adjust for inflation, seems like an obvious thing to do. But did you know that at least 70% of SaaS companies do not properly apply indexation because it's simply too complex to handle for all cases? And forgetting to do so easily reduces YoY growth by 2%? What’s more, considering today's inflation there is a high understanding for an index uplift of your service fee.
- Optimize and automate recurring billing: This is a sure-shot way to eliminate manual errors. Using real-time reporting, periodically reviewing billing, and revenue tracking and auditing the system regularly will help identify and eliminate problems early on.
Also, be sure to automate and track renewals to call out customers who are not renewing or are late to renew. Finally, monitor billing cycles to catch problem customers who are continually in arrears.
- Conduct regular market research: When it's time to talk about renewal with your customer, it's crucial to know everything about the competitor’s offerings. To outbid the competition and offer greater value to the clients, it also helps to be aware of the other offers they may have received.
Now, instead of painstakingly and manually implementing these best practices, we recommend that you add a good process and subscription management hub to your arsenal.
Such advanced platforms can help plug leakages by doing everything from automatically triggering renewal to renewal performance reporting and applying the agreed-upon indexation.
Streamline and automate the Q2C process with Younium
Is your business growing too fast to keep track of billing and recurring revenue reconciliation? Would you like to add at least 5% back to your bottom line?
If you have answered yes to these questions, protect your B2B SaaS business from revenue leakage with Younium. Here is how our subscription management platform can help:
- Reduce information leakage between sales and finance: Information is very often not relayed properly between the sales and finance teams. By integrating with legacy ERPs, Younium streamlines and automates the quote-to-order flow so that the signed deal is the same one that ends up on the finance desk. It also ensures invoices shared with the client are as per the final contract.
- Avoid errors in invoicing and revenue reconciliation: Issue correct invoices to increase customer satisfaction. Not to mention, this can ensure that your finance and accounting team do not waste countless hours trying to manually get revenue reconciliation and billing right. Younium registers and captures billing events and links them to contracts to deliver a watertight billing process. It also supports active and automatic renewals.
- Identify signs of a healthy subscription revenue flow: How do you know if the efforts you put in have successfully reduced revenue leakage or not? Younium solves this problem by tracking and analyzing metrics, such as CLV and net retention rate, that show a reduction in revenue leakage. And your finance team gains access to detailed dashboards of metrics, KPIs, and reports.
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