As an eCommerce seller, you have to spin quite a few plates – product sourcing, marketing, customer service, and more. But one of the plates that's the easiest to overlook (yet can have a huge impact on your bottom line) is revenue leakage.
Revenue leakage is essentially any money you're leaving on the table from lost sales opportunities or unexpected costs. These opportunities can range from customers abandoning their shopping carts without making a purchase, to pricing a product too cheaply.
Not only can leaking revenue lead to lost profits, but it can also lead to an overall decrease in customer satisfaction. After all, who likes an empty shopping cart?
Fortunately, there are several steps you can take to prevent revenue leakage. Let’s look closer at revenue leakage as a concept, and how you can take control of your profits.
What Is Revenue Leakage?
Think of revenue leakage as a hole in the bottom of your boat. Every time you make a sale, some of that money is slipping away without making it back to you. As an online seller, it makes sense to expect a bit of margin to be lost due to returns and refunds, but are you tracking the others areas of revenue leakage? If you’re not paying attention, revenue leakage can cost you much more.
The issue comes when your revenue leakage is greater than what’s normal. This can happen for a variety of reasons, but the effect is still the same – your money is slipping away, and you don’t even know it.
Common Types of Revenue Leakage
What are some ways that sellers can be losing money unknowingly? Some of the common types of revenue leakage include:
Price Erosion
If you’re not constantly monitoring your prices, you may end up losing money through price erosion. This happens when competitors lower their prices to undercut yours and capture more of the market. So you miss-out on the sales. Conversely it also happens the other way, when competitors increase the price of products, if you’re not tracking them and stay at the lower price, you’re likely selling the product too cheaply. To avoid this, make sure that your pricing strategy is always competitive.
Mispricing
Do you have a team of employees involved in the pricing process? If so, human error can cause you to misprice a product or service. This could lead to either undercharging or overcharging customers, resulting in lost revenue. To minimize this risk, consider using automated dynamic pricing solutions. They remove human error in the maths used for calculations, and also flag and monitor anomalies for humans to check, such as minimum margin notifications.
Fraudulent Transactions
Did you know that eCommerce companies are estimated to lose $48 billion to fraud each year? When you look closely, for every $100 spent on fraudulent orders, businesses incur a total loss of $207 - a big issue for companies of any size.
Online sellers are especially vulnerable to fraudulent transactions committed by customers who don’t actually intend to pay for the items they buy. Issues such as chargebacks can be costly if you don’t have the right identification and authentication methods in place to protect your business.
Sneaky Customer Codes, Discounts, and Specials
Did you run a special sale or promotion? Are you sure those discount codes aren’t still being used? It’s not uncommon for customers to use codes or specials after they have expired, resulting in lost revenue for your business. To prevent this from happening, consider implementing a system that tracks and monitors customer promo codes.
Customer Support Costs
Providing efficient customer support is a major factor in any successful online business. However, the costs of staffing customer service representatives can add up quickly.
To reduce these costs, you may want to consider automating some of the customer service tasks, such as providing FAQs on your website or using a chatbot system - which can answer common customer queries without the need for a human representative.
Marketing Costs
Here’s a source of revenue leakage that can have a huge impact on your bottom line: marketing. Are you spending money on ineffective marketing channels? Are you spending enough time optimising your digital campaigns?
Bidding on products where you’re not competitively priced, is a huge drain in costs. Consider using pricing tools to help you tag products in Google Ads where you’re not competitively priced, so you can adapt your marketing campaign to ignore those products.
The Risks of Unmonitored Revenue Leakage
Revenue leakage can occur subtly and go unnoticed. That’s why taking a proactive approach to monitoring your business processes is essential.
Financial Instability
As a seller online, the last thing you need to deal with is financial instability. Revenue leakage is a sneaky issue, and if it’s not monitored or addressed in a timely manner, it can cause your bottom line to take huge hits.
For example, if chargebacks or refunds go unmonitored, consumers can easily take advantage of your business. A simple misstep in your payment processing system could lead to compounding losses.
Brand Impact
Revenue leakage can have a negative effect on your brand reputation and trust among customers. Just because you haven’t noticed any red flags yet, doesn’t mean consumers won’t start to question the legitimacy of your business. As you add stakeholders to the mix, such as investors or partners, it’s important to regularly assess your business for any potential revenue leakage.
Data Security
Data security is an important part of protecting any business from potential threats. If the data that enables revenue leakage is not monitored properly, it can be vulnerable to theft or manipulation. It’s essential to have protocols in place that ensure the safety of your data and monitor for any potential revenue leakage issues.
Overall Efficiency
Revenue leakage has a direct impact on overall business efficiency. Forecasting and budgeting can be significantly affected by revenue leakage, as the business may not have a full understanding of the amount of money that is truly coming in or how it’s being spent.
Tips for Reducing Revenue Leakage
Here’s the reality – a bit of revenue leakage is inevitable. But that doesn’t mean you should fall victim to it. Here are some tips for reducing revenue leakage in your business:
Tip 1: Implement Fraud Detection Measures
Fraudulent activities are a major cause of revenue leakage and can have a major impact on your bottom line. To prevent losses due to fraud, you need to implement measures that can detect and stop fraudulent activities before they cause any damage.
Look into tools like payment processors that provide fraud protection services or invest in other technologies that can detect suspicious behaviour quickly and automatically.
Tip 2: Set Up Controls
Controlling how and when customers pay you is key to reducing revenue leakage. Consider setting up controls that limit or monitor the number of payments your customers can make, as well as putting in place a system for tracking credit card refunds.
Tip 3: Take On Revenue Leakage with Pricing Tools
One of the best ways to make sure you aren’t losing out on revenue is to use pricing tools.
Pricing tools allow you to hone in on your pricing strategy and make changes in real time. Plus, they give you insights into how customers are responding to various prices so you can make better-informed decisions.
For instance, are you utilising dynamic pricing to take advantage of market fluctuations?
Conclusion
A lack of knowledge about your customer’s buying behaviour and a failure to review your pricing models can cause significant revenue leakage. With proper pricing tools, you can ensure that your products and services are appropriately priced for maximum profitability.
At BlackCurve, we are committed to helping eCommerce businesses just like yours with comprehensive pricing strategies. Our powerful, yet easy-to-use tools and insights provide you with the data you need to make informed decisions that will increase your bottom line. Take control of your pricing – and put an end to revenue leakage – with BlackCurve. Contact us today to learn more.