What is Revenue Leakage: How to Calculate it and Ways to Stop it

January 31, 2024


At a glance
·       Revenues leak due to many reasons
·       Revenue leakages can be prevented only by a single logical method
·       A single version of the truth enables meaningful collaboration

Let’s face it. If executing projects is difficult, project financials are messy. Every project brings its own set of deliverables priced differently.

Every project contract has its special terms and conditions. Norms for revenue recognition too are different. If you have 100s or 1000s of resources working on multiple projects the challenges grow multi-fold. 

There are many ways your organization leaks revenue but there is only one way to do it right. More and more organizations are deploying PSA software for IT companies. Does it help?

Revenue leakage is the same as missed sales billing. It is sales that should have been booked, invoices sent, and money claimed from customers for the deliverables. How to calculate it? How to stop revenue leakage? Let’s first understand how it occurs.

Related reading: Improve project revenue realization

Revenue leak #1 Starting execution without a PO

Let’s say your project team starts executing a project before receiving a formal purchase order. There may be many valid reasons -you have good relations with a customer, or very tight delivery timelines have been committed, or the project is strategically important. The work done doesn’t get properly tracked and doesn’t get reflected in billing. 

Revenue leak #2 Timesheet errors

Timesheet data entered in standalone spreadsheets or software doesn’t get timely validation. It doesn’t get reconciled. Allocation of resources changes due to people going on leave, people quitting, or new people joining. Manual reconciliation takes time and is error-prone. Revenues leak all the time.

Revenue leak #3 Billing higher cost resources at a lower rate

Your project managers don’t get resources as per lower-level skill sets appropriate for the tasks to be completed. Therefore, they use senior-level people due to the pressure of deliveries.

The billing gets done at the rate applicable for lower-level resources. The difference in rates multiplied by hours billed is a revenue leakage.

Revenue leak #4 Doing work outside the scope of the contract

Your project team is busy delivering. It loses track of changes asked by customers. Customers ask for something extra and it gets delivered because it can be done.

You don’t have a formal change review and management that is visible across the organization. You miss some sales. Worse, you miss delivery timelines also.

Revenue leak #5 Billing disputes

Your customers don’t approve your bills due to non-compliance with the contract or faulty documentation. It takes time before corrections are done and bills are approved. You have lost revenues for that period. You may lose some revenues entirely. 

Revenue leak #6 Project closed without full billing

When a project gets completed there is a need to close it properly by accounting for all the resources used and deliverables delivered and comparing it all with the contract. This doesn’t happen due to manual record-keeping in different spreadsheets. You lose some revenue.

How to calculate the revenue leakage?

Since you keep all data in standalone applications or different spreadsheets the only way to find revenue leakage under each of the above heads is to manually reconcile all data from different sources and calculate it. Does it ever get done in your organization? How long does it take?

How to stop revenue leakage?

This is the right question and it must be asked. There are many ways of leaking revenue and only one way to stop it. You need to integrate all your standalone applications by digitizing the entire opportunity-to-cash cycle.

You have to prevent multiple points of entry of the same data. You have to eliminate standalone spreadsheets. You have to present correct data sets across the entire organization in real-time. Everyone needs to have access to the ‘Single Version of The Truth’ for meaningful collaboration. 

Enterprise-class Professional Service Automation -PSA Software for IT Companies makes it all possible. You can prevent revenue leakage, improve project governance, and win customers’ trust.

To know more, please contact us at



ProductDossier - The makers of TouchBase PPM solution, that is configured specifically to the needs of your industry and organizational standards & processes. TouchBase is designed uniquely for external customer projects, new product development, and internal initiatives. TouchBase supports multiple project management approaches such as predictive, agile, and hybrid. TouchBase digitizes your project management landscape, offers holistic solution to your project management needs, and integrates with your existing enterprise applications such as ERPs, CRMs, Accounting, and others - to deliver one version of project management truth!