How to Prevent Revenue Leakage in Professional Services
What is Revenue Leakage and How Can You Stop It or Keep It From Happening?
We talk a lot about how to improve operational efficiencies, but the reality of running a business is that there can be significant inefficiencies that hold back growth and impact the customer experience. One of those common inefficiencies is revenue leakage.
Let's identify how to identify revenue leakage in your services organization, how to stop it, and how to prevent it from happening again – or in the first place.
What is Revenue Leakage?
Just as it sounds, revenue leakage is the unintentional and unnoticed loss of revenue from a company. It typically comes from unbilled or underbilled service hours or products – essentially, you’re doing the work and not getting the right amount of compensation.
Revenue leakage can occur for a variety of reasons, and it’s important to understand what it is and how to identify it within your organization so you can intervene and plug the leak.
In a professional services organization, there are a lot of ways revenue leakage can happen.
Some common examples include:
- A lack of proper scope planning and analysis, resulting in scope creep that may go uncompensated despite the extra hours and work being conducted.
- Failure to map out the work required for a project, including team members involved, level of effort, and expected timeline, resulting in loss of control over the budget.
- Inconsistency between the customer’s expectation and the final deliverable, resulting in payment delays, additional uncompensated time, or lost revenue.
- Inability to control project timelines, allowing for significant delays despite budget continuing to be spent.
Consider a real-life scenario: You run a legal services firm and have several clients your team is representing. Because you don’t have a reliable solution for recording and tracking billable hours, your team of legal advisors is providing services and counsel that may be going beyond what they’re actually billing to their clients. If each member of your team is underbilling their client, you’re facing significant revenue leakage that can add up to millions – and you will likely not identify those losses without implementing a new approach and solution for tracking billable hours.
Track billable hours better with cloud software
Rest assured – revenue leakage is not uncommon. In 2020, Boston Consulting Group surveyed 2,000 international businesses and 45% responded that revenue leakage is a systemic problem facing their business. Further, 64% reported that they don’t have revenue assurance tools in place to help manage profits, revenues, and cash flows.
The most important thing you can do for your business is to identify if revenue leakage is happening and take steps to stop it.
How to Identify Revenue Leakage
If you aren’t sure if revenue leakage might be occurring at your organization, there are a few ways you can assess operations to see if revenue leakage is likely.
Here are a few questions you can ask to assess your organization’s processes and how they might impact revenue:
- Are we relying on manual processes?
Using manual processes, such as spreadsheets, whiteboards, or paper forms, for data entry and tracking is problematic for managing revenue and billing. It’s probably evident why it’s problematic, but we’ll make the case here anyways: manual processes not only take time and effort, which can result in delays or a complete failure to record anything, but they can lead to inaccuracies and oversight. Human error is far more likely when data is being entered by hand, and can easily cause inconsistencies between work performed and work recorded for billing.
- Are we keeping up with increasing demands and more complex processes?
We’ll say something you already know – the pace of business is increasing and processes have become more complex to keep up with customer demand. If your organization isn’t adopting solutions like workflow automation, professional services automation, or ERP systems (all offered through FinancialForce), you’re likely making things much harder than they need to be, which can hinder your ability to estimate project costs, and budget and bill accurately for the work you’re doing.
- Are we spending too much time on administrative tasks?
Without an automated solution for operational processes like bookkeeping, scheduling, and planning, administrative professionals can spend far more time wrapped up in their day-to-day administrative tasks than is accounted for in client billing – and because all of these tasks are necessary to keep projects on track, the revenue leakage can be hard to identify.
- Are we properly enforcing pricing?
During the course of a client engagement, there can be instances where items are not properly billed for the services being provided, discounts or reduced prices are given when they shouldn’t be, or subscriptions are sold at the wrong rate for the services being signed up for. You can bill accurately with the right solution in place to track customer contracts and invoicing at each stage.
- Are we aware of our customer lifecycles and keeping up with how changes impact revenue?
During the customer lifecycle, your customers purchase new products, upgrade or add on to their service, or change their subscriptions, among other activities, and if you’re not accurately tracking changes in the customer lifecycle, you could be leaving money on the table.
Even if one of your answers is contrary to the recommended approach, you’re likely experiencing revenue leakage. Keep reading for more information on how to plug the leaks.
A Guide to Mastering
Customer Lifecycle Management
Plugging the Leak: How to Stop and Prevent Revenue Leakage
One solution we personally favor (for obvious reasons) is adopting professional services automation that can provide streamlined management of services, billing and invoicing, and administrative tasks.
So let’s dig into what a professional services automation solution looks like for your business – specifically in terms of how it can stop revenue leakage.
Automation, Automation, Automation
It’s right in the name: professional services automation. If you want to understand what your team is billing vs. the work they’re doing, automating your time tracking is key. Company managers will be able to have total oversight on time spent on billable work vs. non-billable work, enabling an easy check on accuracy, timeliness, and efficiency for client billing. Automation also ensures timesheets can be created and stored in a central location, updated and approved in real-time, and can generate invoices at the right time each month. Adding these levels of consistency and accuracy through automation goes a long way in the customer experience – not to mention ensuring you will have the revenue that you’ve earned.
As mentioned above, a key characteristic of a professional services automation solution is centralizing all of your company’s information in one location with enterprise-wide visibility. Doing so eliminates inconsistent data, underreporting of work done, inaccurate invoicing, scope creep, or human accounting errors. Time tracking, invoicing, and cash flows are easy to see and validate across teams so you can close the holes causing revenue leakage.
In addition to closing revenue leaks, reconsidering how you bill can generate new revenue and compensate for past losses due to inconsistent billing methodologies. Because customers change how they use your company, an agile monetization process allows you to track these changes to ensure billing accuracy, and have flexibility in pricing models to capitalize on opportunities to generate new revenue where it makes sense.
Going back to the issue of how you track billable hours, your timesheet processes play a significant role. Timesheets should be centralized within your organization so they can be accessed and updated in real-time. Making them available on mobile is especially helpful for teams like the legal counselors in our real-life example who are likely out of the office meeting with clients and could benefit from immediate, anytime access to their timesheets.
The Ultimate Solution: Professional Services Automation
The bottom line is that a professional services automation solution can accomplish all of the above changes and much, much more. In a recent webinar hosted by FinancialForce, we heard from Jeanne Urich, Managing Director and Co-Founder of Service Performance Insight. Jeanne told us that professional services automation provides essential consistency in service delivery and visibility into staffing and capacity planning. With the ability to close revenue leaks, professional automation solutions pay for themselves, often in less than one year.
We’ve identified some key stats from companies that have implemented a PSA that demonstrate the value of this solution:
- 36% better growth
- 15% larger sales pipeline
- 10% increase in revenue per employee
- 13% project margin
- 11% billable utilization
It is hard to argue with those stats. Closing revenue leaks using professional services automation just makes sense – and the additional benefits to your business only elevate the value.
It’s likely your organization is experiencing revenue leakage if you haven’t implemented a centralized solution to oversee and track how you’re billing for work.
Contact us today to schedule a demo and learn more about how professional services automation can help your business plug revenue leaks for good – and generate new revenue to support business growth. Our single-platform solution runs on the Salesforce cloud and empowers you to streamline your operations and put your customers at the center of everything you do.