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Part of Profit models compared: eight ways to get paid, and what each costs
Payment-timing models compared: eight worked examples with the arithmetic
Eight worked examples of changing payment timing, deposits, subscriptions and fixed terms, with the cash and effort arithmetic shown so you can test each model against your own numbers.
This article gives eight worked examples. They are illustrative models, not case studies of named businesses, and each uses the numbers shown so you can swap in your own. Each keeps the same work and changes only how the seller charges. The profit model framework is the lens used throughout.
What to take away
- Most of the changes move payment earlier, through a deposit, a prepaid block or a standing order. Those changes improve cash without changing the price.
- Two changes, the gym term and the consulting report, make the seller owe more for a fixed period. They are worth it only if the seller can keep the obligation in a slow month.
- Each change is sellable to new customers without touching the work.
- Track cash at the end of each week, before and after a change, to see whether it worked.
| Venture | Change | Cash before to after | Effort before to after |
|---|---|---|---|
| Etsy | 50% deposit | $35 out per $80 order to $40 in | Invoice to deposit at checkout |
| TutorBird | Prepaid block | $360 in week six to $360 in week one | Six invoices to one |
| Market stall | Weekly box | $600 day cash to $100 per customer per month | Cash count to billing list |
| House cleaning | Fortnightly visit | $150 one-off to $4,800 a month | Selling each clean to scheduling |
| Bakery stall | Monthly subscription | Market cash to $2,400 before first bake | Cash handling to one subscriber list |
| Consulting | Fixed-scope report | $5,000 retainer to $7,500 report | Hour tracking to one invoice |
| Appliance repair | Narrowed guarantee | $180 call with open liability to $9 per call reserve | Repeat explanations to written terms |
| Gym | Fixed six-month term | $40 open-ended to $270 per member | Cancellations to one renewal talk |
Being paid earlier
Made-to-order goods sold online. A seller making custom goods buys materials before the buyer pays, so a busy month can drain cash before it fills it. For example, an $80 order with $35 in materials means ten orders cost $350 before any cash comes in. A 50 percent deposit on each order brings $40 in per order, or $400 across the same ten.
Tutor block billing. A tutor who bills per session after the fact waits for cash. A prepaid block of six sessions moves the money to the start of the block. At $60 a session, six sessions bill $360 after six weeks, or $360 in week one with a prepaid block. The obligation grows, so write down what a cancelled block refunds before selling one.
Market stall with a weekly box. A stall that takes cash on the day is already in a strong position. An add-on such as a standing weekly box paid monthly turns occasional buyers into regulars. For example, a $25 weekly box paid monthly collects about $100 per customer per month.
Bakery stall with a monthly subscription. A home baker selling at a market takes cash on the day. The change is a standing order: a weekly bread subscription paid monthly in advance. A $12 loaf, four loaves a month, collects $48 per customer at the start of the month. Fifty subscribers bring $2,400 before the first bake.
Licensing for a home food venture varies by state and municipality, and in some places by county. Confirm the requirements with your state department of agriculture and your local health department before selling anything. The Los Angeles home food permit guide shows how one city handles it.
Standing visits, subscriptions and fixed scope
House cleaning and the standing visit. A one-off clean is sold again every time. A fortnightly standing visit turns selling into scheduling. For example, at about two visits a month, twenty regulars at $120 a visit bill $4,800 a month. The local service ventures guide covers why the same customers on the same streets change the economics of a mobile trade.
Freelance consulting and the fixed-scope report. An open-ended advisory retainer is hard for a buyer to compare. One defined report at one price is easier to buy. For example, an open retainer at $5,000 a month compares with a fixed report at $7,500 delivered in 30 days. If the report takes 50 hours, the effective rate is $150 an hour.
The profit model metrics page covers which numbers to track for a model like this.
Narrowed guarantees and fixed terms
Appliance repair and the narrowed guarantee. A repairer offering an open-ended promise on parts and labour carries a liability that is hard to estimate. For example, a $180 call with a 90-day open guarantee could be narrowed to a 30-day guarantee on the work. If one call in twenty returns, reserve about $9 per call.
A written guarantee covering the work, for a stated period and a stated part, is cheaper to honour and easier to explain.
Gyms and the fixed-term membership. An until-cancelled membership drifts: people forget they are paying, then cancel in anger. A stated term with an explicit renewal is a fresh decision each time. It is more work, but it produces fewer, better customers and a smaller obligation to carry. For example, a $40 until-cancelled membership could become a fixed six-month term at $45 a month, which bills $270 per member.
An illustrative failure
Here is a hypothetical case, labelled as such. A freelance designer sold four monthly retainers at $2,500 each, which is $10,000 a month, and each retainer guaranteed a five-business-day turnaround. Money was taken up front. In one quarter she could not deliver, and missed deadlines led to refunds of $1,500 on each of the four retainers, or $6,000 in total.
Retainer failure sequence
- Sold monthly retainers
- Took on four clients
- Could not deliver for a quarter
- Refunds came from spent reserve
- Correction: term, slower turnaround, reserve
Refunds came out of money the designer had already spent, because she treated retainers as income. Money received in advance is a liability until the work is done. A reserve equal to one month of retainers, here $10,000, would have covered the refunds.
The correction is a stated term, a turnaround the business can keep, and a reserve equal to the outstanding obligation.
Common questions
Can I make these changes with existing customers?
Usually by offering rather than imposing. Keep existing customers on their current terms for a stated period, and offer the new shape to new customers first.
Which change should I try first?
Whichever moves money earlier. It usually costs one conversation and improves your position without changing the work.
How do I know if a change worked?
Track cash on hand at the end of each week for a quarter before and after. If the change moved money earlier, the low point of that line rises. If it did not, the change cost you effort for nothing.
