Explainer MeterEase blog
Ratio billing vs flat utility fees
When a building has a shared utility bill, landlords commonly choose between two simple ways to recover it from tenants: ratio billing (a ratio utility billing system, or RUBS) and a flat utility fee. Both are easier than submetering. They differ in who carries the risk when bills change, how much work they take, and how tenants react.
The two approaches
Ratio billing (RUBS). Each month you take the actual bill and divide it by a formula in the lease: square footage, occupants, bedrooms, fixed percentages, or a blend. Tenants pay a share of what the building actually used. The amount changes month to month.
Flat utility fee. Each tenant pays a fixed amount each month for a utility, such as “$60/month for water, sewer and trash,” no matter what the bill is. You keep any surplus and absorb any shortfall.
Example math (made-up numbers)
A three-unit building. Water and sewer bills over four months: $360, $390, $510, $600, a total of $1,860. Units are 800, 800 and 1,400 sq ft (3,000 total).
Ratio billing by square footage. Each 800 sq ft unit pays 800 ÷ 3,000 = 26.67% of each bill, and the 1,400 sq ft unit pays 46.67%.
| Month | Bill | 800 sq ft unit | 1,400 sq ft unit |
|---|---|---|---|
| 1 | $360 | $96.00 | $168.00 |
| 2 | $390 | $104.00 | $182.00 |
| 3 | $510 | $136.00 | $238.00 |
| 4 | $600 | $160.00 | $280.00 |
The tenants together pay all $1,860. Your net cost for water is $0.
Flat fee of $45 per unit. Each month you collect $135. Over four months, that is $540. The bills were $1,860, so you absorb $1,320. To break even over these four months, the flat fee would have to average $155 per unit, and you would have to guess that number in advance.
Flat fee set high, at $160 per unit. You collect $480 a month, or $1,920 over the four months, $60 more than the bills. In a cool, wet stretch the surplus could be larger. Many tenants notice when a flat fee looks well above what the building likely uses, and some jurisdictions limit what a landlord may charge for utilities, so a flat fee that is really a profit center can be a problem. Check local rules. This is general information, not legal advice.
Who carries the risk
- Ratio billing: tenants carry the risk of rate increases, seasonal swings and high use, because they pay a share of the actual bill. You carry the risk of vacancies if you pay the vacant share.
- Flat fee: you carry the risk. If rates go up or a tenant leaves a hose running, you pay the difference until you can raise the fee.
Monthly work
- Ratio billing: a calculation and a statement each month, plus handling move-ins, move-outs and vacancies. Our step-by-step guide covers it.
- Flat fee: almost none. It is just another line on the rent ledger. You review it periodically and adjust at renewal.
Fairness and tenant reaction
Ratio billing ties each tenant’s cost to the real bill and to a factor they can check, such as square footage. When you show the math, it is easy to defend. The downside is that the amount changes every month, which some tenants dislike, and a leak in one unit raises everyone’s share.
A flat fee is predictable for tenants, which many like. But it does not reward conservation, and if it looks arbitrary, it reads as extra rent. A tenant who uses little water may feel they are paying for a neighbor.
Conservation
Under ratio billing, a building that uses less pays less, and each tenant sees part of that saving. Under a flat fee, a tenant has no direct reason to conserve; their cost does not change. If water use is a concern in your building, ratio billing (or submetering) sends a clearer signal.
How to choose
Choose ratio billing if:
- The bill is large or varies a lot by season.
- Rates in your area have been rising.
- You want tenants to share in the results of conserving.
- You are willing to send a statement each month (or use a tool that does).
Choose a flat fee if:
- The bill is modest and steady.
- You want the simplest possible setup.
- You are comfortable absorbing swings, and reviewing the fee at renewal.
Choose including it in rent if the bill is small and you would rather price it into rent. Our guide to utilities included in rent covers that option.
Some landlords use a hybrid: a flat fee for trash, which is usually steady, and ratio billing for water and sewer, which swing.
Try your numbers
Run your last few bills through the RUBS calculator and compare the per-unit shares to the flat fee you had in mind. If you go with ratio billing, MeterEase handles the monthly split and emails each tenant their share with the math and the bill attached. See pricing.
Split the bill and email every tenant in minutes
MeterEase reads the master bill PDF, applies your method and vacancy rule, and emails each tenant their share with the math shown and the source bill attached, after you check the numbers. Plans start at $14/month.