3 steps every professional services provider should take to stop revenue leakage
- Revenue leakage is death by a thousand cuts - Larry Goldberg of FinancialForce has three steps to stem the bleeding and save revenue
Just about every business in the professional services industry knows — and fears — the problem of revenue leakage. It is death by a thousand cuts.
One of the first and deepest cuts is lost revenue due to inaccurate scoping of a project. It happens when you're hired by a client to complete a project and you quote, say, 100 hours to finish the job. Then it actually takes you 105 hours to do the job. If it's a fixed-fee project and the customer won't pay you for the additional five hours, then you've lost that revenue.
Other common cuts are missed opportunities for price increases, overstaffing of a project, and offering aggressive sales discounts when they're not really necessary. Still other common cuts are billing errors, putting the wrong person on a project, friction in the collections process and poor handoffs between sales and finance. All of these can have a profound impact on your bottom line.
In fact, add up all the ways a project can leak revenue and you could easily be looking at a total loss of 20%-30% of actual margin. Obviously, that is no way to run a thriving business.
Here are three steps your organisation can take to stop the bleeding and avoid lost revenue.
1. Ensure data consistency
At its core, revenue leakage is a data problem. It happens when you fail to access the right information at the right time. It can be an oversight as careless as neglecting a timesheet from one of your employees and thus invoicing the customer for less than you should have. Or it can be a problem that is structural and ingrained, such as having business systems that don't talk to each other, which creates obstacles in the flow of information between, say, the sales department and the finance team.
Establishing data consistency is crucial precisely because there is different information in different systems. For instance, let's say General Motors is your customer. In your sales system, the listing is General Motors. But in your financial system, the listing is GM. If records in your systems are inconsistent in this way, it can compromise data accuracy and completeness and ultimately cause billing errors and lost revenue.
George Clinical struggled with inconsistent sets of client data, for instance. By implementing a system which considered data accuracy and financial consolidation, the clinical research firm was able to overcome this issue. George Clinical can now enjoy the peace of mind that accompanies data integrity, while also supplying its customers with accurate datasets for all projects.
Another example is when a project is sold, there might be something missing from the sales order that needs to be added later into, say, the professional services solution. Once the sale is made, there may be the wrong tax codes set up against that customer, so the wrong tax gets applied to the invoice. Even a small discrepancy in the data between systems can cause serious problems down the line. Every error results in two things. First, error rectification and rework. Second, any incorrect invoice will cause delayed payment which impacts days sales outstanding.
The best solution is to create a unified platform and implement a single, integrated system to manage your data from end to end.
2. Create a seamless process
Every handover can result in a process gap and/or a timing gap. For instance, delays in submitting timesheets can result in delayed invoices. Or missed expenses may be subsequently disputed and not charged to the customer, resulting in a write off.
Similarly, a third-party contractor may be used to supplement the team. That contractor gets paid, but ultimately payment to you for their work doesn't make it onto the books. Or there may be a physical product that's needed for a project, and that product is ordered, bought and delivered, but never gets charged. All of these issues are caused because there are gaps between systems.
Here's another example. Delays in resourcing might result in a project start date being pushed back. This might impact utilisation if consultants are unable to be diverted to another short project while waiting on the bench for the project to start.
By creating a seamless process, you can better connect your people, projects, and systems. This enables you to gain visibility into your business across sales, services, and finance. Ultimately you can keep projects on time and information up to date — all while putting an end to revenue leakage.
An example of this can be seen with Five9, one of the leading pure plays in the cloud contact centre business. By implementing a seamless process, the vendor was able to save 20,000 hours while there was an even bigger impact on the revenue side, with there being an increase of around $3 million in revenue.
3. Leverage analytics to become data-driven
If you want to have a good handle on your margins and truly understand the real cost to serve a customer and the lifetime value of that customer, you need good quality information across the enterprise. This starts by carefully tracking project outcomes over time and learning from your analysis.
For example, if you've completed 17 projects of the same type and, over the course of these engagements, it took an average of 75 hours to complete a project, that is what you should have been billing — not 50 hours here and 65 hours there. And if, on one project, completion time leapt to 85 hours, you should be able to figure out why it happened.
You can also implement more sophisticated analysis. For instance, you can look at who staffed your projects and compare the projects from that standpoint. Examine commonalities and differences across projects in terms of employee experience and skill set, as well as the customer's industry and geography. You can learn a great deal from analysis like this.
Then compile what you learn and use it to scope your projects accurately. This way you will no longer leave money on the table. Whether your organisation has tens of thousands of employees and thousands of projects globally or just a dozen employees and a handful of projects per year, this kind of data analysis is critical to your success.
When it comes to project management, the search company Elastic has been able to automate a significant portion of its project process, from efficiently matching consultants to projects to accurately tracking projects. For a company that conducts business in more than 40 countries and 24 currencies, having the capability to manage projects efficiently and accurately in a singular system has been revolutionary.
Revenue leakage has been a problem since the dawn of the service industry. The good news is that companies are finally starting to appreciate the magnitude of the problem and putting plans in place to fix it. Indeed, patching revenue leaks can be a competitive advantage because it enables you to turn death by a thousand cuts into success by a thousand small wins.