> ## Documentation Index
> Fetch the complete documentation index at: https://help.ruddr.io/llms.txt
> Use this file to discover all available pages before exploring further.

# Fixed Fee Revenue Recognition: Percentage of Services Cost

The **Percentage of Services Cost** method recognizes revenue on a fixed fee project based on how much **cost has been incurred**.

It uses **services cost** as the measure of project progress. In order to leverage this method, you would want to ensure that all project team members have a cost provided. Member cost periods are set on the [member profile](/workspace-administration/member-profile) of each member.

👉 Use this method when **cost is a better indicator of progress than hours**, such as when team members have significantly different billing rates or costs.

**Best when:**\
Cost—not hours—is the most accurate measure of progress.

**Why you’d choose it:**

* Accounts for **differences in labor cost across roles**
* Reflects **true economic consumption** of the project
* Includes:
  * Billable time
  * Non-billable time
* More accurate when:
  * Senior vs junior resources have very different costs
  * Margin management is important

***

## Before you start

Make sure your project includes:

* A **Services Revenue Budget**
* A **Target Services Gross Margin**

Ruddr uses the target gross margin to calculate the project’s **services cost budget**.

***

## How the cost budget is calculated

Ruddr derives the services cost budget using:

Services Cost Budget = Services Revenue Budget × (1 − Target Services Gross Margin)

**Example:**

* Revenue budget: \$120,000
* Target margin: 40%

→ Cost budget = \$120,000 × (1 − 40%) = \$72,000

***

## How this method works

Ruddr recognizes revenue based on how much of the total projected cost has been incurred.

At a high level:

1. Track services cost incurred to date
2. Estimate total project cost
3. Calculate percent complete
4. Recognize revenue based on that percentage

***

## How Ruddr calculates revenue

For each recognition period, Ruddr:

1. Calculates **total services cost incurred to date**
2. Determines **total projected services cost** as the greater of:
   * Budgeted cost
   * Actual cost + future allocated cost (if using allocations)
3. Calculates **percent complete**
4. Calculates **total revenue earned to date**
5. Subtracts previously recognized revenue to determine the **current period entry**

***

## What’s included in services cost

Services cost includes **all project hours**, not just billable time:

* Billable hours
* Non-billable hours

👉 Both contribute to total project cost and impact revenue recognition.

***

## Key formulas (reference)

**Percent complete**\
Total services cost incurred ÷ Total projected services cost

**Total projected cost**\
The greater of Budgeted cost and (Actual cost + future allocated cost)

**Revenue earned to date**\
Percent complete × Services revenue budget

**Revenue for current period**\
Revenue earned to date − Previously recognized revenue

***

## How automation works

If automated revenue recognition is enabled:

* Runs **weekly or monthly**
* Monthly runs create entries for the **previous month**
* Weekly runs create entries for the prior week
* If using allocations:
  * Future **forecasted entries are created**
  * Forecasts are **refreshed each run**

***

# Example 1: Project stays within services cost budget

This example shows standard behavior when projected cost does not change.

**Project setup:**

* Services Revenue Budget: \$120,000
* Target Services Gross Margin: 40%
* Services Cost Budget: \$72,000
* Monthly automation enabled

***

### Month 1

* Cost to date: \$14,400
* Percent complete: 20%
* Revenue earned to date: \$24,000
* **Revenue recognized: \$24,000**

***

### Month 2

* Cost to date: \$36,000
* Percent complete: 50%
* Revenue earned to date: \$60,000
* Previously recognized: \$24,000
* **Revenue recognized: \$36,000**

***

### Month 3

* Cost to date: \$54,000
* Percent complete: 75%
* Revenue earned to date: \$90,000
* Previously recognized: \$60,000
* **Revenue recognized: \$30,000**

***

### Month 4

* Cost to date: \$72,000
* Percent complete: 100%
* Revenue earned to date: \$120,000
* Previously recognized: \$90,000
* **Revenue recognized: \$30,000**

***

## Summary table:

| Month | Services Cost to Date | Projected Total Services Cost | % Complete | Revenue Recognized Through Period | Current Month Rev Rec |
| ----- | --------------------- | ----------------------------- | ---------- | --------------------------------- | --------------------- |
| 1     | \$14,400.00           | \$72,000.00                   | 20.00%     | \$24,000.00                       | \$24,000.00           |
| 2     | \$36,000.00           | \$72,000.00                   | 50.00%     | \$60,000.00                       | \$36,000.00           |
| 3     | \$54,000.00           | \$72,000.00                   | 75.00%     | \$90,000.00                       | \$30,000.00           |
| 4     | \$72,000.00           | \$72,000.00                   | 100.00%    | \$120,000.00                      | \$30,000.00           |

## Summary

* Revenue follows **progress based on cost incurred**
* Each period recognizes the **incremental earned amount**
* Total revenue = **\$120,000**

***

# Example 2: Project exceeds cost budget

This example shows what happens when projected cost increases during the project.

**Project setup:**

* Services Revenue Budget: \$120,000
* Original Services Cost Budget: \$72,000
* Monthly automation enabled
* Project uses allocations

***

## What changes?

In Month 3, projected cost increases because:

* Actual cost + future allocated cost exceeds the original budget

Ruddr recalculates projected cost using:

> max(Budgeted cost, Actual cost + future allocated cost)

***

### Month 1

* Cost to date: \$14,400
* Projected cost: \$72,000
* Percent complete: 20%
* Revenue earned to date: \$24,000
* **Revenue recognized: \$24,000**

***

### Month 2

* Cost to date: \$36,000
* Projected cost: \$72,000
* Percent complete: 50%
* Revenue earned to date: \$60,000
* Previously recognized: \$24,000
* **Revenue recognized: \$36,000**

***

### Month 3 (projected cost increases)

* Cost to date: \$54,000
* Projected cost: **\$84,000**
* Percent complete: **64.29%**
* Revenue earned to date: **\$77,142.86**
* Previously recognized: \$60,000
* **Revenue recognized: \$17,142.86**

***

### Month 4

* Cost to date: \$84,000
* Projected cost: \$84,000
* Percent complete: 100%
* Revenue earned to date: \$120,000
* Previously recognized: \$77,142.86
* **Revenue recognized: \$42,857.14**

***

## Summary table: projected cost exceeds budget in Month 3

| Month | Services Cost to Date | Future Services Cost | Projected Total Services Cost | % Complete | Revenue Recognized Through Period | Current Month Rev Rec |
| ----- | --------------------- | -------------------- | ----------------------------- | ---------- | --------------------------------- | --------------------- |
| 1     | \$14,400.00           | \$57,600.00          | \$72,000.00                   | 20.00%     | \$24,000.00                       | \$24,000.00           |
| 2     | \$36,000.00           | \$36,000.00          | \$72,000.00                   | 50.00%     | \$60,000.00                       | \$36,000.00           |
| 3     | \$54,000.00           | \$30,000.00          | \$84,000.00                   | 64.29%     | \$77,142.86                       | \$17,142.86           |
| 4     | \$84,000.00           | \$0.00               | \$84,000.00                   | 100.00%    | \$120,000.00                      | \$42,857.14           |

## Why revenue decreases in Month 3

If projected cost had stayed at \$72,000:

* Percent complete = \$54,000 ÷ \$72,000 = 75%
* Revenue earned to date = \$90,000

But because projected cost increased to \$84,000:

* Percent complete = \$54,000 ÷ \$84,000 = 64.29%
* Revenue earned to date = \$77,142.86

👉 This results in **less revenue recognized in Month 3**

***

## Key takeaway

When projected cost increases:

* Percent complete **decreases**
* Revenue is spread across **more total cost**
* Current period revenue may be **lower than expected**

***

## Important: projects with allocations

If your project uses **resource allocations**:

* Projected cost can increase during the project
* This happens when:
  * Actual cost + future allocations exceed the original budget

When this occurs:

* Revenue recognition adjusts automatically
* Earlier expectations may shift based on the new projection

***

## Learn more

* [Fixed Fee Revenue Recognition](/projects/fixed-fee-revenue-recognition)
* [The Revenue Recognition Ledger](/projects/the-revenue-recognition-ledger)