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Setting up billing as a Managed Service Provider (MSP) can be a complex process, but it is a key component to get right in order to ensure the long-term success of your business. Trust us, we know. Nilear spun off an MSP fifteen years ago and our products are designed to alleviate common MSP headaches, like billing. Here are some steps to set up a reliable billing process.
The first step in setting up your billing is to define your pricing structure. Determine what services you will offer and how much you will charge for them. MSP support should be billed at a fixed monthly price, as opposed to hourly or block time, with projects billed separately. MSPs also need to ensure that a component of each invoice is based on the client’s user count. You should set a minimum user count for each customer’s agreement to protect your MRR from downturns in the economy.
Remember every client is unique and that should be reflected in their billing. Don’t treat every client the same. Think about 150 users at a law firm versus a general contractor. Those users are going to vary in needs, complexity, and demands.
A great tip to simplify this process is to create a matrix with complexity (simple and complex) on one axis and size (small, medium, large) on the other. Then assign each box a per-user price based on the anticipated demand of that type of client. Now you have a customized pricing matrix for per-user rate. Remember this shouldn’t be difficult; Make the table and then every client falls into that. This is a great tool for new clients until you can determine contract averages.
ACH should be required for all new clients and strongly encouraged for existing clients. Next, choose your billing method. Will you accept credit card payments, bank transfers, or other methods? Choose a convenient billing method for your clients and one that is easy for you to manage.
How to Manage Contracts
Contracts are an integral part of billing. They must be reviewed and re-signed every time they’re renewed. One of the most common MSP mistakes when setting up billing is blindly renewing contracts or just adding an inflation charge. You need to run metrics and determine contract profitability before renewing. That way you can make informative changes to the contract renewal.
Contracts should not be less than 12 months and need to have a minimum buyout to end the contract early to protect you. Locked-in pricing protects clients against rising costs and incentivizes them into a longer contract. This documentation will help increase your business’ M&A value.
Communicating your billing policies to clients is super important. Make sure your clients understand your billing policies, including when payments are due and how disputes are managed. Consider creating a client agreement that outlines your billing policies in detail. On the invoice, it should list individual users and any changes from the previous month, as well as any prorations. Invoices should also have a separate automated email to make the client aware of any changes that will occur beforehand to avoid confusion around billing.
Finally, monitor and adjust your billing process. Keep track of your billing records and regularly review your billing process to ensure that it is profitable for your business. Adjust your policies as needed to improve the efficiency and effectiveness of your billing process.
How ConnectActive Helps
Billing can be an especially tedious process if you’re doing it manually through Excel or not tracking anything at all. Choosing billing software can help you manage your invoices, payments, and billing records. ConnectActive automates all of this so you can be the most profitable while focusing on solving your client’s needs.
Once you have your basic billing established, the next step is to be able to provide tiered pricing. For example, when a company moves from 75 to 80 users, there should be a bump in their monthly invoice.
For instance, let’s say your business has created the pricing schedule below and a new client is onboarding with 15 users. Using ConnectActive, the client will be billed a flat rate of $1,500, since they meet the minimum count, and charged a subtotal of $1,250 (5 x $250 per user) for the next tier and another $1,000 (5 x $200 per user) for the final five users, bringing their total invoice to a total of $3,750.
You should set a minimum user count rate on agreements to protect your MSPs. This can be difficult but not with ConnectActive. It has a feature that allows you to set a minimum fee and then charge per-user additions. Another great tip is to have a special charge for onboarding. This is especially helpful for clients that keep the same user count but have a high turnover.
ConnectActive is also a great tool to help with prorating. Whether for additional users (to avoid losing money) or to prorate refunds (to keep the client happy), ConnectActive makes it easy to uplevel your billing process.
By following these steps, you can set up a reliable and effective billing process for your MSP, which can help you build strong relationships with your clients and achieve long-term success. Having a clear billing process in place is crucial in ensuring your business runs smoothly and that you are able to provide high-quality services to your clients. If you’re looking for easy automation to reduce additional invoice work, schedule your 30-day free trial of ConnectActive here: https://app.nilear.com/signup/connectwise.