The advantages of plan-based billing

If your practice is still billing by hours, you’re missing opportunities. Plan-based billing allows you to improve your business efficiency and achieve more revenue. In this guide you’ll find how to do it.

Simplify your work

The way your practice bills for its time directly affects your revenue, your ability to grow, and the relationship you have with your clients. It has a direct impact on your firm’s profits - now and in the future.

Unfortunately, many practices remain anchored in the past. They bill their clients following the same criteria that has always been used, that has been used for decades, hours.

But things change and now, there are new practices and technologies that allow billing in much more attractive ways. In this guide we’ll see how plan-based billing can revolutionize the way you retain your clients.

4 ways to bill

There are several ways to bill for your services. These are the main ones:

• Hourly rate. The practice bills an hourly rate for its services, whatever they are. It’s the traditional way of billing for many firms.
• Fixed price. The practice charges a fixed cost for a specific service. The cost is equivalent to the time it takes to perform the service.
• Service-based billing. The practice charges a cost for a service according to the value it believes it has, after having finished the work.
• Plan-based billing. The practice charges a cost for a package of services. The plan price is stipulated and the client knows it.

What’s the problem with hourly billing?

Hourly billing continues to be the most common way of billing in advisory practices. By pure inertia.

This habit can be complicated to break because it’s the way it’s been done for many years. Despite this, the reality now is different. New business models and technology make hourly payment increasingly less attractive. These are some of the reasons:

The hourly payment system punishes your efficiency

The faster you work, the less you charge. Billing hourly, you can’t improve your efficiency because you’ll lose money. This destroys any incentive to improve your business.

Clients look for the provider who offers them the best price/hour

When there’s no other way to evaluate a provider, your potential clients will simply choose the one who offers them a lower hourly rate. But entering this game isn’t advisable because you’ll be forced to lower prices without any sense.

Increasing prices is difficult

Even if you drastically improve your services, raising the price/hour is difficult. If you do it, you’ll be giving your clients reasons to go elsewhere.

Time limits your revenue

When you charge an hourly rate and work certain hours each week, you’re limiting your revenue and making it difficult for your business to grow.

You don’t know which of your services has real interest

If you charge an hourly rate, you have no way of knowing which of the services you offer is most valued by your clients.

The way your practice bills for its time has a direct impact on its revenue.

What does plan-based billing mean?

Plan-based billing involves grouping services into packages for which you charge a certain price. The price is set upfront, which means your clients know what they’re going to pay - and you know what you’re going to charge.

Although this is a new idea for advisory practices, it’s very normal in other markets. This business model is used by Internet providers, phone companies or online services like FacturaDirecta for example.

Plan-based billing allows you to dissociate the cost of your services from the time needed to provide them. So you have an incentive to improve your business efficiency and productivity.

Benefits of plan-based billing

Plan-based billing frees your practice from time limitations. These are the reasons:

• Separates time from your revenue. Your potential profits stop being directly connected to the number of hours you work.
• They’re an incentive to improve efficiency and productivity. If you improve them, you’ll save time that you can dedicate to new clients.
• Reduces client complaints. Often clients are surprised by the amounts you bill them and this generates a situation of distrust. Pricing plans give the client a fixed price upfront, without surprises.
• Improves collaboration. Clients who already know what you’re going to charge them tend to improve communication with the practice because they stop being afraid that you’ll overcharge them. This improves collaboration and client retention. And it also helps you sell your higher pricing plans.

5 steps to implement pricing plans

You can’t make this change overnight. Plan-based billing isn’t just a new way to bill your clients, it’s mainly a change in your business model.

These are some steps you can follow to achieve this change:

1. Talk to your clients

With plan-based billing there will be changes in the relationship with your client. That is, your client may have to change some of their habits or work processes. In return, they’ll get better service from you. It’s important to talk to your client and explain very well why the change and the benefits it has for both.

2. Educate your team

It’s not enough for the partners or you, as owner, to understand the benefits of changing to plan-based billing. You need to get your entire team to understand it, so you’ll have to educate them and tell them the benefits.

3. Perfect your processes

From conversations with your potential clients to how you control work time, there will be many changes. Seek help if you need it. Look for other companies that use plan-based billing, from your sector or any other. Start with few clients and increase clients as the process becomes more refined.

4. Use new cloud technologies

An online accounting program like FacturaDirecta is a great tool for establishing plan-based billing in your business. It makes working remotely with your clients much easier. It also reduces your tasks by automating manual processes. It reduces your IT costs because updates and backups are performed automatically. To get the most out of plan-based billing, you need a powerful online accounting program.

5. Be patient

The transition won’t happen overnight. There will be problems along the way, but you’ll surely learn. The effort will be worth it.

Plan-based billing gives freedom to your business and your team

Plan-based billing allows you to increase your services and retain your clients more. It also allows you to increase your revenue in new and more efficient ways.

Thanks to this type of billing, employees can work in a more creative, constructive and productive way. Something that will undoubtedly be beneficial for them and also for the business.

As for your clients, instead of having a service provider at an hourly rate, they’ll have a trusted advisor.

Plan-based billing allows you to put your knowledge and experience at the service of your clients. And they’ll reward you for doing so.