The bad business news keeps rolling in. Dramatic stock slides. Federal Reserve interest rate bumps. Inflation talk. Recession talk. Your third cousin once removed who never reads the business pages chatting you up at a family barbeque about the crypto crash.
“The five biggest tech companies have shed nearly $2.6 trillion. That is a decline of 26 percent, twice the drop in the Dow Jones Industrial Average,” the Financial Times noted in May.
If you’re losing sleep about what this means for your revenue next quarter, you’re right to be worried.
There’s a ray of light in the gloom.
If there is a recession, smart leaders will survive by honing their systems and examining where they can tighten their revenue process to keep more of the revenue the company has already earned. Some call that spotting Revenue Leak — the revenue that’s missing, but is findable and fixable.
Rather than selling more, it’s about operating smarter. Most businesses are losing revenue throughout their end-to-end revenue process — to the tune of over $2 trillion dollars a year, according to BCG research. And the worst part is, they don’t even know it’s happening.
Plug those trillions of dollars of leak, and suddenly your company has a shot at not just surviving a recession, but thriving. And in contrast to the dot com bust of 2000, businesses now have tech tools and data to operationalize fixing their Revenue Leaks.
Revenue Leak: The Money Businesses Leave on the Table
Revenue Leak is the avoidable loss of revenue due to systemic failures in visibility, process, and execution. It is revenue you did the work to earn, that your teams sunk time and effort into, but that doesn’t land on the balance sheet.
This lost revenue is growth that has vanished.
Leaks spring up at every part of the revenue organization and compound on each other, derailing everyone’s ability to make informed decisions and hit revenue targets. This means losses in overall revenue, market cap, credibility, jobs, and broader economic impact. They arise in broken handoffs, suboptimal handoffs, inaccurate data, and time wasted.
“It’s like a plane,” says Clari CEO Andy Byrne. “You’ve got a tiny air leak that’s slowing you down. Businesses would typically handle this by adding another engine to pick up the pace — like hiring three more sales reps, or running another marketing campaign. It feels easier than looking through the whole aircraft, or the entire revenue organization, for the problems.
“But if you have too many leaks, you can’t keep flying.”
The trillion-dollar impact of Revenue Leak
Providing accurate guidance to investors is a vital part of every CEO’s responsibilities. But in an era of economic instability and upheaval, the financial consequences of poor visibility and inaccurate guidance multiply. One underperforming sales rep or team may not tank a business, but compounded, like a trickle that becomes a flood, the impact can be massive.
Companies that don’t use a Revenue Platform have forecasts that are, on average, 60% off of their final number, according to Clari’s internal data.
For high-growth enterprise companies, every $1 of missed revenue can lead to a $5 to $15 drop in enterprise value, according to New York University’s Stern School of Business.
“Shares of high-quality companies offer the best shelter in a turbulent market,” writes Bloomberg. “Quality means different things to different investors, but by most definitions a high-quality company is one that makes a lot of money reliably.”
According to the S&P Global market intelligence data analysis, 20% of CEOs at large public companies miss their guidance every quarter.
How massive is the impact of all of those misses? Take the 6,000 or so largest global companies, which account for an $86 trillion market cap. If 20% of those firms miss their guidance with an average negative impact of 10%, then at least $1.7 trillion of value is leaking globally each year.
In a downturn, those are opportunities to generate revenue that you can’t afford to miss.
Spotting Revenue Leak
Revenue Leak isn’t easy to track. If it were, of course, someone would have fixed the system by now.
Sometimes, the leak represents money. Sometimes, it’s time. For example, sellers spend hours updating customer relationship management tools and spreadsheets, time that could instead be spent selling. On average, about 65% of a sales rep’s time is spent not selling, according to a Time Management for Sales study. Meanwhile, the average quota attainment is only 53%.
And since that data relies on human input, it is also prone to errors that can significantly affect forecasts.
“If you could decrease manual data entry time and increase selling time by 20%, in some organizations that’s the equivalent of hundreds of full-time employees, without having to invest in hiring additional sellers,” says Clari CRO Kevin Knieriem.
Research by Clari confirms the scale of the problem: researchers found over $24 billion in Revenue Leak across some 550 customers, prior to using a Revenue Platform.
At a time when tech companies have shed employees or are putting their hiring plans on hold, as TechCrunch breathlessly notes, that type of savings matters.
Leak can also stem from clunky handoffs between departments that result in low trust and heaps of duplicated work. Marketing doesn’t provide full campaign context or enablement when they pass lead lists off to sales. Reps over-sell what the product can deliver. Customer success doesn’t catch the red flags with a customer about to cancel their service. All of those steps could have been addressed, quickly and profitably, if the leaks were spotted in time.
The key is running revenue as a process, says Byrne. That means operationalizing the entire revenue-generating organization, on a Revenue Platform that ingests all relevant data in real time and alerts users to potential problems.
Such a platform gives everyone, from rep to manager to operations to executive, an accurate view of their business in real time, and allows them to spot potential Revenue Leak, and manage solutions, faster.
Plugging the holes means treating revenue like a process. It’s not easy. But do it, and a bear market becomes not a panic, but a story of how your business weathered the turmoil and came out on top. Your third cousin will thank you.
Learn how to navigate any downturn and protect your revenue with Clari’s guide.