How professional service providers can prevent revenue leakage
Revenue leakage is an issue that organisations across the professional services industry fear. It can go unnoticed for months or even years, and once you’ve found it it’s too late. It’s the silent killer comments Andy Campbell, Global Solution Evangelist, FinancialForce
This may sound overly dramatic for something that can succinctly be defined as the difference between revenue sold and revenue recognised, but revenue leakage is a major concern and can eventually result in significant revenue losses. For example, it is not unusual for organisations to have gaps of between five per cent and eight per cent between revenue sold and revenue earned. For some professional service providers, this could represent upwards of £1 billion in leaked revenue per year and even a small improvement can have a strong impact on profitability.
What causes revenue leakage?
A number of factors can cause revenue leakage and it can manifest itself at any point of the customer lifecycle.
Three of the biggest contributors are disconnected systems, issues with data entry and broken feedback loops. Whether it’s time that’s worked but not invoiced, unplanned project burndown due to resourcing delays or products that have been delivered but not billed, the problem can take a number of different forms.
Addressing revenue leakage will enable professional services providers to increase earned revenue, while at the same time enhancing customer satisfaction by reducing mistakes and improving project delivery. So what steps can professional service providers take to raise the alarm around the silent killer?
Andy Campbell, Global Solution Evangelist, FinancialForce
Three steps to prevent revenue leakage
Firstly, in order for organisations to avoid lost revenue, it is vital for them to unify their data. This is because revenue leakage is essentially a data issue, which takes place when a business fails to access the correct piece of information at the right time. It can be a careless oversight such as failing to properly review one of your employees’ timesheets, resulting in the client being invoiced for less than they should’ve been.
Alternatively, it could be a major structural issue, like having siloed business systems, which creates major difficulties when it comes to exchanging information between departments. Or perhaps it could be caused by your business having an overreliance on spreadsheets, which are extremely time-consuming and rife with errors – far from ideal when your profitability relies on their calculations.
Organisations which lack a single system to oversee core business functions such as operations, resourcing and sales are in danger of leaking revenue. Data can fall down the gaps, resulting in errors, duplications, and time delays. By implementing a single, integrated system that manages data seamlessly from end to end, and provides timely, accurate, and powerful utilisation reporting, professional services companies can overcome these issues.
Secondly, businesses must analyse their data. For a professional services organisation to gain an understanding of business profitability and a customer’s lifetime value, this requires information about how much it truly costs to serve them. To obtain this information, all of a projects’ customer, operational and financial data must be carefully monitored so that organisations can learn from their analysis.
For example, if a typical project is wildly at variance from similar projects, then an organisation should be able to figure out why this is the case and what they are going to do about it. This way, organisations can collate what they’ve learnt and use it to scope, resource and price projects more accurately, meaning that projects will no longer be leaking revenue. Irrespective of the size of your business and the projects it undertakes, this form of data analysis is critical to its long-term success.
Finally, organisations can prevent revenue leakage by making the compensation connection. Delays in submitting expenses can lead to missed billing runs and disputed invoices. Likewise, a third-party contractor may have been used to support the team, yet payment to your organisation for their work may have not made it onto your books, despite the contractor being paid. These issues, which are related to compensation, have arisen due to there being gaps between multiple and fragmented systems.
Compensation connection can be achieved through the creation of a smooth process, enabling professional service providers to better connect with employees, projects and systems. This, in turn, enables an organisation to gain full visibility into its business, from sales, service delivery and finance, which ultimately results in information being accurate and up to date, projects being timely, and revenue leakage being a thing of the past.
Revenue leakage has been a perennial bugbear that has always affected professional services business. The risk is that unless businesses go searching for the sources, it will go untreated until it’s too late. However, organisations are finally starting to take this problem seriously and are putting plans in place to prevent it. Indeed, addressing revenue leakage could become a source of competitive advantage if organisations are able to successfully turn something that was slowly killing their business into something that is helping ensure profitability.