Things You Should Know about Revenue Leakage in B2B SaaS

Learn about the revenue leakage in SaaS companies that go unnoticed, causing the loss of revenue to companies.

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    According to Baremetrics data, SaaS businesses lose about 9% of their monthly recurring revenue (MRR) due to failed payments and involuntary customer churn. It can add up to a significant loss of revenue in the long run.

    With increasing focus on the post-sale customer lifecycle, many companies realize the value of good customer onboarding practices. In many SaaS companies, onboarding is still under the purview of customer success teams where the platform is more plug and play; customers can get started quickly.

    In such cases, there is zero to limited customization required during the sales handover process, which helps to keep the right focus on customer experience.

    On the other hand, many enterprise SaaS products involve customizing their product to fit the client’s needs; Onboarding and implementation teams play a key role in the initial phase of the customer journey. It is their responsibility to ensure that the customers get what they signed up for.

    In such a structured environment, the customer success team usually plays the role of laying the groundwork for building long-term relationships with the customer personas during the onboarding and implementation phase.

    However, when it comes to setting the KPIs and success metrics for any enterprise SaaS organization, usually the revenue-related KPIs like NPS, Adoption, and Churns are linked to the customer success teams.

    In practicality, the “customer-centric” KPIs should be tracked across cross-functional departments that are involved in the various stages of the customer journey.

    Revenue leakage is a hard fact for most B2B SaaS companies. However, many companies tend to overlook the actual leakage that might happen, primarily due to the focus on priority or high-value customers rather than on creating a customer-centric experience for all their customers.

    In this blog, let’s discover the hard fact in brief- What is revenue leakage, what are the causes and how could it be prevented?

    What is Revenue Leakage?

    Revenue leakage in SaaS companies means the unnoticed loss of revenue; it may occur due to wrong billing or under-billing.

    NRR (Net Revenue Retention) or NDR (Net Dollar Retention) is the golden metric in B2B SaaS. For most businesses operating in the SaaS space, repeating business from existing customers is valuable, if not more than new revenue.

    Source: Deloitte Report - Driving Repeatable and Sustainable Growth in Enterprise SaaS

    What are the Primary Causes of Revenue Leakage?

    Now that we know what is “Revenue Leakage”, let’s understand some of the primary causes of revenue leakage in enterprise saas.

    Primary Causes of Revenue Leakage

    Delayed Go Live  

    In most SaaS business models the ARR kicks in once the system is live. There is a potential loss of ARR billing for even a single day delay in going live. This loads up and is unaccounted for in most cases - as the client is simply shown as went live with X days/weeks delay in records.

    Associated Resource Cost

    A fixed implementation fee accompanies any SaaS product license. This is to cover the cost of the implementation team. In every case, the cost is calculated assuming X no. of days in implementation.

    For every additional day spent in the implementation, there is unaccounted for resource cost and opportunity loss as the same resources are supposed to work on a different implementation project. Additionally, senior resources get involved in escalation meetings and issue resolution.

    Potential of Customer Churn in Implementation

    Most implementation teams judge a customer's health during implementation based on the timelines and their feelings about the relationship. This varies from person to person and introduces the scope of error. Many SaaS companies face the challenge of customers churning even before ARR is recognized.

    Overall the revenue impact could be in the range of 1.5-2x the implementation fee or 2-3% of the ARR with a delayed Go Live.

    How Are These Causes Leading to Leakage?

    Multiple factors could lead to an overall delay in taking customers to live. A few of the most common items include:

    • Requirement of functionality not available out of the box in the product
    • Estimations are being done based on past learnings instead of data
    • New product feature which is in the roadmap and needs to be reprioritized based on the customer implementation
    • Information loss in handover between cross-functional teams leads to information asymmetry
    • Customer priorities change post-sale or during the implementation  
    • Manual prioritization of tasks at the project team level
    • Scope creep - customers re-prioritizing or de-prioritizing items than what was agreed as part of the SoW
    • The project team spends a good amount of time preparing status reports and explaining why things are getting delayed if it is delayed.

    How to Plug the Gaps?

    These gaps are acknowledged by enterprise teams. Invariably the teams are overloaded in firefighting across customers and are unable to spend time optimizing the process or plugging the gaps.

    1. An easier way out for the team could be a single source of truth that provides a bird’s eye view of:

    - What is going across all projects at the individual and company level

    - Visibility to the product roadmap.

    2. Any changes in the product roadmap or the project progress get highlighted automatically.

    3. Automated notifications on prioritizing items dependent on them

    4. Proactive communication to customers on items falling out of the plan - including planned feature releases

    5. System-defined RAG status indicating the true health across projects

    Wrap Up

    B2B SaaS companies must focus on handling revenue leakage with utmost care as it can lead to a significant revenue loss. All you need is a standard revenue leakage prevention structure that increases the company’s profitability.

    This structure must include strategies to mitigate issues such as churn, loss of revenue, and other unnoticed details with effective onboarding and implementation process and good communication among teams, which can reduce the scope of revenue leaks.

    We at CogniSaaS help companies identify the potential revenue leakage at stake right from the customer onboarding phase. Learn more about our features on our website and request a demo today!

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