How to clear deferred revenue on fixed price cost contracts

In Projector, whenever you have a fixed price contract you need to invoice for it through a milestone. This creates a deferred revenue balance which must be cleared. For a time contract, you use the revenue recognition wizard to clear the deferred revenue. For a cost contract, you'll want to follow the steps on this page.

You may not need to do this! For many services organizations, the relative ratio of cost:time revenue is huge. Because of this, many organizations choose to simply 'move' revenue that would typically be associated with cost cards onto time cards. Let's say you had a contract for 1MM time and 100k cost. You could simply run the revenue recognition wizard for 1.1MM on time cards. Or, you could use the revenue recognition wizard for 1MM and then follow the steps on this page for the remaining 100k.


Revenue Recognition on Fixed Price Cost Cards

This section explains how to perform revenue recognition on fixed price cost contracts. Before we get into that though, in service delivery organizations costs are typically a small amount relative to time amounts. Because of that some of the alternative approaches discussed in the next section may result in better workflows for your organization than the one discussed here. 

  1. Create a contract line item with a fixed price cost contract
  2. Issue a milestone invoice for the cost contract amount. This will generate a deferred revenue balance.
  3. Approve some cost cards on the contract. This will generate cost WIP.
  4. Create a blank invoice
  5. From the cost card review tab, include the cost cards from step three
    1. At this point you could actually issue the invoice to a client. But you don't want to do this. This will leave you with a deferred revenue balance.
  6. Select all the cost cards and perform a write up/down adjustment to equal the cost contract amount
  7. Go to the first tab of the invoice editor and apply the pre-payment balance created by the milestone in step two. You should consume the entire balance and end up with a zero dollar invoice.
  8. Issue the invoice, but don't send it to the client


Alternative Approaches

Consider one of the following approaches rather than the previous section's revenue recognition on cost cards. The net effects will be similar, but there is less room for error and it may even be less work!

Not to Exceed instead of Fixed Price

If possible, we recommend using Not to Exceed contracts rather than Fixed Price. The reason we suggest this approach is you can avoid a couple pitfalls of the fixed price approach.

  • Projector won't let you issue an NTE invoice that is over the contract amount, while a FP invoice can
  • You can optionally include the cost card data on an invoice that is sent to the client

Here are general steps for creating this setup

  1. Create a contract line item with a Not to Exceed cost contract
  2. Set the NTE cap to the fixed price amount
  3. Make a note in your billing instructions that if the cost cards come in under the cap, that they should be written up to the cap amount prior to issuing the invoice
  4. Issue a milestone invoice for the cap amount
  5. Create an invoice for the cost cards and write them up/down to equal the cap amount
  6. Apply the prepayment amount created in step four to create a zero dollar invoice
  7. Issue the invoice, but don't send it to the client



Roll Expenses into Fixed Price Time

If your expenses are a small amount relative to your time, or if the expenses are associated with time, like travel, then you may want to roll those expenses into time cards instead. 

  1. Create a contract line item with the cost terms set to not chargeable
  2. Increase the time contract terms by the cost amount. For example, if my project is 100k time and 10k expenses, set your time contract to 110k.
  3. Run your fixed price project as you normally would, you'll earn revenue on the time cards rather than through cost cards

T&M / NTE Time

This is similar to the previous approach for Fixed Price, but is for T&M/NTE contracts.  

  1. Create a contract line item with the cost terms set to not chargeable
  2. Set the time contract terms to T&M or NTE
  3. Issue a milestone invoice for what would have been the cost contract amount
  4. Create an invoice with time cards on it. If you do not have any time cards, you can create a dummy time card.
  5. Apply the prepayment balance created by the milestone to pay for the time cards. If your time cards do not have enough value to consume the entire prepayment balance, write them up to the balance amount