Pros and cons of pro-rated billing?

[MannDude]

Curious what providers here think about pro-rated billing. It seems that some of the obvious pros to billing this way would include things such as collecting all (or most) payments on a single day of the month, which makes accounting and planning easier. Only real cons I can think of would be customers who do not understand why their first month was billed at a different rate than their renewing months, but that seems easily explainable and something that most would grasp the concept of.

So, who here does this and what are your thoughts?

 

[drmike]

Pro-rated = fair.

Everyone should be doing such.

There may be laws in some places requiring such.

 

[rds100]

I think it would be confusing for many customers and would result in a lot of tickets.

 

[MannDude]

I don't think it's any more fair than normal billing, just more convenient for the business owner than for the end-user I'd reckon.

My personal, non-hosting related bills are not prorated. The day the service begins is the day I get billed for the service the following month.

 

[MartinD]

It's all pro's, no cons.

I moved to pro-rata just over a year ago and it made things so much easier! Existing customers retained their billing dates but all new orders went on to pro-rata billing.

Knowing exactly where you are, financially, at X date is a bonus and allows you to plan a lot better. I would say it makes a lot more sense than piece-meal billing!

 

[rds100]

Do paypal subscriptions work with pro-rated billing? What happens in such cases?

 

[MartinD]

Yes, the subscription is set up for the pro-rata date with only the initial payment being different (more or less than the sub payment)

WHMCS also handles it - wont let you set up the subscription payment to be later than the due date.

 

[DomainBop]

The biggest negative I can see with pro-rated billing (assuming you're smart and have a "no refunds ever" policy) is that if you terminate a customer for an imaginary TOS violation 24 hours after the gullible idiot signs up for your too good to be true offer you'll pocket less money.

I think it would be confusing for many customers and would result in a lot of tickets.

It's only confusing if you send the notice out in unintelligible broken French like Kimsufi did when they moved everyone to pro-rated billing this month (with automatic billing on the 1st for everyone)..   Online.net is another pro-rater.  ProviderService is yet another.

The biggest source of customer confusion I've seen with providers who pro-rate the first payment and bill on a set date every month is cancellation dates.  Most of them require that cancellations be done by date xx (for Kimsufi and Online.net it's the 20th, for others like ProviderService it's 30 days before the next billing).

If you want to really confuse customers move to a system like Hetzner where the billing dates and service dates are different.  They don't pro-rate and they  invoice everyone on the 1st and 15th of the month (depending on the date you signed up) but the service period  is 30 days from the service start date (e.g. you signup on the 4th and your service will renew on the 4th every month but you won't be billed until the 15th of the month).

 

[SkylarM]

Ran with pro-rating initially, ended up causing some headaches and some customers turned away on order form as a result of the pro-rating.

I would prefer to pro-rate, as it does make life easier, planning much more simple, etc -- but a lot of customers in the low end segment (at least for Crissic) stated they did not like pro-rating payments.

I'm sure quite a bit of it has to do with a rollover date on the initial payment being "more" than they expected.

 

[Kakashi]

The only downside I could think of are clients that only want 1 months worth of service and don't want to pay 1month+1-2weeks worth. I've been tempted to switch to it, but it would just cause mass confusion.

Also here in the UK, no bill that we have (Utility + other) is pro-rated, so I didn't initially see the need for it. If I was starting fresh now though I would have had it pro-rated for the benefits mentioned in this thread.

 

[AnthonySmith]

I have been tempted to switch more times than I can count, never done it though as I expected it to cause mass confusion.

how does WHMCS handle pro rate on yearly billing out of interest does it count current term of current year only or does it count 12 months from start up only taking in to account the current month period for pro rating?

I spoke to someone about it about 2 years ago, they said they had a lot of abuse with people just timing the point in the month to get a VPS for a few days only for so little after the paypal fee's you could actually lose money on some orders.

Can you expand on any of this @MartinD ? maybe things have progressed a little, I am considering doing the switch as of January.

 

[Leyton]

I spoke to someone about it about 2 years ago, they said they had a lot of abuse with people just timing the point in the month to get a VPS for a few days only for so little after the paypal fee's you could actually lose money on some orders.

From what I recall, in WHMCS you can set boundaries before you charge for the extra month; so that you can limit that issue and say that X days before the end of the month, you charge 1 month + X days.

 

[AnthonySmith]

ah yes:

Prorata Date  - Enter the day of the month you want to charge on

Charge Next Month  - Enter the day of the month after which the following month will also be included on the first invoice

wonder how it would handle a complete switch over including current clients.

 

[SkylarM]

ah yes:

Prorata Date  - Enter the day of the month you want to charge on

Charge Next Month  - Enter the day of the month after which the following month will also be included on the first invoice

wonder how it would handle a complete switch over including current clients.

It doesn't do anything for existing orders/clients. Only new ones.

 

[AnthonySmith]

It doesn't do anything for existing orders/clients. Only new ones.

sigh...

 

[MartinD]

Indeed - only for new orders from the point when you change it.

You'd need to manually adjust it for existing customer.

 

[concerto49]

It's been confusing for clients since it's different from the advertised amount. Not to mention whmcs quirks. Also easier target for spammers and abusers. Just more headaches overall with whmcs.

 

[clouds4india]

Client side ,
Pros
They can keep their billing fixed to 1st of every month , 
So basically if you're ordering 10 days earlier to next month you are paying like 34% / 100% payment.
So saving money , incase the provider turns out good you may wish to continue else you can leave.

Provider,
Cons
Prorated billing , might reduce their ip cost.
That mean people can abuse the ip for a very minimal cost and still get away with it.
IP block is endangered of blacklistings.
In-turn we spend more money to remove them from BL / order a new block with a penalty.
 

 

[BrianHarrison]

We did pro-rated billing before, but it confused a lot of our customers and resulted in a lot of avoidable trouble tickets for our billing department. More trouble tickets means added costs so we dropped it.

 

[Aldryic C'boas]

I implemented pro-rated billing about 5-6 years ago.  Converted existing services without a hitch, and I get maybe 1-2 tickets a year from 'confused' clients.  Honestly, I'm kinda wondering what you guys FUBAR'd to be having that many issues.