How to plug revenue leaks in your subscription tech stack
The quality of subscription billing software hinges on its ability to plug revenue leaks. Whether you're using a homegrown solution or a legacy subscription system, your business might be susceptible to increased costs, exorbitant fees, security vulnerabilities, billing inaccuracies, customer churn, and more, all stemming from an insufficient technology infrastructure. These issues originating from your technology stack can render your business particularly susceptible to subscription revenue leakage.
Revenue leakage often begins inconspicuously, gradually accumulating harm over time. Without the appropriate tools to address these issues proactively, it can evolve into a severe financial setback for your business. Continue reading to discover where revenue leakage might be occurring within your subscription billing software, and learn how to stop and prevent these problems before they escalate beyond control.
1. From incompatible billing systems
Misaligned billing and account management practices are a primary yet avoidable cause of subscription revenue leakage and margin erosion. Such inadequacy can lead to various disastrous situations, including:
Higher-than-necessary payment processing and transaction fees
Enterprise resource planning and legacy systems ill suited for high-volume subscription models that can fail during spikes in transactions (remember the Taylor Swift and Ticketmaster fiasco?)
Increased number of chargebacks and related bank fees
This represents just the surface of the issue. Many subscription businesses struggle with a convoluted mix of homegrown, inherited legacy solutions and custom integrations that create slow, error-prone processes with no centralized view of billing information and subscriber data.
This has a profound impact on revenue, leading to billing errors, subscriber churn, and more—all of which contribute to revenue leakage as a result of payment failures, inaccurate billing, inefficient subscription management, lack of flexibility, poor communication, and security vulnerabilities. Addressing this critical issue becomes imperative to avoid continued losses, reduce the cost of doing business, and ensure a sustainable financial future.
2. From homegrown solutions
One of the most significant decisions for technology and product leaders revolves around whether to build a homegrown solution or outsource with a third party, which comes with the following challenges and risks with subscription revenue leakage and margin erosion:
Opting for a homegrown solution can lead to higher product development costs, delayed launch of new revenue streams, and ongoing support expenses.
The inefficiencies of a homegrown solution include high opportunity costs as developers divert their focus from the core of the business to support operational workloads.
Overlooking expenses associated with hiring, training developers, purchasing licenses, and developer tools for the technology infrastructure further increase the risk of revenue leakage and cost overruns.
Homegrown platforms often result in higher maintenance costs related to billing and account management, including payment and tax-related issues.
These initiatives put a strain on working capital and financial ratios, and missed opportunities to shift from capital expenditures to operating expenses can escalate the cost of capital for the business—especially in an inflationary climate.
The supplementary costs of a custom-built billing solution represent significant sources of revenue leakage, so it is crucial to ensure that workflows and systems are tightly managed before considering such an undertaking.
Automation to empower scalability
The best subscription billing software operates as a seamlessly automated solution. It should have the limitless capacity to handle transactions of all sizes, subscriber growth, business innovation, and much more. By opting for an outsourced solution like Recurly, you gain the freedom to expand your business without worrying about revenue loss.
In contrast, legacy and homegrown solutions often require constant adjustments for outdated procedures, maintenance expenses, and unforeseen costs, all of which magnify the risk of revenue leakage and budgetary overflows. Elevate the efficiency of your technology and product teams by allowing them to concentrate on business innovation, while a subscription management and recurring billing platform like Recurly adeptly takes care of the operational intricacies.