How to charge for variable recurring services?

Question

I'm writing a proposal to do some recurring work for a client. I'll be selling them services, packaged into a unit, and they may need none, or several of these units in any given month.

The question is: how should I charge for these units, given that the amount I'll sell to the client each month is variable?

Ideas I can think of (some better than others):

• simply bill up-front at order time for each unit (or 50%, or etc.), which could result in an invoice per week if things heat up - lots of paperwork
• charge a fixed retainer, then charge the balance at the end of the month (or refund the retainer), which balances risk somewhat and ensures I get at least a little bit of pay no matter what
• bill at the end of the month, assuming all risk myself

What's a common way to handle this pattern? Are there others I haven't thought of?

Answer 1

You certainly don't want to be billing weekly for an ongoing service provision. Most companies don't pay their bills that often, which means that it's a recipe for missed payments and complication.

I think your latter instinct are right. Billing monthly is the standard model and unless there's a significant reason to want to bill in advance (if the client has prior history of non-payment, for example) it's normal for suppliers to assume at least a small portion of the risk in business relationships.

Billing against an up-front retainer is obviously much better for you, since there's less risk, but many clients won't want to do that because it means that the risk is firmly on their side of the fence if you go broke.

Ultimately, you need to work out what level of risk you want to take and how badly you want to push for a specific payment model, at the possible cost of losing the customer. You also need to be mindful that what seems entirely valid for one client (blue-chip, old money, always pay their bills on time) might be completely inappropriate for another (startup, minimal credit history, flaky billing).

Answer 2

Without you providing more details I would say the most common way is to bill at the end of a period (month,week etc.)

Exceptions:

• If you have considerable external costs.

• The customer or the market often has problems with unpaid bills.

(encountered the latter with call centers, where the network providers used to offer prepaid contracts due to a high number of bankruptcies in the market)