Businesses Lose 5% of Revenue to This Phenomenon — And It Has a Name.
By: Rom Lakritz
Do any of these sound familiar?
“It took a bit longer than planned, but we didn’t bill the client…”
“That should have been an upcharge, but it wasn’t reflected…”
“Our admin didn’t input the new hourly fee, and now it’s too late…”
There’s a term for this: Revenue leakage. Around 42% of all companies suffer from it, and it can cost anywhere from 1–5% of the top line revenue in terms of missed opportunities, according to both Forbes and Ernst & Young.
For a small business — or one with already-thin margins — that kind of hit to revenue can spell the difference between thriving and struggling to survive. For larger companies, revenue leakage can easily add up to millions of dollars that simply wasn’t billed — and can’t be collected.
The key is to catch revenue leakage at the source and cut it off, for once and for all. Here’s how to identify and prevent revenue leakage:
It’s Friday afternoon, and your client asks for a “small favor.”
Whether it’s putting together a few documents, running some additional numbers, writing a few paragraphs, or reviewing a presentation, in the name of servicing the client, it’s not a big problem.
The problem happens after the work is done — when the manager or team that put in the extra hours neglects to post the hours or mark it on the client’s timesheet. Alternatively, the responsible person may not have known that the updated agreement with the client allows for additional late-request billing.
Whatever the case, come invoice time, those valuable billable hours have been lost in the shuffle. And they won’t make it to the top line — nor the bottom line.
You’ve raised your rates, but not everyone knows.
After some delicate discussions and a reminder of your firm’s value, the client agreed to increase your rates. But perhaps your team didn’t follow up with a confirmation email or didn’t immediately update the services contract.
So when it’s time to send out the next invoice, neither you nor your admin can find a record of the higher rate and in the meantime, you’ll have to continue to use the lower rate. It’s an easy but embarrassing error — and it’s a costly one.
Extra manpower wasn’t added to the bill.
A big project takes a few additional hands to complete on time. But the admin doesn’t know the right billing code or the client’s billing sheet wasn’t updated, or someone didn’t sign off on the additional hours — and the error evades notice until it’s too late to charge the client.
You stayed up all night — but forgot the urgency rate.
It’s in the contract that you’re paid more outside of business hours, but it slipped your mind, and you charged the client only for regular hours. And by the time it’s caught, it’s too late — and raising the issue with the client would feel petty. That’s potential revenue — gone.
There’s a common thread through these revenue leakage scenarios, despite some digitization and automation of the billing process. At the core, this problem comes from human error. We all make mistakes — and many of these errors, unless they’re caught before the end of the billing cycle, represent lost revenue.
What can be done to prevent revenue leakage?
As a service provider, you have the power to stop revenue leakage from harming your business or, in the best-case scenario, cheating yourself out of critical revenue that could mean the difference between a decent year and a great year. Or the difference between keeping your best employees or losing them because you can’t pay them well enough for their work.
The solution is to automate billing and collections — in a way that doesn’t allow for revenue leakage through human error. To do that, you’ll want to make it unlikely that you or your team will forget, let something slide, or slip through the cracks. By automating how you track all the services you provide on Anchor, you’ll no longer need to worry about revenue leakage. Sign up here to get started.