Revenue recovery is the set of actions that a business takes to regain lost or at-risk income. This typically involves identifying and resolving issues that lead to income loss, such as unsuccessful payments, customer turnover or inefficient billing practices. The goal is to reduce financial losses and maximise earning potential. Broadly, revenue recovery can also encompass efforts to recover funds through better financial operations, customer retention strategies and technologies that automate and improve billing and payment processes. According to MGI Research, 42% of businesses lose revenue because of preventable measures – often referred to as revenue leakage.
Revenue loss is part of doing business. However, several tactics – and technological solutions – can reduce unnecessary revenue loss and accelerate your revenue recovery efforts. Below, we'll discuss how to tackle revenue recovery and revenue loss mitigation.
What's in this article?
- Why is revenue recovery important for businesses?
- Common causes of revenue loss
- How to identify causes of revenue loss in your business
- Seven revenue-recovery strategies
- Legal considerations for revenue recovery
- How Stripe can help
Why is revenue recovery important for businesses?
No matter what kind of business you run, you want to retain as much revenue as possible. If you aren't doing that, it can affect more than just your bottom line. Here's how revenue recovery affects businesses:
Profit reduction and opportunity cost: Unrecovered revenue reduces a business's profits. This decrease in profit margins can limit a business's ability to reinvest in its operations, innovate or expand.
Cash flow disruptions: Ineffective revenue recovery can cause cash flow problems. Cash flow enables a business to cover operational expenses, pay employees and make strategic investments. Without stable incoming funds, a business's operational efficiency and growth potential are at risk.
Resource allocation and efficiency: Failing to recover revenue might mean that a business is allocating resources ineffectively. It can indicate inefficiencies in billing, collections or sales processes, leading to wasted time and effort.
Market perception and credibility: A business's ability to manage its finances effectively – including revenue recovery – influences its reputation. Poor financial management can harm a business's credibility among investors, lenders and partners.
Long-term sustainability: Continuous issues with revenue recovery can jeopardise the long-term sustainability of a business. They can weaken the business's financial foundation, making it more vulnerable to market fluctuations and economic downturns.
Common causes of revenue loss
Revenue loss can be caused by a variety of factors. Here are some of the most common ones:
Inefficient billing processes: Billing errors can lead to undercharging or failing to invoice for services or products provided. These types of error often occur because of outdated or inadequate billing systems.
Poor accounts receivable management: Ineffective tracking and collection of payments can cause significant revenue loss. These lapses in payment tracking might include inadequate follow-up on overdue accounts or lack of a systematic collections strategy.
Service or product delivery issues: If a business doesn't deliver its services or products as promised, it can lead to refunds, returns or cancellations, affecting revenue.
Pricing strategy errors: Incorrect pricing – for example, setting prices too low or not adjusting them in response to market changes – can cause revenue loss. Pricing strategy errors can also include not capitalising on opportunities for premium pricing when the market allows.
Contract and terms management: Inadequate management of contracts and terms with clients and suppliers can lead to revenue leakage. This could be because of poor negotiation, unclear terms or failure to enforce penalties for late payments.
Fraud and theft: Internal or external fraud, from employee theft to cybercrime targeting business finances, can be a source of revenue loss.
Market and demand shifts: Changes in market trends or customer preferences can decrease demand for certain products or services, affecting revenue if the business doesn't adapt quickly.
Regulatory compliance and fines: Non-compliance with industry regulations can incur hefty fines and legal fees, which cut into revenue.
How to identify causes of revenue loss in your business
So how do you determine where revenue loss is happening in your business? Here's a process for discovering your sources of revenue loss:
Conduct a thorough financial audit: Examine your financial statements and accounts in detail. Look for discrepancies, unusual patterns or areas where revenue seems lower than expected. This audit should cover all of your business finances, including sales, billing, accounts receivable and expenses.
Analyse billing and collection processes: Review your billing and collection processes for inefficiencies or errors. This includes checking for accuracy in invoicing, timeliness of billing and effectiveness of collection efforts.
Evaluate customer feedback and complaints: Customer feedback can provide valuable insights into potential areas of revenue loss, such as dissatisfaction with products or services, issues with delivery or billing errors.
Monitor market trends and customer behaviour: Stay informed about changes in market trends and customer preferences. Analysing sales data and market research can identify shifts in demand that may be affecting your revenue.
Review contracts and agreements: Scrutinise all contracts and agreements with clients, suppliers and partners. Unfulfilled terms, loopholes or unenforced clauses may be causing revenue leaks.
Investigate for fraud or theft: Set up checks and audits to detect any instances of internal or external fraud or theft. This can include regular financial audits, monitoring of transactions and setting up security measures for data protection.
Consult departments and teams: Gather input from the experts within your organisation – particularly in sales, customer service and product development – on potential areas of revenue loss. They can provide different perspectives.
Use data analytics: Employ data analytics tools to analyse large sets of financial and operational data. These tools can identify patterns and anomalies that might indicate sources of revenue loss.
Seven revenue-recovery strategies
Once you've determined where you are losing revenue, take action. Don't just address known issues – consider potential liabilities. Here are seven strategies for addressing both scenarios:
Improved billing and collections
Revamp billing processes: Reassess your billing processes to identify areas for improvement. This might involve updating software, refining billing cycles or simplifying invoices for better clarity. The goal is to ensure that billing is accurate and timely.
Strengthen collection efforts: Create more effective follow-up procedures, use polite yet persistent reminders for overdue payments and set explicit terms for payment at the outset of client relationships.
Automate where possible: Automation can improve billing and collections. Use software that automatically generates and sends invoices, tracks payments and alerts you about overdue accounts. This saves time and reduces human error.
Offer multiple payment options: Make it easy for clients to pay with the payment methods that they prefer. These might include online payments, direct bank transfers or instalment plans for larger invoices.
Train staff in effective communication: Building effective communication skills, including training in customer service and negotiation, can help your staff handle late payments and negotiate payment terms.
Regularly review and update policies: Regularly assess and update your billing and collection policies to adhere to best practices and industry standards. You should also review client contracts to ensure that payment terms are clearly defined and enforceable.
Implement credit controls: Establish credit control procedures to assess the creditworthiness of new customers and set appropriate credit limits. This can reduce non-payment and help you manage funds more effectively.
Address delinquent accounts: Develop a strategy for handling delinquent accounts. This might include sending out payment reminders, negotiating payment plans or working with collection agencies.
Optimised pricing
In-depth market analysis: Conduct thorough research into your market, including competitor pricing, customer expectations and industry trends. Understanding the market allows you to set prices that are competitive yet profitable.
Segmentation-based pricing: Try segmentation-based pricing strategies. Different customer segments may vary in terms of willingness to pay. Tailoring prices according to segments – such as premium customers, budget-sensitive clients or bulk purchasers – can optimise revenue.
Dynamic pricing models: Consider dynamic pricing models where feasible. This involves adjusting prices based on real-time supply and demand factors. For instance, pricing might be higher during peak demand periods and lower during off-peak times. Keeping prices static for too long can lead to missed revenue opportunities or pricing that doesn't reflect an awareness of your competitors.
Value-based pricing: Move towards value-based pricing, where prices are set on the basis of the perceived value to the customer rather than being primarily based on the cost of production or market rates. This type of pricing can help maximise revenue from high-value products or services.
Psychological pricing techniques: Employ psychological pricing strategies. Studies show that pricing products just below a round number (such as £19.99 instead of £20) can spur sales because customers pay less attention to the last digits.
Bundling and cross-selling: Explore bundling products or services and cross-selling opportunities. Bundling can increase the perceived value, while cross-selling can introduce customers to complementary products, leading to larger overall purchases.
Customised contracts and pricing agreements: For business-to-business (B2B) scenarios, consider customised contracts and pricing agreements that reflect the needs and potential of each business client. These agreements can optimise revenue while maintaining strong business relationships.
Feedback loops and customer insights: Establish feedback loops to gather insights from customers about pricing. Being aware of customer perceptions and sensitivities can guide adjustments and innovations in the pricing strategy.
Use of pricing analytics: Evaluate advanced pricing analytics to gain insights into how different pricing strategies are performing. These tools can help in identifying the most profitable pricing models and making data-driven decisions.
Streamlined operations
Comprehensive process analysis: Begin with a thorough evaluation of all business processes. Identify areas where inefficiencies, redundancies or bottlenecks are causing delays and added costs. This analysis should encompass factors such as production, service delivery and administrative functions.
Lean management principles: Use lean management principles to reduce waste and improve efficiency in processes, resource use and workflows.
Technology integration and upgrades: Invest in technology to improve operations. This can include upgrading to more effective software systems, using automation for repetitive tasks and integrating different business functions through technology for better coordination.
Supply chain optimisation: Examine and improve your supply chain. Negotiate better terms with suppliers, consider alternative supply sources for cost efficiency and smooth out logistics to reduce delivery times and costs.
Employee training and empowerment: Equip employees with the necessary skills and authority to make decisions that affect their work. Well-trained and empowered employees can identify and address inefficiencies more quickly.
Quality control systems: Initiate or improve quality control systems. Preventing errors and defects in products or services saves the cost of reworking them and protects the brand reputation, which can indirectly affect revenue.
Outsourcing non-core activities: Consider outsourcing non-core activities. By delegating tasks such as information technology (IT) services, human resources (HR) or accounting to specialised firms, you can focus on your core business areas and reduce overhead costs.
Design a customer-centric process: Redesign processes with a focus on the customer experience. Processes that are smooth and customer friendly can lead to increased satisfaction and loyalty, which can boost revenue.
Automation and revenue management systems
Prudent use of automation: Carefully assess which aspects of your business – perhaps invoicing, customer relationship management, inventory control or data analysis – could benefit most from automation. Automate tasks that are repetitive and time consuming, freeing up employees for more complex tasks.
Advanced revenue management systems (RMS): Employ sophisticated RMSs that can handle complex pricing strategies, customer segmentation and revenue forecasting. These systems should provide real-time analytics, helping you make quick, informed decisions.
Integration across business functions: Use automation options and RMSs that can be fully integrated with other business systems, such as customer relationship management (CRM), enterprise resource planning (ERP) and supply chain management systems. This integration enables data flow and comprehensive insights across all business operations.
Data-driven decision-making: Use the data analytics capabilities of RMSs to track revenue patterns, customer behaviour and market trends. Use this data to inform key decisions and identify new revenue opportunities.
Customisation and scalability: Choose RMS and automation solutions that are customisable to your business needs and scalable as your business grows so that your investment in these solutions will continue to provide value.
Data analysis and reporting
Develop a comprehensive data strategy: Establish a strategy for data collection and analysis. This involves determining which data is most relevant to your revenue goals, how it will be collected and which methods will be used for analysis. Focus on quality data that translates to actionable insights.
Invest in advanced analytical tools: Use advanced tools that can handle large datasets and perform complex analyses. You should be able to obtain visualisations and reports that are easy to interpret so that you can make data-driven decisions effectively.
Regular revenue performance tracking: Set up systems to regularly track your most important revenue metrics. This includes monitoring sales figures, profit margins, customer acquisition costs and other relevant financial indicators. Consistent tracking helps in identifying trends and addressing issues promptly.
Segmentation and behavioural analysis: Analyse customer data to identify different segments and their behaviours. Look at purchasing patterns, preferences and feedback. This knowledge allows for targeted strategies to maximise revenue from each segment.
Competitor benchmarking: Use data to benchmark your performance against competitors. Knowing where you are in the market can help identify areas for improvement and opportunities for growth.
Predictive analysis for trends: Employ predictive analytics to forecast trends and market behaviours. This proactive approach enables you to prepare and adapt in anticipation of market changes.
Integration of data sources for a holistic view: Integrate data from various sources – sales, marketing, customer service and finance. Taking a holistic view of data provides a more accurate picture of your business's health and revenue potential.
Better customer experience
Deep awareness of customer needs: Invest time in understanding what your customers need and expect from your business. This knowledge goes beyond basic service expectations to grasp the nuances of customer preferences and challenges.
Personalisation in service delivery: Personalise customer interactions. Use customer data to tailor communications, offers and support. Personalisation shows customers that they are valued and understood, inspiring loyalty and potentially increasing revenue through repeat business. Research from McKinsey & Co. found that businesses that excel at personalisation generate 40% more revenue from those activities.
Feedback loops: Create effective feedback loops. Encourage and make it easy for customers to provide feedback. Actively listen to what they are saying and demonstrate that you're using their input to make tangible improvements.
Empathy and problem-solving: Train your staff not just in the technical aspects of their roles but also in empathy and problem-solving. A team that can empathise with customers and solve their problems effectively can turn negative experiences into positive ones.
Quick issue resolution: Focus on quick and effective resolution of customer issues. This includes having processes for handling complaints and empowering staff to make necessary decisions without excessive bureaucracy.
Using technology for better service: Use technology to provide additional customer service. This could include chatbots for instant responses, CRM systems to track customer interactions, and self-service options for customers who prefer them.
Consistent and high-quality service standards: Consistent customer service quality builds trust and reliability among customers.
Building strong customer relationships: Build long-term relationships with customers rather than just executing transactions. Strong relationships can lead to increased customer lifetime value and word-of-mouth referrals.
Proactive customer outreach: Don't wait for customers to come to you with problems – engage with them proactively. Help, advice and insights can improve their experience with your product or service.
Measuring and improving customer satisfaction: Measure customer satisfaction regularly through surveys, net promoter scores and other metrics. Use this data to continually align your customer service efforts with what customers value most.
Strong marketing and outreach
Targeted marketing strategies: Develop data-driven marketing strategies that are targeted to your key demographics. Tailoring your strategies to different customer segments can make your marketing efforts more effective. Track the performance of your campaigns, understand what works and what doesn't, and refine your strategy based on these insights.
Content marketing and storytelling: Use content marketing and storytelling to entice potential customers. Share stories about your brand, customer outcomes or how your products or services solve problems. Storytelling helps build a connection with your audience.
Using digital marketing channels: Make full use of digital marketing channels, such as social media, email marketing, search engine optimisation (SEO) and online advertising. These channels can help you connect with a wide audience at a relatively low cost.
Building a strong online presence: Your online presence, including your website and social media profiles, should be polished, up to date and compelling. Your online presence is often the first point of contact for potential customers, so it must make a good impression.
Networking and partnerships: Develop relationships and partnerships with other businesses, influencers or industry experts. These relationships can open up marketing opportunities and increase your reach.
Customer advocacy and referral programmes: Satisfied customers can be your best marketers. Implement referral programmes that incentivise customers to bring in new business.
Community relationships and CSR initiatives: Corporate social responsibility (CSR) initiatives and local events build brand awareness and establish your business as a responsible and caring member of the community.
Consistent brand messaging: Messaging with a consistent voice, tone and focus across all channels and marketing materials builds brand recognition and trust.
Experimentation and adaptability: Be open to experimenting with new marketing tactics and channels. Marketing practices are always evolving, and staying adaptable enables you to take advantage of new opportunities and trends.
Legal considerations for revenue recovery
Here's what you should know about the legal and compliance issues surrounding revenue recovery:
Adherence to contractual terms: You must comply with the terms and conditions outlined in contracts with clients or customers. This includes honouring service agreements, pricing structures and payment terms.
Fair debt collection practices: When handling overdue payments, businesses must follow fair debt collection practices as stipulated by law. This includes respecting privacy, avoiding harassment or abusive tactics, and adhering to the permissible times for contacting debtors. For instance, abide by regulations such as the US Fair Debt Collection Practices Act, which prohibits deceptive, abusive or unfair practices, such as calling debtors at odd hours or using threatening language.
Customer protection laws: Be aware of customer protection laws that apply to your business. These laws protect customers against unfair or deceptive business practices and are particularly important for billing, advertising and customer service. Advertising and promotional materials must not be misleading, and all fees or charges must be disclosed up front, as mandated by laws such as the Federal Trade Commission Act in the US.
Data protection and privacy laws: It's necessary to comply with data protection laws, particularly when handling customer or client information for billing and collections. This includes adhering to regulations such as the General Data Protection Regulation (GDPR) in the European Union or the Health Insurance Portability and Accountability Act (HIPAA) in the US healthcare sector.
Bankruptcy considerations: If your customer or client is declaring bankruptcy, you must follow specific legal requirements. For example, the automatic stay provision in bankruptcy immediately prohibits most collection activities against the debtor upon their bankruptcy filing. This may affect your ability to collect owed revenues.
Tax compliance: Ensure that your revenue recovery practices follow tax laws. This includes proper invoicing, tax collection and remittance where applicable. You must correctly report and remit taxes for all recovered revenue in accordance with local and federal tax laws, including adhering to specific sales tax collection and remittance rules for different regions.
Cross-border transactions: If your business operates across borders, be aware of the legal and tax implications in different jurisdictions. Different countries have varying laws regarding billing, collections and financial transactions.
Industry-specific regulations: Depending on your industry, there may be specific regulatory compliance issues to consider. In the healthcare sector, for example, you must comply with regulations such as HIPAA in the US, which imposes strict rules on handling patient information during billing.
Ethical considerations: Consider the ethical implications of your revenue recovery practices. Adopt practices that prioritise customer dignity and respect, such as providing reasonable payment plans or avoiding aggressive legal action for small debts, to maintain a positive public image and customer trust.
How Stripe can help
Stripe has a comprehensive suite of tools designed to mitigate revenue loss, specifically for businesses that use recurring revenue models. These solutions help businesses across industries fine-tune their revenue collection processes. For example, in 2022, Stripe's automated revenue recovery features contributed an added US$3.8 billion in revenue to businesses by reducing customer churn and payment failures.
The core components of Stripe's revenue recovery options include:
Recovery analytics: This feature provides insights into subscription payment failure rates and recovery rates, helping businesses identify and address issues with customer payments. It also includes tracking of recent failed payments for top customers.
Smart retries: Smart retries automatically attempt to process failed payments again, which can help prevent involuntary churn because of temporary issues such as card expiry or insufficient funds.
Email notifications: These automated notifications alert customers when a payment fails, a card is about to expire or a payment method needs updating, enabling prompt resolution of payment issues.
No-code automations: Stripe offers custom logic and recovery strategies without the need for coding, allowing businesses to deploy their recovery tactics easily.
Smarter saved cards: Stripe automatically updates a customer's card information when they get a new card number, reducing the likelihood of failed transactions because of outdated card details.
Stripe also provides specific recommendations for improving recurring revenue recovery. These include setting up failed payment retries and automated customer emails, creating customised automations for processes such as dunning flows for annual subscribers, notifying teams about overdue high-value invoices and scheduling webhooks before quotes expire. To learn more about how Stripe supports revenue recovery, go here.