When you’re setting up your business, one of the most important things you need to set up is how, exactly, you get paid. If you don’t work out how revenue comes into your business, then you can’t keep the lights on for very long. However, there are different options that are worth considering. To that end, here, we’re going to look at some common payment structures, their pros and cons, and how to decide which is best for you.
One-Time Payments
The simplest approach to getting paid for what you provide is to have customers pay directly, and once, for the product or service that you’re selling. The simplicity of this model makes it very easy to account for, making cash flow and accounting a lot simpler to stay on top of, and it works particularly well for physical products, digital downloads, or standalone services. This kind of payment also best suits businesses where new customer acquisition and repeat sales are an expected part of the business model, and where fluctuating income can be expected due to seasonal shifts in buying habits. Growth can be tough with one-time payments due to the need to sell more volumes of your product or services to scale.
Subscription Models
For products and services that customers expect to use on a recurring basis, then charging them on a recurring basis as well can make a lot of sense. A lot of subscription models see customers paying monthly, quarterly, or even annually, which is great for businesses as it provides predictable revenue. Take a look at this guide to recurring payments to see how you can set up subscription payments, but be aware that it also requires you to invest more into customer relationships. Customers expect a degree of constant delivery value to encourage them to keep up their subscription over time.
Invoicing
Some businesses will allow customers to pay after they receive their services, often within 30, 60, or 90 days. Invoicing can be more comfortable for customers and clients who are buying bigger ticket items or paying for recurring services, and they’re most common in B2B environments where there is a degree of trust to be expected. Many larger business clients prefer invoices because they allow them to account for them more easily. However, late or lost invoices can be a major revenue drain, so having invoicing software to ensure that customers are keeping up with their payments can be important.
Usage-Based Models
For recurring services, you can charge customers specifically based on how much they use. Charging customers per hour, per transaction, or per unit can be attractive to customers who only want to pay for what they use, and nothing else, but it can also lead to customers reducing how much they use your services to control costs. This can lead to limited growth.
The payment structure that makes the most sense to your business should hopefully make itself clear before long with a little thought. Hopefully, the points above guide you towards the answer that fits your business.
