Quickest Way To Increase Your Revenue Is To Stop Revenue Leakage

How it all begins

Generally, the price of your product or service is set by someone from the head office. This pricing data generally contains information about the retail price of the product or service, some form of discounting method based on a combination of customer, the current quantity of purchase, the time of the year.  While the exact details of the discounting process are unique to your businesses, the general philosophy is that you treat your most valued customers differently.

The pricing matrix i.e. data is shared with the multiple branches in the form of a printed sheet or in  the application that your front desk staff uses.

While the story so far seems fine, it is what happens from here that leads to revenue leakage.

What you think happens 
What really happens
What are the key reasons for this leakage?

There could be multiple reasons that are unique to your business. However, here are some common ones that we see over and over again.

If you are using paper invoices where the staff writes down the price on a paper, you must get to a digital version as you have way bigger problem i.e. you do not know how much you are or will loose.

If you are using a software application for generating a quote or an invoice, we observed that most New Zealand based businesses have a way to export the document in a word document.

This means that your staff can simply edit the document and put in any figures that they choose.

In some cases where the application exports the document as a PDF, we observed that the application itself has a way of editing the details manually before exporting into a PDF file.

This means that the staff can simply edit the details without constraint.

While the earlier reason is technical and can be corrected by your IT, the assumptions of the staff are a bit more hard to change as they are behavioural challenges.

The staff often has best intentions in their mind when giving away big discounts. For example, they may assume that the final quote is well within its profitable limit as the cost is low.

However, the staff often does not consider a whole lot of other costs such as cost of goods sold.

Example hidden costs:

The customer wanted a 12 foot long sheet metal while you have rolls of 24 feet so there is some cost of cutting it. 

The customer wants some of the products delivered to another location and there is a cost involved in loading, transporting and unloading the product.

The cost as assumed by the staff has changed on account of the import tariff changes last month.

It takes a lot of time and effort to manually go through all the past invoices to see if they were aligned to your pricing matrix. This results in small random samples of past invoices to be audited by your management teams.

Since its manual and just a sample, so many incorrect invoices get past your audit and the revenue leakage persists.

What is the impact of the revenue leakage?

Our observations so far have shown that roughly around 3% to 5% of the invoices are incorrectly discounted. Additionally, these invoices generally are ones with higher revenue potential and therefore, this results in roughly around 5% to 12% of revenue leakage.

How to stop revenue leakage?

Step 1

The first step to stopping revenue leakage is to know how much it is and how prevalent it is across your various branches. It may turn out that there are valid reasons for incorrect invoices and that the revenue lost is within acceptable limits. In such a case, there is no need to stop the revenue leakage.

Step 2

Identify if this leakage is spread across evenly. For example are there a few branches, staff, months, products, customers that cause a disproportionate amount of revenue leakage

Step 3

Have discussions with the people involved in such disproportionate revenue leakage instances and identify the causes. 

Step 4

Act on the behavioral reasons through leadership meetings and trainings. Where the causes are simply non-adherence to rules, speak to your IT and get the software application to not lend itself to revenue leakage issues.

At FOYI, we have a report template that we deploy at our customer accounts. A snapshot of it is shown below. Please contact us if you would like to know more about this report.

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