Is your business leaking? 

There are many ways a business can be losing money. Customers leave, the sales funnel isn't well-thought-out enough, the pricing is far below what your product is really worth, and hundreds of other things that can go wrong. But there's one thing that bleeds your cash flow closer to the red line: revenue leakage.

Leaked revenue isn't lost because a customer left you. It's lost because you've mistakenly charged a lower amount. If your business model involves recurring payments, a single error may be costing you hundreds or even thousands of dollars per year. It adds up.

Here's how revenue leaks—and what you can do to prevent it.

Common revenue leakage points

Sometimes, revenue leaks in the most unexpected places—but usually not. Here are the five most common reasons your revenue might be leaking.

1. Data entry errors

If you're still using spreadsheets for billing, this may be the biggest revenue leak. This is particularly common for enterprises that transition from a small-scale operation to having more and more clients. Most of your invoicing was done manually, most of your clients fit on a small page of a Google Sheet or your CRM database. Now that you have a lot more clients, billing them has turned into a tedious task, and these kinds of tasks are prone to suffer from human error.

People make mistakes, and according to this study, they may make between 12% and 15% when it comes to manual billing. If you do keep your billing information in a spreadsheet, consider doing an audit to see whether there were any errors in recent months.

2. Data synchronization errors

Another problem that may come from using spreadsheets is errors in data synchronization. A typical user in a subscription-based business won't just subscribe to a plan and keep it. They often start with a free plan, update it or buy another product of yours, and may downgrade if their situation changes.

If, at any step of their journey, your account manager fails to make an update to their subscription plan, you end up leaking revenue. A sales manager can also update the name of the plan but forget to update the price. This problem can become even more pronounced if different account managers operate with personal spreadsheets, creating more opportunities for human error.

3. Discounts

Discounts can be a great way to drive new clients to the platform. But if your system or employees fail to stop charging the discounted price after the promotion is over, you're leaking revenue. Even if you catch up to this mistake after a few months, you've still lost some revenue—and multiplied by all people who took part in the promotion, it could be a big dent in your revenue.

4. Credit card expiration

Credit cards expire, and if you have enough clients, you'll learn they expire quite a lot. Dunning, the process of trying to get a payment that got canceled, is quite long and arduous. You need to try the same card a couple of times to make sure it's not just some weird banking policy preventing the payment from going through and then reach out to the cardholder.

It may not seem like it's leaking a lot of your revenue, but if you have hundreds of clients who pay small amounts each month, it can really chip away at your bottom line. For example, after implementing an automated dunning system, bitHeads, a software development agency, found it was losing 5% to 10% of its revenue to canceled payments. 

5. Chargebacks

There are many possible reasons for chargebacks—fraud among them—but whatever they are, you need to investigate. Once you figure out if it's a problem in your business, there are several ways to amend it apart from improving your services and support:

• Have a detailed description of your services on the website

• Have information on when the services were delivered

• Offer a refund policy

The last one is probably one of the easiest ways to win a chargeback dispute. Most payment processors will consider awarding you the win if you had a refund policy and the user didn't use it.

How to find and eliminate revenue leaks

Knowing the most common problem areas is not enough. You need a workflow that can find and eliminate the exact problem that results in leaking revenue from your business. If you have the resources to implement a data management system, it's the best way to go. CloverDX reportedly eliminated an over $100,000 leak in invoices that were never sent due to data errors. This, however, requires building a centralized data management solution, and unlike CloverDX, your enterprise may not have the budget to do so.

What do you do if you operate an SMB? Here are three steps to follow.

Find the compromised area

The first step toward improvement is knowing where to look. You're in the best position to do this if you've had complaints from employees about a specific type of leakage. If that's the case, you already know where to look—go investigate. 

Otherwise, you'll have to start with broad strokes and narrow the problem down to its source. The first step is to compare your monthly earnings with projections based on your client database. According to this report, 1%-3% of revenue is simply not billed.

If you see a discrepancy between what your earnings should be according to the database of paying clients and what your actual earnings are, don't jump to conclusions just yet. Jacob Varghese, head of subscriber billing platform, Fusebill, told me that there are several reasons you could get this result. It could be human error resulting in underbilling, credit card expirations or chargebacks, or even inconsistent billing times resulting in some payments arriving weeks later. You'll need to do some digging to find the cause.

CoConstruct, a platform that connects contractors and clients looking to build a home, implemented an automated solution and found that the issue was in late updates to the pricing system. They recovered just shy of $2,000 a month in revenue.

Finding a problem with incorrect data entry is going to be much tougher. You'll have to cross-examine your client database with billing records—it'll be tedious, but it's worth it.

Once you've found the source, it's not enough to fix that one error. You need to figure out why it happened to make sure it doesn't happen again.

Follow the workflow step by step

To understand what went wrong, you need to analyze the workflow that led to a mistake being made. Get feedback from your team or multiple teams if they're involved in this process, and recreate the workflow step by step. If you have a written company-wide guideline, you should start with it, but don't end your investigation there. Your employees may be doing something differently from the manual to save time or for any other reason. If they do, it's important to find out.

Set up a meeting or a call with team members and ask them how they go about any business process that you suspect might be flawed. This may include billing clients, updating billing information, adding new clients to the dataset, and more. Recreate the billing workflow step by step, including the people who are responsible for each step.

Be sure to stress to your employees that you're not looking for somebody to blame (you're not!), but that you're trying to solve the problem together. That should make them more likely to be transparent about any mistakes they made. 

Make a structural change

Once you know what leads to a certain recurring problem, it's time to fix it. It may be just a couple of employees failing to follow instructions or otherwise mishandling data. If that's the case, you'll only need to take time to show them how it should be done.

If the problem is bigger than that, you need to make structural changes to how your workflow works. How exactly you approach the issue depends on the type of problem at hand and the type of business you run. You might provide additional training to your employees, add more prescriptive steps to help eliminate mistakes, or start the billing process early to make sure no employees make mistakes when in a hurry. If you don't already have them, you'll also want to be sure you've set up standard operating procedures.

Automate

Automation can make business processes faster and eliminate human error, so you'll want to be sure you automate wherever it makes sense. For example, if you're relying a lot on data entry, you can cut out the copy/paste process and connect your apps instead. While it can't prevent leakage, it can massively decrease the potential for the human error that's often responsible.

How to eliminate revenue leaks in the long run

If you want to succeed in the long run, it's not enough to implement a solution you think will work. You need to keep analyzing, track whether your solutions are resulting in actual progress, and if they aren't, go back to the drawing board.