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 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:

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

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
• The Revenue Recognition Ledger