How Revenue Complexity Drains Margin: Here Are the Top Three Culprits

There’s no shortage of disruption across the supply chain these days. Yet efforts to address it can create another challenge: operational complexity.

Outdated, manual processes, patchwork legacy technology, and even the introduction of new technology can increase complexity and hinder growth. 

While a single company may have limited influence over tariffs and rising global conflicts, B2B leaders can simplify operations and drive growth by streamlining revenue operations. Regardless of industry, geography or company size, three common complexity culprits consistently wreak havoc across revenue models and negatively impact margin. The key is knowing where to look: 

A transition to recurring revenue models. Driven by customers’ growing expectations for more options, companies are shifting from the traditional model of selling products and services on a one-time basis to offering a broader mix of solutions, services and pricing. Recurring revenue business models, including subscriptions, usage-based pay-as-you-go, and partnerships, yield more predictable revenue streams and increase engagement and loyalty among customers.

But this approach also leads to an increase in billing frequency, and poses challenges for revenue tracking. The 2024 Institute of Financial Operations and Leadership (IFOL) Accounts Payable Automation Trends Report found 52% of accounts payable professionals already spending more than 10 hours per week processing invoices. Sixty percent say they aren’t well-equipped to handle more.

One point of friction is the legacy accounting system. As a first measure, most companies turn to their enterprise resource planning system, only to realize it was designed to sell one product, once. The same IFOL study found that 61% of companies manually key invoices into an ERP, costing valuable time and risking errors. Accommodating a greater number of transactions with rising frequency will require time-consuming manual workarounds in a solution that wasn’t designed for revenue agility. Operating across spreadsheets from several point systems increases errors, adds inefficiencies, and leads to leakage.

The shift to a recurring revenue model performs best with accurate, on-time invoicing and billing, and rules-based custom pricing. But legacy customer relationship management applications were built to manage relationships, not revenue. ERPs were built for stability, not monetization.
 The key isn’t replacing your CRM or ERP, but bridging the gap. This is how you reduce manual cycles, quicken time-to-market, and improve cash flow with greater operational accuracy and efficiency. 

The increased number of contracts and compliance requirements. This shift in sales strategy, brought on by a recurring revenue model, necessitates continuous adjustments to pricing and contracts. It requires, not only the ability to capture and manage a higher volume of transactions effectively, but also to administer a greater number of contracts.
 
Revenue accounting brings a unique and complicated set of compliance challenges. ASC 606 and IFRS 15 are standards that offer a framework for recognizing revenue from customer contracts. As contract volume increases, so does the complexity of financial disclosure compliance and the cost of compliance failure.
Manually managing monetization across spreadsheets and disparate systems heightens this risk. A recent Ernst & Young Revenue Recognition Survey found 88% of organizations struggle to get the data required for ASC 606 and IFRS 15 financial disclosure, resulting in three times the compliance costs.
 Improvements to your data management strategies will help avoid the high cost of non-compliance and support better alignment with business objectives.

Manually managing complex partner programs. The amount of revenue gained from partner loyalty programs varies across industries, but in B2B, they consistently contribute to the bottom line. The long-time challenge is managing the programs’ revenue share.
Creditsafe’s Cost of Late Payments report shows 86% of businesses report 30% of their monthly invoiced sales are overdue. Chasing late and inaccurate payments creates more work for the payee and casts a reputational doubt over the payor. The resulting cash flow issues are problematic for both.
 Managing complex royalties, rebates, and commissions is best handled with a proactive approach and a layer of automation over the entire process, including contracts, revenue calculation and on-time payouts. This will enable deal visibility, linking costs with revenue share, and align payouts with customer consumption and revenue models. Timely payouts will ensure partner satisfaction and accelerate revenue efficiency.

Following are three actions that will help you reduce revenue complexity:

Integrate order capture and contract management. Too often, a contract gets drafted and completed in a CRM, and it’s left to the sales department to send a PDF of the contract to billing. This creates an increased likelihood of errors and makes future changes difficult. Tie together CRM and contract management to close the gaps, remove errors, and accelerate invoicing. 

Identify and standardize the most effective contracts and pricing models. As contract and pricing data grow, use these insights to help refine contract and pricing practices for maximum profitability. Simulate various pricing and contract scenarios and structures to identify the optimal correlations between pricing and customer/partner satisfaction, and implement necessary improvements across the organization.

Consider customer and partner usage. Granular data about customer and partner usage — everything from clicks to consumption kilowatts — supports innovation and identifies new opportunities. Using this information with the billing system isn’t an easy task, but any level of integration will help prevent leakage.

At a time when uncertain market conditions seem the new normal and margins are razor-thin, cutting through operational complexity is one way organizations across the supply chain can take back control and drive growth. By eliminating manual processes and connecting disparate systems across billing, revenue recognition and partner settlements, businesses can turn monetization complexity into a competitive advantage. It’s how you see less revenue leakage, make faster decisions and spend more time on strategy, not spreadsheets.

Nishant Nair is founder and chief executive officer of RecVue.