The three to five per cent you have already earned

Your customers are using more of your software than they pay for. Your invoices have not noticed.

It happens slowly, and nobody does anything wrong. A contract is signed for 200 users. The business grows, teams are added, and three years later 260 people are logged in while the invoice still says 200. Sales moved on to the next deal. Finance bills what the contract says. The customer success team can see the usage, but raising a bill has never been their job. The gap just grows.

MGI Research puts revenue leakage at three to five per cent of revenue for software businesses. Our own experience across acquired software companies says the same: closing the gap between what customers consume and what they are billed lifted the contract book by around 7% on average, with no new product and no new logos.

What that is worth

Put the number on a £20m ARR software business and it is £1.4m a year. Very little of that costs anything to deliver, because the customer is already consuming it: the software is deployed, the users are live, the storage is used. So most of it lands in EBITDA. At a typical exit multiple, that is the kind of number that moves a valuation by eight figures.

The arithmetic is not the hard part. The hard part is that in most businesses nobody can tell you where the gap is, because the three systems that could answer the question have never been put side by side. The contract lives in the CRM or a document store. Usage lives in the product. Billing lives in finance. Each one is somebody's job. The reconciliation is nobody's.

Where to look first

If you want to size your own gap before anyone does it for you, start with your top 20 customers and three questions:

• What does the contract entitle them to: users, sites, entities, storage, modules, indexation?
• What are they actually consuming, from the product's own data?
• What was actually billed last quarter?

In our experience the first pass on the top 20 usually pays for the whole exercise. The long tail matters too, but the top of the book is where the pounds are.

Why the legal playbook fails

When someone does spot the gap, the only playbook most businesses know is the legal one: audit clauses, formal notices, lawyers. You might get paid. You will also get a customer who spends the next renewal looking for the exit.

The alternative is a commercial conversation: put the contract right, match it to how the customer actually uses the product, and use the moment to move them onto longer terms and current pricing. Done properly, the conversation that recovers the revenue also improves the relationship, because the customer ends up on a contract that reflects reality.

The revenue is already earned. It just has not been invoiced.