Where does revenue leakage come from?

Revenue leakage comes from the handovers in your revenue chain: from quote to deal, from deal to contract, from contract to invoicing, from delivery to invoice and from invoice to payment. At each of those points, information passes from one system or department to another, and something falls through the gap. Things rarely go wrong inside a single system. The leak almost always sits in the space between two systems, which nobody is responsible for.

Below we walk through the chain step by step, with what typically goes wrong at each handover and how to spot it. For the definition and the full picture, see the complete guide to revenue leakage.

The principle: leaks sit between systems

A CRM records deals. An accounting package books invoices. A planning tool tracks hours. Each of those systems does its job well, and each department has its own system in order.

The problem lies in the question no system asks: has everything that came in here also arrived there? The CRM does not know whether a deal has been invoiced. The accounting system does not know which deals were won. The planning tool does not know whether additional work was passed on to the administration.

That is why you do not find revenue leakage by configuring one system better. You find it by putting systems side by side.

What causes revenue leakage?

1. From quote to deal

The first leak arises before anything has been sold.

• Discounts without approval. A salesperson gives 20 percent off to hit the quarter. There is no approval step, or it is bypassed.
• Bespoke arrangements outside the system. "We won't charge installation in the first quarter." It is in an email, not in the quote.
• Outdated prices. The quote is built on an old price list or a copy of last year's quote.

How to spot it: compare the discounts in won deals by salesperson and by period. A wide spread without a clear reason is a warning sign.

2. From deal to invoicing

For most B2B companies this is the biggest handover, and the biggest source of leakage.

• Deal won, customer not set up. The deal is marked as won in the CRM, but nobody creates the customer in invoicing. Or they do, but only months later.
• Product lines copied differently. The CRM has five lines, the administration turns them into one total line and leaves out a component.
• Start date slips. Invoicing starts when the data is entered, not on the agreed start date.
• Changes after the deal. The customer expands during negotiation, the CRM is updated, invoicing is not.

How to spot it: put all won deals next to the invoices. Every deal without an invoice within the normal period is a finding. Worked out in revenue leakage between CRM and billing.

3. From contract to invoice

The contract contains terms that neither the CRM nor invoicing knows about.

• Volume tiers. Above 50 users a different rate applies, or a surcharge. Nobody adjusts it when the threshold is crossed.
• Minimum commitment. The customer agreed a minimum of EUR 2,000 a month but buys EUR 1,400. The difference is never invoiced.
• Temporary discounts. A twelve-month introductory discount carries on, because it was entered as a permanent discount.
• Rates for additional work. The contract says EUR 95 an hour, invoicing charges the standard rate of EUR 85.

How to spot it: take the twenty largest contracts and compare every pricing clause with the last three invoices. See revenue leakage between contract and invoice.

4. From contract to indexation

A separate category, because it goes wrong so often and runs for so long.

• Indexation not scheduled. The clause is in the contract, but nowhere as a date in a system.
• Wrong index. The contract refers to a wage index from a collective agreement, the administration applies the consumer price index, or a fixed percentage that has not been reviewed for years.
• Deliberately skipped, never caught up. An account manager decides not to index for one year to keep the relationship sweet. The following year, indexation is applied to the base that is now too low.

How to spot it: list all customers with an indexation clause and compare the rate on the latest invoice with the rate twelve months earlier. See revenue leakage from missed price indexation.

5. From delivery to invoice

What is delivered is not always what was agreed, and certainly not always what is invoiced.

• Additional work. Agreed on site, at the customer's premises or by email, carried out, not recorded.
• Hours booked as internal. A consultant books hours to an internal project because the client project does not exist or is closed.
• Growth in quantities. A customer has more users, workstations or locations than they pay for.
• Partial deliveries. An order is delivered in three parts and invoiced only twice.

How to spot it: compare recorded hours, deliveries or quantities per customer with what was invoiced in the same period.

6. From invoice to payment

Invoiced is not the same as received.

• Short payments. The customer pays EUR 4,850 on an invoice of EUR 5,000. The difference stays open and is written off after a year.
• Credit notes without a reason. A complaint is settled with a credit note, without anyone checking whether the complaint was justified.
• Arrears without follow-up. Small amounts are not chased because it is "not worth the effort".

How to spot it: analyse write-offs and credit notes over the past year. Who raised them, why, and for which customers?

7. Over time

Some leaks do not arise at a single handover, but because nobody watches a date.

• Expired contracts that carry on silently on old terms. See revenue leakage from expired contracts.
• Customers who quietly buy less without anyone noticing.
• Expansion opportunities nobody sees, because nobody looks at customers who have outgrown their plan.

Why these places in particular?

Three factors make a handover prone to leakage.

Manual work. When someone has to retype, copy or forward information, there is a chance of an error or a forgotten step. More on this in revenue leakage from manual administration.

No owner. Sales is done once the deal is marked as won. Finance starts once the customer is in invoicing. The moment in between belongs to nobody.

No feedback. When an invoice is too low, nobody notices. The customer does not call, the system shows no error, and the books close as usual.

Worked example: one chain, seven leaks

Worked example: suppose an installation company with EUR 9 million in revenue walks through its chain and finds one pattern per handover.

Total: EUR 107,000 a year, around 1.2 percent of revenue. The figures are assumptions for the example. The point is that no single item is alarming on its own, and the total is.

Step by step: find your own leak points

1. Draw your revenue chain. From first quote to payment. Which systems, which departments, which handovers?
2. Mark every handover that involves manual work. Retyping, forwarding, exporting, importing.
3. Establish who is responsible for each handover. If the answer is "nobody" or "everybody", you have found a risk.
4. Make one comparison per handover. Deals against invoices, contracts against invoices, hours against invoices.
5. Put an amount on every finding and start with the largest. How to do that is set out in how to calculate revenue leakage.

Frequently asked questions

Where does most revenue leakage occur?

In most B2B companies, at the handover from sales to invoicing and from delivery to invoicing. In companies with many contracts, missed indexation comes on top of that. Where it sits in your company depends on your business model.

Can revenue leakage arise within a single system?

It can, for example through a wrong price in the item master. But the vast majority arises between systems, because that is where nobody checks whether information arrived in full.

Does it help to put everything in one system?

Fewer handovers help. But even within an ERP with a CRM module, agreements, delivery and invoicing have to line up. The check is still needed, it just becomes simpler.

How often should I check the chain?

At least monthly, so that a leak cannot run for longer than one invoicing cycle. Continuous monitoring with software makes that feasible without extra work for finance.