My first car was an old Pontiac Bonneville. The car was fantastic – a little ‘seasoned’ but otherwise perfect for my 16-year-old self. There were just two problems: first, it had a slight, but steady, oil leak. Second, the ‘check oil’ light stopped working.
The first problem I knew about. Unfortunately, I found out about the second problem the hard way while driving 65 mph down the highway. The engine locked up, the car was towed, and because of the ‘seasoning’, I ended up trading the title for the tow fees.
One great thing about my job is that I have the opportunity to talk with senior leaders at some of the best companies in the world. Their biggest concern isn’t that they are leaking revenue – they assume some leakage as a cost of doing business – it’s that they don’t know how much or how fast.
The problem isn’t the oil leak, it’s the oil light.
There are lots of solid business reasons to leave some revenue on the table. Maybe you shouldn’t exercise CPI+ price increases because there’s strong downward pressure on your industry. Maybe you should over-service your customer and not charge certain fees because of a currently “rocky” relationship.
The problem is, in most companies, these decisions are handled in an ad hoc way, often by sales reps or service teams who lack all the necessary information. No one knows the magnitude of the opportunities. No one is developing a programmatic approach to solve the problem. And that means no one is accountable for driving results.
It’s a shame, because those results add up quickly. I’ve worked with companies who’ve discovered an annual recurring revenue gain of over $12 million, just by examining one big source of leakage across their most valuable customer relationships.
The truth is that significant revenue opportunities could be escaping from almost anywhere along the customer lifecycle—from sales to delivery, operations to retention. Our work with technology leaders has helped us identified seven key levers that enterprises can pull to eliminate revenue leakage:
1. Renewal Management: Understanding when your customers renew is hard enough. Understanding the current terms and what products or services you should offer them is even harder. Taking a holistic look at your deal economics, prioritizing renegotiation of unfavorable terms, and enabling your sales or renewals teams with a playbook on how to negotiate, is not even on most companies radar. But it should be, because each negotiation represents significant potential improve profitability.
2. Contracted Pricing Variables: Companies negotiate lots of sophisticated pricing variables in their agreements – CPI uplifts, cost-pass throughs, subscription ramps, tiered pricing, late payment fees, minimum commitments, etc. Unfortunately, their approach to managing these variables is not nearly as sophisticated – typically some combination of PDFs, projects, data fields, and “The Spreadsheet to Save the World (or the quarter)”.
3. Sale Process Productivity: Everyone knows sales people spend most of their time doing things other than talking to customers. In fact, they will tell you this – loudly and often. And they should, because every minute they waste tracking down a renewal date, getting a quote, or hunting for the right documentation is a minute they aren’t generating revenue. If your customer information is not readily accessible, found in multiple silos and scattered disparate systems, it is simply not usable, and this drains the revenue generating capacity of your sales team.
4. Entitlement and Billing Reconciliation: Do you know what your customers have contractually agreed to? What about what they’ve purchased or what they’re using? Can you compare the two? If you aren’t sure what they own, you can’t compare usage to the contract and you don’t know if they have paid for what they are using, resulting in over- or under-charging customers. Yes, both are bad. Without consistent checkpoints in place and timely accurate insights, companies can manage to both miss revenue AND potentially overcharge customers.
5. Service Obligations: Like most companies, you probably negotiate ‘non-standard’ service terms to win deals. And you should. What you shouldn’t do is not have visibility into those obligations. Without clarity into your obligations, you may be paying unnecessary service penalties.
6. Expansion Opportunities: If you aren’t clear on what your customer owns, then you can’t be clear on what you can upsell them. Also, by not understanding if they are using all the capacity you sold them, you can’t make a case to sell them more. You don’t want your sales teams wasting precious selling time tracking down documents. Even worse, you don’t want your sales team to get to the finish line of a sales cycle only for a customer to realize they can repurpose spend they aren’t using.
7. Deferred Revenue: You may be deferring too much revenue because you can’t find all revenue recognition considerations and you can’t accurately assess the risk. Also, every company should take a look at their payment terms every couple of years. Cash is king, and companies aren’t banks. Except for actual banks, of course.
As an executive, you need to make conscious, informed decisions about your business. When my oil gauge was working, I knew how much oil I was leaking. I knew when to add oil and I knew how much. Without that visibility, I found myself buying another ‘seasoned’ car (with a bad transmission, but that’s for another blog).
Discover the other points where you could be losing big revenue opportunities in our ePaper Eliminate Revenue Leakage Now.