There are many ways to bill clients. But predictability is the key to developing and maintaining recurring revenue streams. As long as your clients know when they're going to be charged and how much they'll end up paying, you can develop a billing method that generates income and won't adversely affect your client retention rate. Also, the predictability associated with consistently charging clients the same amount can help you determine how much money you'll make within a specific period and allows your client to forecast and budget accordingly.
Businesses can take advantage of the recurring revenue model in many ways.
Service-Based Businesses Recurring Revenue Streams
If you're a service-based business that's interested in building up your recurring revenue streams, there may be different ways you can go about achieving your goal. The most common method is through a maintenance agreement. To develop an appropriate fee amount and identify how often you should charge your clients for this service, we suggest determining how many hours the maintenance will take your team to complete and how often you believe the maintenance should be performed. Then take that amount times 120% to give yourself room for error. Based on your engagements, you should review this regularly to make sure you're estimating accurately.
Navigating Non-Fixed Rate Recurring Revenue Streams
If you're a business that's interested in bolstering your recurring revenue but require a bit more flexibility regarding your billing methods, there is an option for you. This approach relies on the development of a two-invoice system. The first invoice should contain a fixed, agreed-upon fee for work or hours performed. The second invoice covers any additional work or hours associated with the project. This billing method gives the client a clear idea of how much they'll be charged regularly and stays true to the actual cost of services rendered.
This way of developing recurring revenue allows both you and the client to keep track of the project's progress in question and engage in higher-level discussions about it. For instance, we have seen cases where billing clients using a two-invoice system has helped businesses stay on track while working on a project by avoiding costly situations like scope creep.
Set Your Internal Policies Right
As necessary as recurring revenue is to your business, it might make a bad situation even worse if you do not adopt a model that properly suits the intricacies of your company and notify your clients accordingly. For example, clients won’t mind when withdrawals are made from their accounts as long as they know that’s the plan upfront. The worst thing to do would be to surprise your clients after the fact. No one likes to be surprised by a bill.
Usually, companies aren’t upfront with their clients because they are worried about pushback, but that comes with avoidable squabbles. When you set expectations appropriately, it’s far less likely that you’ll argue with clients about an invoice. They’ll be put at ease when you announce a confident, coherent billing policy for the goal of improving their business.
The unwavering key in all of this is to make life simpler and more profitable for you and your clients.
Even if your business bills your clients a little differently, you can still cultivate and maintain recurring revenue streams that put your business on a path to increased financial stability.
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