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