We recognize that each business has unique needs when it comes to revenue recognition. To offer flexibility, we have implemented custom revenue recognition. This feature enables you to recognise revenue for fixed fee projects based on specific criteria tailored to your business requirements. For instance, if you want to recognize revenue only based on billable hours once approved by project owners, you can customize the revenue recognition method to meet this requirement. .
You can define the conditions that should be met for the tracked time to be used for revenue recognition based on:
1. Approval status.
2. Billability
3. Category
4. Role of the person who tracks time
5. Team member who tracks time
To set this up:
Go to Settings > Financial Management > Revenue Recognition
Navigate to the Custom Revenue Recognition Method section to create a new method
Click "Create New Revenue Recognition"
Configure the hours that need to recognize revenue based on the conditions. For example, if you wish for only billable approved hours to recognize revenue, follow these steps:
Add a condition where "Billable is true" and "Approval status is approved"
You can choose to match either all conditions or just one, but in this case, all conditions must be met.
Choose the baseline to recognize revenue against. You can choose to recognise revenue as a percentage of budgeted hour or total allocated hours
Click Create to create the new revenue recognition method
To edit the method,
Click on the three dots edit near the method and make changes.
Note: You can edit an existing revenue recognition method at any time. Any changes you make will automatically apply to all projects that use that method.
To delete the method,
Click on the three dots edit near the method and delete
Note: You cannot delete a revenue recognition method that has already been used in projects (active or archived), to ensure the preservation of historical information.
Similarly, you can create additional revenue recognition methods for various business/project requirements, and these methods will automatically be added to the list of existing revenue recognition methods, which you can choose while creating a project.
Example: Let's consider a project called "Modert's 2W onboarding," which lasts 10 days. The budgeted hours for the project is 100h and fixed fee allocated across the project is USD 6,250. The time tracked by the resources in timesheets so far is 53h
Out of the 53 Hrs tracked, 5 Hrs are accounted as Non Billable whilst the rest 48 are billed and approved
If the custom revenue condition is set as Billable Approved Hours, only specific tracked hours will contribute to revenue recognition. These conditions include:
Billable must be set to "true."
Approval Status must be exactly "Approved."
The baseline for comparison is the Budgeted Hours, which serves as the denominator to calculate the percentage of project completion for revenue recognition.
The formula for revenue calculation is:
Revenue Recognition = (No. of Tracked Billable Hours that are Approved / Budgeted Hours) × Fixed Fee
Which means that if the total hours tracked is 53, and the approved hours are 51, where 4 are non billable, then the total billable hours that are approved = 48
Total budgeted hours = 100h
Fixed Fee = 6,250 USD
Therefore Revenue Recognised = (48/100) x 6250 = 3000
