Keeping revenue leakage below 1% to stay competitive, and save ~£100m

Revenue leakage remains a significant challenge for energy suppliers, costing the industry up to an estimated £1bn annually, based on our analysis.

For those who manage to keep leakage below 1%, the rewards are substantial - a leaner cost base, allowing them to operate efficiently below the Price Cap, and stay ahead of competitors. 

With half a million households changing suppliers in September and October, there’s an increasing need to address revenue leakage as more customers seek out better deals, increasing the risk of churn. Suppliers that excel in this area are operating more efficiently with a lower cost stack than competitors, therefore being able to offer a lower price to their customers. 

While some have successfully kept revenue leakage low, others still face rates as high as 10% or more in some customer segments. Those with leakage above 1% face a clear commercial disadvantage - higher costs compared to their most efficient competitors. This makes it harder to stay competitive without excelling in other areas to offset the gap. Often, this leads to tough trade-offs, with suppliers cutting spending in areas that can undermine their core strengths or damage their brand reputation.

Keeping revenue leakage below 1% is no longer just a benchmark for top performers, it’s essential for staying competitive.  

In this article, we’ll explore what sets high performers apart, showing how the right mix of insight, controls and operational execution can mitigate high-value losses, and deliver significant performance gains. At BFY, we’ve worked with leading suppliers on solving their revenue leakage problems, leading to savings of over £100m per year in some cases.

Actions to keep revenue leakage below 1%

Measure revenue leakage accurately

It’s essential to understand what’s driving your revenue leakage, knowing the difference between industry-driven errors (things you can’t control), and the genuine energy consumption used by your customers that you should be billing.

The obvious consideration here is industry smearing, such as Group Correction Factor in electricity, which addresses market-wide errors that may, or may not stem from your customer base. Other factors, like vacant sites and profiling errors, can cause overstated revenue that you won’t recover from customers.

Regardless of your method for calculating your revenue, whether you use a top-down method linked to costs or a bottom-up method using your internal data, ensuring you have proper checks and balances in place is crucial. A healthy-looking revenue leakage outcome could still mask underlying issues that are eroding your margins. Settled volume not included in turnover is still a direct cost to your business and could be overstated, and operational controls need to be in place around theft and portfolio accuracy.

All these things may not be included in your revenue calculation, but will could still drive loss to your bottom line by causing you to over settle and over pay for you purchased energy.

Build the right control framework and governance

The primary drivers of revenue leakage typically stem from operational issues, such as:

• Misaligned consumption - caused by inaccurate or missing readings, and errors with profiling and estimation
• Misaligned data - including supply mismatches, or incorrect meter or tariff set up

But other, less obvious factors can also play a role:

• The accuracy of financial adjustments and assumptions that feed into your revenue calculations
• External industry factors, such as Group Correction Factor, profiling errors, and demand destruction not yet reflected through actual reads, can all impact settlements and billing

Having a robust control framework in place is vital, but it needs to account for all of these factors. At BFY, we’ve developed frameworks for several suppliers to help them achieve sub-1% revenue leakage, based on principles that cover operational, financial, and industry drivers of revenue loss.

Ensure board-level visibility, focus, and education

Senior leadership and board-level sponsorship are crucial in reducing revenue leakage, requiring full collaboration of finance, operations, and commercial teams to keep performance below 1%. 

Strong board sponsorship can help change accountabilities, evolve policies, and prioritise business resources to make reduction programmes successful. Often, revenue leakage arises from issues that fall through the cracks, so having a leader who can unify teams, make ownership decisions, and unlock necessary budgets is key to accelerating progress.

Education is also crucial. The subject matter can be complex, and teams must work together, sharing knowledge about the constraints and challenges in each other's areas. This enables a joint strategy and plan to be created, that everyone is aligned on.

Use your control framework to drive results

A control framework is only valuable if it’s actively used to drive improvements, making the following actions essential:

• Independent monitoring and quantification of revenue leakage, to assess material risk and challenge current working practices or performance levels
• Effective execution of controls, with strong performance management, oversight and governance, to track progress and ensure corrective action is completed on time
• Ongoing root cause analysis to identify underlying issues, whether process-driven or industry-related, and development of new processes, controls and mitigations to address these causes

Assessing the effectiveness of your current approach

Achieving sub-1% revenue leakage isn’t just about having the right controls in place - it requires the right mindset and approach across your entire organisation. High-performing suppliers make managing revenue leakage a core part of their operational strategy - aligning teams, improving processes, and focusing on continuous improvement.

To assess the effectiveness of your current approach, ask these questions:

• Do you have a comprehensive understanding of the root causes of your revenue leakage, including both industry-driven errors and operational issues?
• Is your control framework robust enough to address the full range of factors contributing to revenue leakage, such as misaligned data, inaccurate readings, or external industry factors?
• How engaged is your senior leadership team in revenue leakage management, and are they actively driving cross-functional collaboration to reduce leakage?
• Are you actively using your control framework to track performance and implement corrective actions in real-time?

At BFY, we have extensive experience helping suppliers on their journey to sub-1%, offering bespoke and industry leading control frameworks. We’ve helped suppliers create the right target operating model and organisational structure to drive ownership and progress. Our team have led large-scale recovery programmes, working hands-on with business leaders to deliver critical targets to tight timescales, with significant top-down pressure.

For more on actions you can take to keep revenue leakage below 1%, contact Jon Vincent.