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Some of the work on a Fixed Fee project may be delivered by a subcontractor or another outside party rather than by your own team. You record that work as an expense. To have Ruddr treat it as part of delivering the project’s services, rather than as a pass-through expense, put it in an expense category that is classified as services, such as Outsourced Labor.

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How outsourced labor is treated

On a Fixed Fee project, the full fee is services revenue. An expense in a category classified as services affects the project as follows:
  • Non-billable (the fee covers it): the expense counts as services cost, like labor. It lowers the project’s services gross profit and services gross margin. It does not change services revenue.
  • Billable (invoiced to the client on top of the fee): the expense counts as services cost, and the amount you invoice counts as services revenue instead of expenses revenue.
Expenses in every other category, such as meals or travel, keep their usual treatment: non-billable ones are expenses cost, and billable ones are expenses cost and expenses revenue.
  • For example, a $100K Fixed Fee project has a $10K non-billable expense in Outsourced Labor and $40K of labor cost. Services revenue is $100K, services cost is $50K, and the services gross margin is 50%.

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Effective bill rate

The effective bill rate is services revenue divided by the hours worked. Billable expenses in a category classified as services are left out of that revenue, because no hours your team worked earned it. Non-billable outsourced labor does not lower the rate either. In the example above, if your team worked 500 hours, the effective bill rate is $200 ($100K divided by 500 hours).

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Budgeting

The Services Revenue budget is the full fee. Budget the outsourced labor as a non-billable expense in its category, and set the services cost or services gross margin of the budget so that it covers the outsourced work as well as your team’s labor. In the example above, the Services Revenue budget is $100K, the non-billable expenses budget is $10K, and the Financial Budget Summary shows the $10K under services cost. The total Revenue budget is $100K. Billable expenses are budgeted as usual and add to the total Revenue budget, because they are invoiced on top of the fee.

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Revenue recognition

A Fixed Fee project that recognizes revenue by percentage of services cost counts non-billable outsourced labor toward its progress, so the fee is recognized as the outsourced work is done, not only as your team’s labor is incurred. The other revenue recognition methods measure progress by hours or by time and materials revenue and are not affected.

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Reports

Performance by Project shows outsourced labor in services cost. Performance by Member and Performance by Member and Practice attribute each project’s outsourced labor cost to its members the same way they attribute its services revenue, so the members’ profit and margin add up to the project’s.
Legacy projects: Some Fixed Fee and Fixed Monthly projects still use the legacy treatment of non-billable expenses, where outsourced labor is not services cost. See Legacy non-billable expenses on Fixed Fee projects.