According to the book “To the Max: Revenue Maximization: Capturing the Opportunities Within” by Randy Browning & Sameer Kumar, all types of companies leak revenue. Revenue leak means that while the business is gaining revenues in the front-end, your business may have a small crack or gaping hole that makes it leak revenue in the back end.
Causes of Revenue Leakage
There are a number of causes of revenue leakage, from simple spreadsheet miscalculations to misinterpretations of the agreement which lead to under-reported sales or over-reported deductions to billing problems. Fraud is also a big cause of leaks in revenue, as well as inefficient or wrong implementation of technology.
Three layers of causality lie underneath every revenue leak: temporal causes, cultural susceptibilities, and proximate causes. The causes are like the causes of catching a cold. The temporal causes are why this or that virus has come to one’s area or why this or that virus is so potent now. The cultural susceptibilities are why an individual is particularly vulnerable to a virus. The proximate causes are why he caught the cold now.
- Frequent mergers and acquisitions as part of industry consolidation and expansion
- More rapid adoption of new technology
- Accelerated pace of product development and marketing
- Rapidly shifting competitive landscapes and business models
- Silo mentality-individuals and corporate functions not thinking outside their own task
- Cutting muscle-active cutting of resources necessary for revenue maximization
- Defensiveness-problem denied because individuals fear blame
- Competition from other priorities-revenue maximization seen as less “fun and sexy” than other initiatives
- Exceptions complex-individuals whose jobs depend on processing exceptions from major systems
- Control mindset-viewing revenue leakage as an audit issue, not a growth issue
- Culture of extremes-being too risky or too risk-averse in revenue maximization
- People, including simple mistakes, interpretation errors, and inability to follow rushed or complicated instructions
- Processes that are flawed, incomplete or impossible to follow
- Technology, primarily in faulty interfaces between systems preventing the complete and accurate transfer of information
Strategies of Revenue Maximization
There are a number of ways businesses can maximize revenues. According to the book, the four core strategies of revenue maximization:
1. Integrate revenue maximization into all of a company’s day-to-day processes.
With clear, measured, and accountable day-to-day processes, companies can prevent root causes of revenue leakage and ensure consistent revenue maximization in a rapidly changing business environment.
2. Implement key automated tools.
Companies can quantify and capture leaked revenue and improve the accuracy of revenue collection with leading-edge detective, analytical, and preventive tools that are a living part of a company’s operations.
3. Create a revenue responsible organization.
With the right leadership, culture, accountability and structure, companies can foster an organization that is intolerant of revenue leakage.
4. Bind and embed these strategies with quantifiable monitoring mechanisms.
Companies can use simple, tiered, and continuously adjusted monitoring mechanisms to achieve a best-practice, integrated revenue maximization strategy.
Ways to Capture Revenue
According to the book, the four types of revenue capture are:
- Immediate capture, the most obvious form, in which a company corrects inaccurate or incomplete transaction data and either back bills for services already provided or begins to bill correctly for recurring services.
- Preventive capture, in which a company proactively addresses root causes of revenue leakage and prevents leaks from happening in the first place.
- Opportunity capture, in which a company addresses and corrects processes or systems that are blocking incremental revenue capture.
- Efficiency capture, in which a company achieves operating efficiencies in revenue maximization-related activities.
Excerpts from the book To the Max: Revenue Maximization: Capturing the Opportunities Withinby Randy Browning & Sameer Kumar Published by PricewaterhouseCoopers March 2003
Category: Financial Management