100 Thoughts on Pricing: #14
A milestone based payment schedule is a risk sharing contract. Most milestones represent a future forecast subject to forces beyond the service provider’s complete control. The less control the service provider holds over milestone timing, the greater the risk to cash flow. Cash flow risks are highly incentivizing: service providers need predictable project cash flow to fund operations, demonstrate quality of earnings, conduct M&A, etc. So next time you're asked to provide a risk sharing proposal, send a milestone payment schedule.