With a monthly billing model, service providers can have a stable income stream, maintain transparent communication with their clients on the project progress, and avoid costly project alterations that are harder to bill with annual or semi-annual billing models.
What Are the Different Types of Monthly Billing?
Companies or freelancers use many dynamic methods for monthly billing based on the types of services they provide, the frequency of the project progress updates, the contracts they’ve made with their clients, and more.
However, we can single out two main monthly billing methods from which all the more advanced methods branch out.
Fixed Monthly Billing
With fixed monthly billing, clients deposit the exact same amount every month of the payment cycle. This type of monthly payment is frequently used by service providers who offer services exclusively at fixed prices, such as gyms, rental services, delivery services, newspapers, magazines, etc.
Variable Monthly Billing
With variable monthly billing, clients may deposit a different sum for each month of the payment cycle. This usually happens when clients have different requests at various stages of the project, such as content writing, designing, marketing, and other services provided by the hired enterprise.
For example, a client has a website project and requests multiple services during different project stages. The first stage might involve working on the overall website design, which costs $500 per month. The next month, the client might ask for content writing services for an additional $250 per month, followed by social media marketing (another $300 per month), etc.
Pros of Monthly Billing
Monthly billing cycles help service providers make viable predictions about the revenue they will generate in a particular time frame. The predictable revenue stream allows service providers to cushion sudden market fluctuations and scale their services due to improved capital allocation.
Convenience and Time-Efficiency
Recurring monthly billing ensures that clients aren’t hounded for payments. The usual process is to create an automated bank transfer on a specific day for each month of the payment cycle. This saves time on both ends and might also earn the clients some discount benefits, if there’s a longer service commitment.
With a project-based rate, clients might deposit a down payment between 25% and 50% and pay the rest of the sum when the project is completed. However, what happens when the project comes to a standstill upon the client’s request but the company has already completed 95% of the work? The company has done more work than it has been paid for and might suffer losses before the project recommences.
The monthly billing method eliminates this scenario as clients have to pay equal amounts each month in increments so that the company can cover its costs during all project stages. If clients want to drag out their final product with short-notice alterations, the company can cover their costs with monthly payments without the changes impacting its revenue.
Staff Costs Management
When clients pay service providers a project-based rate, they usually receive a percentage of the total sum as a down payment at the beginning and the rest of the funds at the end, after the final product has been delivered. However, these fluctuations in revenue might make it harder for service providers to stay afloat while they wait to get paid for a project upon completion.
For example, it can be hard for them to maintain the team they need to complete the project if they rely on just that one payment and have no other clients to see them through this period. If they’re juggling multiple projects, they can distribute their resources between different teams, but this isn’t always the case and depends on the scope of their client base.
With recurring monthly billing, companies can project how much revenue they will be generating from start to finish. This can help companies determine whether they should downsize or upsize, depending on the size of the projects on their roster.
Cons of Monthly Billing
With monthly billing, clients have the option to cancel their project or their subscription for future projects if they are not happy with the value of the company’s product. This means that managers need to win clients over each renewal cycle or find new clients as soon as possible to keep the business afloat and prevent staff costs from exceeding the projected revenue.
Of course, this can be mediated with penalties for mid-project cancelations laid out in the project contract, but there could be cases where clients might fight the contract terms and conditions by claiming that the services stipulated in the contract haven’t been delivered. This can turn into a legal dispute, costing the company time and money.
When a company has to handle multiple monthly recurring billings without proper organization, things can become hectic really fast. This can be mediated with a skilled, dedicated management team or special software tools that help companies keep track of project progress, generate billing reports, track staff work hours, and more.