Managed Service Providers (MSPs) are increasingly looking beyond traditional monthly contracts and hourly support to offer more flexible billing models. One such model is project-based billing.

In a project-based arrangement, the MSP charges a fixed fee (or set of milestone-based fees) tied to defined deliverables instead of an open-ended hourly tally. This approach gives clients clarity on cost and deliverables upfront, which can make it easier to win new projects. 

At the same time, MSPs can tailor project pricing to ensure profitability and manage scope. 

In this article, we will discuss the pros and challenges of project-based billing, how to evaluate if it’s the right model for a given situation, and best practices for implementation. 

We will also highlight how MSP-specific payment automation platforms enable MSPs to handle project billing efficiently alongside recurring services.

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What Is MSP Project-Based Billing?

MSP project-based billing is a pricing model in which services are billed as a one-time or short-term project with a predefined scope and fee rather than as ongoing recurring payments or open-ended hourly charges. 

In a project-based engagement, the MSP and client agree on a fixed price (or a series of milestone payments) for completing specific deliverables. 

MSPs opting for a project-based model pay a set price for each particular project or one-time task. 

The cost is determined by the scope and duration of the project, making this model suitable for situations with temporary or clearly defined IT needs. This allows both the MSP and the client to budget transparently for the work at hand.

Project-based billing differs from the typical recurring revenue model of MSP agreements, where clients pay a monthly or annual fee for continuous support and monitoring. 

Project-based pricing also contrasts with hourly (time-and-materials) billing, where charges are based on actual hours worked and materials used. 

For example, an MSP might charge a flat $10,000 for a network deployment project, with 50% due at project kickoff and 50% upon completion of the deployment. 

By agreeing to the scope and price upfront, both parties have a clear understanding of expectations: the client knows what they will get and exactly what it will cost, and the MSP knows the revenue for the project as long as they meet the agreed deliverables.

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Pros and Challenges of Project-Based Billing for MSPs

Project-based billing has notable benefits and drawbacks. MSPs should weigh these pros and cons when considering this model. 

Below, key advantages and the challenges of project-based billing are covered.

The Pros of Project-Based Billing

• Aligned Profit Potential: With a fixed project fee, MSPs can potentially earn higher margins if they complete the work efficiently. Unlike hourly billing, where working faster just means fewer billable hours, a project fee guarantees a set revenue even if the team finishes ahead of schedule. This creates an incentive to manage time and resources well. ‍
• Opportunity to Win/Secure New Clients: Project engagements can serve as a low-commitment introduction for clients who aren’t ready to sign long-term managed service contracts. A fixed-fee project (such as an initial IT infrastructure audit or a one-time cloud setup) provides a defined cost and outcome, which can reduce sales friction. It’s also a great way to build trust and reliability for future engagement with the same client.‍
• Transparency and Predictability: Fixed project pricing brings clarity for both client and provider. Clients know the total cost upfront, making it easier to budget and avoid surprises.

The Cons of Project-Based Billing

• Scope Creep Risks: Scope management is one of the biggest challenges with project billing. If the project’s scope is not defined tightly, clients may request additional tasks or changes mid-project (known as scope creep).‍
• Cash Flow Timing: Cash flow can become an issue depending on how the project payments are structured. If an MSP waits to invoice the entire project upon completion, it might mean laying out weeks or months of labor costs before seeing any revenue. This delay can strain the MSP’s cash flow.
• Difficulty in Planning and Estimation: Pricing a project accurately is not easy. MSPs must estimate the hours, effort, and any third-party costs required to meet the defined deliverables. If an MSP underestimates the project scope, they can’t simply bill more hours as they would in a time-and-materials model. So, the overrun directly cuts into the MSP’s profit margin

Overall, project-based billing offers clear benefits in terms of profitability, client acquisition, and transparency. However, it introduces risks related to scope control, cash flow, and pricing accuracy. 

Next, we’ll look at when this model is most appropriate.

When Project-Based Billing Is the Right Fit: 3 Proven Scenarios

Not every service is suited to a fixed-fee project model. Successful MSPs apply project-based billing in scenarios where the work is well-defined and not ongoing. 

Here are some examples of when project pricing is a suitable fit for MSPs:

1. One-Time or High-Effort Projects: 

Tasks like cloud migrations, server deployments, office IT rollouts, and major system upgrades are classic candidates. For instance, if a client needs to migrate 100 users to Microsoft 365 or implement a new network infrastructure, the MSP can treat it as a standalone project with a defined endpoint.

Project-based billing becomes even more powerful when paired with automation and flexible payment tools. Integrating with your quoting solution makes it even easier to roll out these one-time projects.

For instance, Pro IT, a high-growth MSP serving SMBs across the American Northwest, faced challenges offering large projects to clients with limited capital. Before switching to FlexPoint, the company couldn’t always accommodate clients who needed specialized equipment but couldn’t pay up front.

After adopting FlexPoint, Pro IT was able to offer customized payment plans for large projects, thanks to the built-in client financing feature. This meant that SMB clients could finally move forward with high-value IT infrastructure improvements without straining their budgets.

“With flexible financing options built into the platform, Pro IT could now offer clients customized payment plans on large projects. This was a game changer for SMBs who needed specialized equipment to secure their data but couldn’t afford the capital sink upfront.”

As a result, Pro IT not only improved client satisfaction but also increased profitability. The transition allowed the team to streamline billing, reduce credit card fee losses, and free up over 160 hours per month that were previously spent on manual payment tasks. 

This also resulted in savings of $70k per year and a 60% reduction in payments incurred from credit card fees.

With the automation capabilities FlexPoint provides, they now support both their recurring service model and one-off projects within a single platform.

This type of implementation demonstrates how MSPs can scale project-based work while maintaining lean operations and intact margins.

2. Assessments and Audits:

Many MSPs offer IT health checks, security audits, compliance assessments, or onboarding evaluations as fixed-price engagements. These have a clearly outlined process and deliverable (e.g., a report with findings and recommendations). Project billing works well here because the MSP can define exactly what will be delivered in the assessment.

3. New Client Onboarding:

Bringing on a new managed services client often involves a lot of upfront work (network documentation, cleanup, deploying tools, addressing initial issues). Some MSPs bill this onboarding as a separate project fee. This makes the recurring service fee that follows more palatable, since the heavy lift was handled (and paid for) as a one-time project.

Conversely, recurring billing remains the better choice for day-to-day IT management and support. If a client needs ongoing help desk support, proactive monitoring, and regular maintenance, those services are best billed under a monthly managed services plan. 

Recurring models provide predictable revenue for continuous needs, whereas project billing is ideal for finite efforts with a clear beginning and end. 

In practice, an MSP will often use both: retainers for steady-state support and project-based fees for the big one-off jobs that come up along the way.

5 Best Practices for Managing and Billing MSP Projects

Adopting project-based billing requires careful management to ensure each engagement is successful for both the client and the MSP. 

Below are some best practices MSPs should follow when scoping, managing, and billing projects:

1. Define a Clear Scope of Work: 

Invest time upfront to write a detailed Statement of Work (SOW) that lists exactly what is (and isn’t) included in the project. 

Define the deliverables, timeline, and responsibilities of each party. It should outline all major tasks and assumptions. Being specific prevents misunderstandings later.

2. Use Milestone Billing and Upfront Deposits:

Don’t wait until the very end of a long project to bill for all your work. It’s best practice to break the project into phases (e.g., 50% deposit, 25% at a midpoint milestone, 25% at completion). This ensures you have cash coming in as the project progresses and that the client has skin in the game. 

Quoting software that integrates with your payment solution can take the guesswork out of collecting upfront deposits.

Milestone billing also aligns payment with the achievement of key deliverables, which clients appreciate.

3. Set Expectations and Communicate Frequently:

Review the scope and timeline with the client at the project kickoff to set clear expectations. 

During the project, maintain regular communication (weekly updates or checkpoints) so the client knows progress and any issues. 

If something changes in scope or timeline, discuss it as early as possible and agree on how it will be handled (potentially as a paid change request).

4. Track Time and Costs Internally: 

Even though the client isn’t being billed hourly, the MSP should still log hours and expenses against the project. This internal tracking helps you measure the project’s profitability and learn for future pricing. 

If one phase took twice as long as expected, that’s a lesson for the next estimate (or a sign that the scope wasn’t fully understood).

5. Leverage Automation Tools:

Managing project invoices and payments can be much easier with the right systems. 

Use MSP billing software that integrates with your PSA and accounting tools to automate the invoicing of project milestones and track payments. 

Modern platforms such as FlexPoint allow you to set billing rules to trigger invoices when a project milestone is reached or a phase is completed.

Conclusion: Delivering Success Through Smarter Project Billing

Project-based billing gives MSPs a powerful way to expand their service offerings and better meet client needs without compromising profitability. 

By thoughtfully implementing project billing for the right situations, an MSP can serve broader IT needs that go beyond the day-to-day support covered by managed services agreements. 

This model lets you tackle high-impact initiatives, from major system implementations to one-off consulting engagements, under a pricing structure that protects your margins and provides value to clients. 

When done correctly, project billing is a win-win: clients get a predictable cost for a defined outcome, and the MSP has an opportunity to earn substantial profits through efficient delivery and scope control.

One of the most significant advantages is how project-based work can drive business growth. It acts as a feeder for new recurring services clients. Many clients will start with a project (such as an infrastructure upgrade or security assessment) and then transition into an ongoing support contract once trust is established. 

Even for existing clients, offering to handle projects under a fixed fee demonstrates flexibility and full-service capability, deepening the partnership. 

MSPs that master both recurring and project revenue streams can capture more wallet share and become a one-stop shop for their clients. This helps grow revenue by not leaving project work (or the associated dollars) on the table for other providers.

To deliver success with this model, MSPs must address the challenges head-on. That means scoping projects meticulously, billing smartly to avoid cash crunches, and keeping communication lines open. It also means adopting tools and processes that simplify project financial management. 

A unified billing, invoicing, and payment platform like FlexPoint supports both recurring subscriptions and project-based billing side by side. 

For example, an MSP can use FlexPoint to automatically invoice monthly managed services while also scheduling out a fixed-fee project’s milestone invoices in the same system. By consolidating these workflows, nothing slips through the cracks. 

FlexPoint also offers features such as client financing (installment plans) and automated payment reminders, which can be particularly useful for large projects that might otherwise strain client budgets or delay payments.

In conclusion, MSP project-based billing is a strategic tool to have in your pricing arsenal. It enables you to meet clients’ one-time or high-effort needs in a transparent, controlled manner. 

Managing one-time or high-effort projects?

FlexPoint makes it easy to scope, track, and bill projects accurately with milestone or fixed-fee invoicing.

Schedule a demo to see how FlexPoint supports seamless project-based billing for MSPs.

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Additional FAQs: Project-Based Billing for MSPs

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