What is Revenue Leakage in E-commerce: Causes and Their Solutions

Table of Contents
1. Introduction
2. What causes Revenue Leakage?
– Instances of Revenue Leakage Before Order Dispatch
– Instances of Revenue Loss During Order Dispatch
– Instances of Revenue After Order Dispatch
3. How to Stop and Prevent Revenue Leakage?
– Complete Visibility of Inventory

– Efficient Order Management

– Advanced Reconciliation Tool
4. Safeguard Your Profits and Let Your Business Thrive!

Imagine taking an exam and finding out that you didn’t score well. And you don’t have any information about where you lost your marks. Losing revenue in an e-commerce business is like that—an unnoticed and unintentional loss of the money you have earned but not coming to your wallet. Every order is a revenue, and the journey of an order from warehouse to delivery decides whether you will get the revenue or lose it. 

You sell on different marketplaces with their respective policies, claims, and rate cards. Once the order is processed, it is constantly exposed to a return. Additionally, you pay different types of platform charges. With so much going on,  how will you be sure you have received it right when there is no picture of your exact reconciliation?  Let’s try to understand the instances of potential profit loss and how to prevent these revenue leakages. 

What Causes Revenue Leakages?

Before understanding the types of leakage and how they can be cured, let’s understand the factors that cause your profits to go into loss. As we said, every order is revenue. We will track an order’s journey and see what goes wrong and the profit gets lost. Let’s examine all the stages of potential revenue loss. 

1. Instances of Revenue Loss Before Order Dispatch

When an order is created, it progresses through various stages. For instance, let’s say there isn’t sufficient inventory due to poor stock management; you will lose your potential profit immediately. Or your warehouse faces inventory overstocking, eating up the storage for the right and locking the inventory, losing your profits. Then, fetching incorrect order details can increase returns and escalate logistics costs. The efficiency of your order management system is crucial in preventing these issues. 

Secondly, various fees are applied when listing your product on multiple marketplaces, and these fees can change according to the platform’s requirements, leading to unexpected increases in costs. For example, if Marketplace A increases its commission fee from 12% to 15% and you miss the notification email, you may only notice the new charges after the 15-day payment cycle. By then, the expenses will have already impacted your revenue expectations, and you can do nothing about it.

2. Instances of Revenue Loss During Order Dispatch

Order fulfillment heavily relies on the picking, packing, and logistics processes. Let’s say you ensured the accuracy of the picking process. But packaging involves costs and has the potential to affect your revenues. A seller decides the shipping charges based on density, volume, or weight with their respective aggregators. 

Billing discrepancies can arise due to different bases for third-party charges—most of the time, the weight increases because of the volumetric weighing process, which regularly impacts the cost. For instance, you sent a product weighing less than 1 kg and were initially charged Rs 100. But when it reached the logistics provider, they charged it based on a weight exceeding 1 kg, resulting in a fee of Rs 150. This discrepancy might be noticed during the billing period, leading to revenue leakage. Such leakages can significantly impact your financial health. 

Differences in weight, volume, unique packaging requirements, shortages of certain packaging materials, etc., can cause these differences. And with each discrepancy, you might lose your hard-earned profits and significantly impact your bottom line. 

3. Instances of Revenue Loss After Order Dispatch

At this stage, your order must be ready to ship and reach its final destination. Once dispatched, the responsibility shifts to your shipping providers. Frequent issues like “lost in transit” or customer-initiated returns can cost you significantly. Many times, returned products are unsellable due to damage or customer dissatisfaction. 

Returns can be for any reason, from the customer receiving the wrong product to not liking or damaging it during transit. Regardless, you lose profits due to the extra logistics costs. And if you are using marketplace-based fulfillment like FBA by Amazon, keeping track of different costs like platform fee, commission fee etc., will be a never-ending task. 

How to Stop and Prevent Revenue Leakage?

Let’s explore how to implement changes at different stages to save all your hard-earned profits. 

1. Complete Visibility of Inventory

Complete visibility of your stock can prevent product leakages in the warehouse, from the inbound process to managing returned inventory. You will easily be able to manage understocking or overstocking and inventory reconciliation. Techniques like stock rotations, forecasting inventory, and handling returns from a single platform can help you protect your profits with greater safety and accuracy.

2. Efficient Order Management

Remember how we discussed that the order fulfillment process heavily depends on picking, packing, and shipping? Accuracy in these stages ensures a smoother process and fewer returns. If your system can fetch the correct information, customize the picklist, and sort packaging using features like image-assisted sorting, this will reduce the cognitive load on the packers. This helps maintain a consistent weight, density, or volumetric slabs for shipping providers, minimizing potential changes by them and increasing the cost that you must be paying unknowingly. 

3. Advanced Reconciliation Tool

You don’t need to worry if you cannot take the measures during the process and the damage has already been done. You can still know it all, and an advanced payment reconciliation system will raise the issue within the timeline. Let’s counter all the issues that we discussed above one by one:

Suppose any of the sales channels you are selling on has increased charges, such as commission fee, platform fee, or any other tax, and you need to be made aware of it. In that case, you can immediately track it with the advanced reconciliation tool. With the exact percentage and digits, all the reports will be just one click away. 

Then, if the marketplace or your warehouse fulfills your orders, the shipping discrepancies can easily be tracked. You don’t need to wait and lose money for a payment cycle like 30 days. The system will raise the dispute like a devoted soldier and you will not lose your profits. 

An advanced tool can protect your profits until the final stop. It allows you to monitor additional return costs from marketplaces or your website. You can compare expected and received payments, see all charges in detail, and understand their impact on your profits. 

Just like albums have a bonus track, here’s a bonus solution for you: imagine being able to track all your returns on their way back to the warehouse. With an advanced tracking solution, you can monitor your product’s journey and ensure your business thrives with full visibility and control.

Safeguard Your Profits and Let Your Business Thrive!

We’ve explored the various stages where revenue can leak. The e-commerce landscape is ever-evolving, and adapting to these changes is crucial for protecting your profits and staying competitive. But how will you keep an eye on it? The answer is by keeping up with the tech! Investing in the right tools is far better than frequently losing revenue and risking your business . So, why wait? Lock and zip your profits and set your business up for success!

More to Explore:

• Why do you need Payment Reconciliation?
• Key Challenges in Reconciling Payments for Marketplaces
• How Marketplace Returns Reconciliation can optimize your Online Selling Experience?