Milestone vs project billing. What's best? Pros & cons

In the professional services sector, an age-old debate abounds as to the best method when it comes to billing customers– by milestone or by project?

Both milestone billing and project billing have benefits and drawbacks. The best choice will depend on your cash flow needs, the scope of the project at hand, and more. 

Do you prefer to invoice your clients with milestones or with a one-lump project sum when your deliverables are complete?

We’re going to discuss the pros and cons of both milestone and project billing, so you can be armed with solid information when contemplating the two options.

First, what is milestone billing?

Milestone billing refers to billing a customer in a series of more than one payment, each of which is triggered by achieving a ‘milestone’, or a predefined checkpoint that indicates progress is being made. Setting up milestone payments with your client means you will bill them incrementally as the project progresses.

For simplicity’s sake, let’s say Julie and I agree that she will pay me a total of $500 to build her a chicken coop. After I finish the basic wood construction, she will pay me $250. Once all the final touches are in place and the project is complete, I receive the remaining $250. 

So, instead of paying me the total lump sum of $500 once the entire project has been delivered, we use milestone billing. In this scenario, there are two defined milestones: completion of basic wood construction at $250 and completion of the project at $250. The total cost of the project remains the same.

Pros of milestone billing

• Good for repeat customers you trust
• Get cash in hand faster
• Good for clients who like to be in control and want more say in the process
• Transparency
• Good for freelancers and any business that needs cash flow before the project wraps
• Good for long term projects 

Cons of milestone billing

• Some service providers really don’t trust this model and won’t go for it
• Can cause tedious back and forth because the client must approve milestones
• Not always a good idea for new clients 

Learn more about milestone billing with project management software! Watch this video from PSOhub.

What is project billing?

Project billing refers to charging a client payment that is triggered once the final project has been delivered.

In our chicken coop example, this would mean that Julie would pay me just one payment of $500 once the entire project is complete.

Pros of project billing

• Transparency
• Good for clients who don’t want to be involved in the minutia
• Good for old and new clients alike
• Predictability
• No back-and-forth pushback from milestones
• Great for short-term projects

Cons of project billing

• For long-term projects, you could be looking at a cash flow problem
• More project planning and budgeting needed
• Less flexible than milestone model

Key factors 

Cash flow

Your organization’s cash flow needs are one of the strongest determinants in your choice between milestone and project billing. If you need the extra cash coming in throughout the duration of the project, then milestone billing may be the right choice. Also, a factor is the cash flow of your client who may or may not be willing to part with cash along the way. 

Organization size

This is partly related to cash flow in that if you need money coming in because of a large team, you may want to go with milestone payments. Likewise, many freelancers like to go with milestone payments since they are working for themselves and can guarantee income in case the project gets canceled.

Preference

At the end of the day, your preferences and those of your client will play a big part in whether milestone or project billing is the best course of action. Some clients like the milestone schedule because they have more say in the progress of the project as it moves along. Other clients can’t be bothered and would rather pay it all in one fell swoop without the back-and-forth communication.

Can't decide? Be flexible and do both!

Hopefully, our discussion has given you a high-level overview of the pros and cons of milestone versus project billing. While some companies may swear by either one, don’t forget the power of flexibility. For example, you may set up milestone billing for loyal customers who like to have a voice in the project outcome. Whereas with new clients, you can go with project billing at the outset and evaluate whether or not to choose a milestone schedule once you’ve built a good relationship with them. 

If doing milestone billing AND project billing makes sense for your business, by all means, do both. Just make sure you have good project management software in place that has this functionality…

With PSOhub’s all-in-one project management, you can use milestone billing AND project billing! What’s more, you can automate the whole process, helping you to:

• Get paid faster.
• Get paid accurately and on time.
• Get back to doing what you do best :)