Revenue Recognition for Fixed Price Projects and Retainers
With Fixed Price projects and retainers, Forecast suggests revenue to recognize on a monthly basis using a “percentage complete” method.
For example, if you have finished 60% of your project, your suggested revenue recognition will be 60% of the total revenue.
Another detailed example:
- You have a $100,000 fixed budget for a project
- The “T&M” value at completion of all time (based on rate cards) and expenses is $120,000
- The actual “T&M” value to date of time (based on rate cards) and expenses is $60,000
- Based on T&M values you are 50% of the way through your budget, so the suggested revenue Recognition at this point is $50,000
This approach does depend on a project being planned out as fully as possible from start to finish so that the % complete can be (fairly) accurate.
As mentioned above, this method of distributing value is dynamic so if the total scope changes, the value of work done in the past changes. You can lock revenue for a project on a given month to recognize that revenue, meaning it will remain as-is even if the scope increases or decreases later on.
Revenue Recognition in Forecast takes the total Fixed Price budget and splits it into a Time budget and an Expense budget. Expenses revenue is taken “as-is” – revenue is assigned to “cover” the cost of expenses. The time budget is the remainder of the Fixed Price - Expenses.
To read more on setting up and managing Revenue Recognition in Forecast, check out Understanding and using Revenue Recognition.