Leakages that drain profit and revenue in software companies

Leakages that drain profit and revenue in software companies

Revenue loss in a software company is significantly higher if the owner is unaware of the small leakages in the company.

Many software companies lose out on their hard-earned money. Only because they are unaware of the revenue leakages in their business. They work hard to top up the business with Sales orders and revenue but also continue to lose money. Thus get massively cash-stressed in their business.

Revenue leakages in Software Companies can cause profits to drop significantly. Which in most cases leaves your business struggling without money.

In my experience, revenue leaks often go unnoticed, until their impact becomes enormous. Several businesses are not even aware that these leakages exist.  

I would like to highlight the six revenue leakages that stealthily leak money.

Incorrect invoicing

Project teams have a lot to chase up, from getting timesheets filled out promptly, to getting approvals and then passing them on for manual billing. In this whole process, there are some inevitable communication losses that capture inaccurate data.

Also, if Project milestones aren’t tracked meticulously by the delivery team and not communicated to the billing team on time then it again leads to incorrect invoicing.

The irregularities in filling timesheets manually lead to capturing incorrect hours per task. Most times developers and other team members forget whether they had spent 3 hrs or 4.5 hrs on that specific task or project. 

For example, if your billing rate is 30 $ / Hr and each developer makes an error of counting just one hour less in a month. So, if you have a team size of 100 people, you bill $ 3,000 less in a month. So, you just lost out on earning the salary of one or two members.

Non-billing of administrative tasks

In most software companies, employees spend

  1. Between 25% to 28% of their time reading and responding to emails 

2. Almost 5 hours per week in meetings

3. Another 4 hours preparing for them.

Yet, nearly 50% of project estimates fail to track and account for this time spent.  

These administrative tasks can result in a significant number of hours that are underbilled to the customer, and become a source of lost revenue.

Varied Pricing and Billing requirements

Clients from different countries have different billing requirements.

The variable rates across the team are based on:

  1. Skill and experience levels
  2. Varying payment methods
  3. Currency conversion
  4. Varied contract terms  

Make billing complicated and error-prone. So, you may bill less amount just because you stated incorrect cost for the tasks.

Poor resource management and under-utilisation of Team members

Companies usually put a lot of effort into resource allocation. They want to keep everyone billable for the company. It gets tricky as the team grows, especially when you have to assign people to multiple projects happening at the same time.

Tracking resources that are either likely to get freed up or can be allocated to other projects can be a challenging task, especially if project managers aren’t willing to maintain transparency for fear of losing out on their resources. This means some projects could have unallocated resources and some under-utilised ones.

Unavailability of Resources on time

The unavailability of resources on time happens for several reasons. Sometimes, recruitment teams simply aren’t aware of the timings of when a new hire may be required to start work on a project. Last-minute intimations, lack of forecasting processes, absence of proper recruitment funnels and communication gaps can cause huge revenue losses. 

Imbalanced Pyramid structures of project teams

As the complexity of projects grows in a software company, allocating resources to a team needs special focus. Creating team structures with either too many junior resources or too many senior resources working on projects creates an imbalance. This is important for both T&M projects and Fixed cost projects. The hope of higher billing rates or quicker deliveries tempts companies to allocate top-heavy teams.

But this upside-down pyramid is tricky. Senior resources are excited to work on projects initially when it’s all new. However, the excitement deteriorates when there are a lot of repetitive or dull integration and bug-fixing tasks.

That’s when those senior team members start complaining that they are doing the job that a much less experienced person could do instead of them. They think that their skills are becoming blunter and see no professional challenges in their work. That’s the point when they start looking elsewhere for a new job.

Attrition of experienced laterals is difficult to backfill and there could be days or even months before you could replace the person at the same billing rate.

Striking the right balance, when creating team structures is important. It has a direct implication on your profitability.

Conclusion

These are some of the leakage areas and by no means a very comprehensive list. A careful audit of your company processes may reveal many more leakage points. 

You can only take action and plug leakages if you are aware of them. So keep your ears and eyes open and try to plug one gap after the other.

Invest consciously in automation tools that will take away communications gaps in billing and soon you’ll start to notice that you are indeed earning significantly more revenue and profits without having to do more sales and bring in newer customers.

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