Revenue leakage from wrong subscriptions

Revenue leakage from wrong subscriptions happens when the subscription in your billing system does not match what the customer actually uses or has agreed to. The customer is on a package that is too low, pays for too few users, has a module that was never added to the invoice or is still on a trial that ended long ago. Because a subscription repeats every month, so does the error. You find it by putting three things side by side for each customer: the contract, the subscription in the billing system and actual usage.

Why are subscription errors so expensive?

An error on a one-off invoice costs money once. An error in a subscription costs money every billing period until someone finds it. And because recurring invoices are generated automatically, nobody looks at them after the first time. The error becomes the norm.

On top of that, subscriptions often represent more value than they seem to per invoice. A difference of EUR 150 a month does not stand out among hundreds of invoice lines. Over a five-year customer relationship it is EUR 9,000. That makes wrong subscriptions one of the most persistent forms of revenue leakage.

What are the most common subscription errors?

1. The wrong package. Sales sold the Professional package, finance entered Standard. Or the customer moved to a higher package halfway through the year, and the change was only processed in the CRM. The customer uses the features of the higher package and pays for the lower one.

2. Too few users or units. The contract says 25 licences, the customer now has 40 active, the subscription still says 25. This is the most common variant, and the line between this and missed upsells is thin: the service was delivered, but not charged for.

3. Modules or add-ons missing from the invoice. The customer bought an extra module, an integration or a premium support package. The module was switched on, but the billing item was never added to the subscription.

4. Downgrades are processed, upgrades are not. A customer who wants to pay less calls and makes sure it happens. A customer who starts using more simply does so. That skews the errors: downward changes are almost always processed correctly, upward ones regularly are not.

5. Trials and free months that never convert. The customer was given three months free to try the service. The service continues, the subscription is still at zero. Sometimes the subscription was never created, because the trial was arranged outside the billing system.

6. Wrong billing frequency or period. The contract says annually in advance, the system invoices monthly in arrears. That does not cost you revenue, but it does cost cash flow and sometimes interest. Or the reverse: a mid-period change is not prorated, and the difference disappears.

7. Cancelled subscriptions where the service continues. The customer cancelled, billing stopped, but access was never shut off. Sometimes the customer keeps using it for months. This is the mirror image of revenue leakage from expired contracts.

Where do the errors come from?

Almost all subscription errors arise at a handover. Sales closes, someone else enters it. Support switches on a module, someone else adjusts the invoice. A customer calls with a change, and that change has to be processed in three systems: the CRM, the billing system and the platform or scheduling system.

Every handover carries three risks:

• The change does not get through. The email to finance was missed, the ticket was closed without action.
• The change gets through wrongly. The wrong item, the wrong quantity, the wrong effective date.
• The change gets through in one system only. The CRM was updated, the billing system was not.

The result is three systems that each tell their own version of the truth. Which one is right, nobody knows without putting them side by side.

Worked example

Worked example: suppose you have 400 business subscriptions with an average value of EUR 350 a month. A comparison between contract, billing system and usage shows:

• 18 customers are on a lower package than they use, an average difference of EUR 120 a month: EUR 25,920 a year.
• 35 customers have more users active than invoiced, on average EUR 60 a month: EUR 25,200 a year.
• 9 customers have a module switched on that is not on the invoice, on average EUR 80 a month: EUR 8,640 a year.
• 4 customers are still on a free trial that should have ended on average ten months ago, at a normal rate of EUR 250 a month: EUR 10,000 in missed revenue so far, and EUR 12,000 a year for as long as it continues.

Together more than EUR 70,000 a year, on subscription revenue of EUR 1.68 million. Not a single customer is unhappy and not a single invoice was prepared incorrectly. They are simply the wrong subscriptions.

How do you check for it?

The check is a three-way comparison.

1. Export every active subscription from the billing system. Customer, package, quantity, modules, price, frequency, start date.
2. Export the agreed position for each customer. From the CRM or contract register: what was sold, at what price, for what term.
3. Export actual usage. From your platform, scheduling or time tracking system: number of users, active modules, volumes.
4. Match the three at customer level. In practice this is the most work, because customer numbers and names differ between systems. Build a mapping table once and keep it up to date.
5. Flag every discrepancy. Package, quantity, modules, price, frequency. Sort by annual difference in euros.
6. Investigate the largest twenty first. There is often an explanation, for example an arrangement that was never recorded. You then record it after all.
7. Correct and set an effective date. What you do about the past is a commercial decision for each customer.

How do you prevent it?

One system leads on what was agreed. Usually the CRM or the contract register. The billing system follows, the platform follows. Whoever makes a change makes it in the leading system first.

Changes through one process. A package change, extra users or a new module always goes through the same form or workflow, which touches every system. A change made outside that process, for example a module support switches on at a customer's request, must raise a notification.

Automatic links where possible. Many subscription platforms, such as Stripe or Chargebee, can pass usage or quantities through to the invoice. For SaaS companies and managed service providers that is standard. If billing and delivery are separate, the comparison has to be done periodically.

Trials always with an end date and an owner. A free period gets a zero-euro subscription in the billing system with an end date and an automatic conversion, or a task assigned to an owner.

A monthly comparison as a fixed part of the close. Not a once-a-year project. Subscription errors arise every month, so the check has to happen every month too.

The eight leak patterns, including this one, are set out on the use cases page.

Frequently asked questions

What is the difference between a wrong subscription and a missed upsell?

With a wrong subscription, the invoice does not match what was agreed or what is being used. The service has been delivered. With a missed upsell, everything is correct, but the customer could have bought more. The first is an error you can correct, the second an opportunity you can take.

Can I invoice a customer after the fact for a wrong subscription?

That depends on the contract and on what was communicated. If the higher package was in the contract, you are in a strong position. If the customer created more users on their own, look at what the terms say about additional usage. In practice many companies correct from now on and have a conversation about the past.

How often do subscription errors occur?

Every change is a chance for it to go wrong: a new customer, an upgrade, a downgrade, an extra module, a cancellation. The more changes per month, the more room for errors. There is no reliable average error rate to quote. It depends mainly on how many manual handovers your process contains.

Can a better billing system solve this?

Partly. A system that invoices usage automatically solves some of the errors. But as long as contract, CRM and billing are maintained separately, the comparison remains necessary. The problem usually sits in the handover, not in the system.