Learn about Billing types

Last updated
Save as PDF

When a client signs a billing contract with your company, the pricing model set for the billing contract determines how revenue is forecasted and recognized. The main models supported in AdaptiveWork are fixed-price, time & materials, and milestone.

Revenue forecasting is a process of estimating the future revenue of a company.
Revenue recognition is an aspect of accrual accounting that stipulates when and how businesses “recognize” or record their revenue.

The Billing type set at the Project level defines which Pricing model is applied to the Work Items so that your Revenue is forecasted and recognized according to your billing model when aggregated into work item. When using the accurate billing model, you can accurately forecast monthly, quarterly, and yearly revenue. This allows Finance and Delivery teams to track the split of planned and actual revenues and drive insights into which types of customer contract is the most profitable.

Financial Managers and Controllers can use the financial planning panel to view Budget Revenue, Expected Revenue, and Actual Revenue time phased data aggregated into work item. The Billing Type is set at the Project level and controls how Revenue time phased data is forecasted and recognized when aggregated into work item. Revenue Time-phased (month/quarter/year) data is consistent across the application in Financial Planning, aggregated work item financial data, and financial Reports.

Billing Type	Description
Fixed Price (also known as “Fixed Fee”)	The Fixed Price model is a model that guarantees a fixed budget for the project, regardless of the time and expense. The main advantage of a fixed price model is that it allows you to plan and set an exact budget. A fixed-price contract is based on an estimate of the amount of work that needs to be done. In this model, it’s important to discuss everything before the actual development in order to estimate the cost of the project. The fixed-price model ensures that a project is done and delivered within a specific timeframe and budget. Benefits Finalized pricing: Your expected revenues are planned in advance for the completion of the work and do not change even if actual efforts exceed the agreed plan, unless you have agreed on the price change. Strict deadlines: The Project is delivered based on the agreed timeline. Considerations Rigid terms. After the projects starts, it cannot be adjusted during the course of implementation. If unplanned costs or conditions change the planned dates, it has to be negotiated independently. Long planning. A fixed-price contract demands in-depth planning.
Fixed Price Milestones (also know as “Milestone Method”)	With Fixed Price Milestone pricing, the client is billed when you have delivered a specific scope of work over a certain period of time, achieving a predefined milestone. At that point, the client needs to pay an amount that depends on the time spent to complete the given milestone. Benefits Paying on completion of Milestones. Your expected revenues are planned in advance with the completion of certain pre-agreed milestones. Strict deadlines: Pre-agreed Milestones are delivered based on the agreed timeline. Considerations No fixed price. Each Milestone may cost a different amount as different amounts of time were spent to complete them. The client will pay the total amount approved for each milestone. No rigid timeframe. Since planning and project execution is iterative, there’s no specific timeframe for when the project will be completed. The agreement is on the delivery of pre-agreed milestone scope, not on timeline.
Time and Materials (also known as “T&M”)	The Time & Materials model involves regularly paying for work completed. It means that your expected revenues are incrementally earned with the performance of work, even if work packages were not completed. With this model, the client carries higher risks for the delivery of the project than with Fixed Price or Fixed Price Milestone projects. The customer is billed for the actual time for the Work item to be completed. Benefits Flexible timeline. Accuracy. real-time project plans are the optimal way to monitor accurate monthly, quarterly and yearly revenue projections based on in-flight and pipeline projects. Considerations Uncertain deadlines. Any adjustments to the project can postpone the final delivery and the project can become overdue. Undefined budget. The price is approximate, so the client doesn’t know for sure how much money they’ll spend since the timeframe for designing and implementing features is flexible.
Mixed	This Pricing model is set by default in the application and allows you to define different Billing types for Work Items. For example, a Mixed project can include sub projects, some are T&M and some are Fixed Price.
Capped Times and Materials (also known as Capped T&M)	Capped Time and Materials (T&M) contract is a hybrid billing arrangement that combines elements of both T&M and fixed-price contracts. In this model, the client agrees to pay the contractor based on the actual time spent and materials used, but with an agreed-upon maximum limit or "cap" on the total cost.his cap ensures that the project does not exceed a specified budget, providing financial protection for the client. Benefits: Adaptability: Suitable for projects where the scope is not fully defined or is expected to evolve over time. Risk Mitigation: The cost cap protects clients from unexpected budget overruns, while contractors are assured payment for documented work up to the cap. Considerations: Scope Definition: While flexibility is a benefit, it's essential to have a clear understanding of project objectives to prevent scope creep. Monitoring: Regular tracking of incurred costs is crucial to ensure they align with the project's progress and stay within the agreed-upon cap. Capped T&M contracts are particularly beneficial in industries like construction and software development, where project requirements may change, but budget constraints are a priority. By setting a maximum cost limit, both clients and contractors can manage expectations and responsibilities more effectively.

Billing Type

Description

Fixed Price

(also known as “Fixed Fee”)

The Fixed Price model is a model that guarantees a fixed budget for the project, regardless of the time and expense. The main advantage of a fixed price model is that it allows you to plan and set an exact budget. A fixed-price contract is based on an estimate of the amount of work that needs to be done. In this model, it’s important to discuss everything before the actual development in order to estimate the cost of the project. The fixed-price model ensures that a project is done and delivered within a specific timeframe and budget.

Benefits

Finalized pricing: Your expected revenues are planned in advance for the completion of the work and do not change even if actual efforts exceed the agreed plan, unless you have agreed on the price change.
Strict deadlines: The Project is delivered based on the agreed timeline.

Considerations

Rigid terms. After the projects starts, it cannot be adjusted during the course of implementation. If unplanned costs or conditions change the planned dates, it has to be negotiated independently.
Long planning. A fixed-price contract demands in-depth planning.

Fixed Price Milestones

(also know as “Milestone Method”)

With Fixed Price Milestone pricing, the client is billed when you have delivered a specific scope of work over a certain period of time, achieving a predefined milestone. At that point, the client needs to pay an amount that depends on the time spent to complete the given milestone.

Benefits

Paying on completion of Milestones. Your expected revenues are planned in advance with the completion of certain pre-agreed milestones.
Strict deadlines: Pre-agreed Milestones are delivered based on the agreed timeline.

Considerations

No fixed price. Each Milestone may cost a different amount as different amounts of time were spent to complete them. The client will pay the total amount approved for each milestone.
No rigid timeframe. Since planning and project execution is iterative, there’s no specific timeframe for when the project will be completed. The agreement is on the delivery of pre-agreed milestone scope, not on timeline.

Time and Materials

(also known as “T&M”)

The Time & Materials model involves regularly paying for work completed. It means that your expected revenues are incrementally earned with the performance of work, even if work packages were not completed.

With this model, the client carries higher risks for the delivery of the project than with Fixed Price or Fixed Price Milestone projects. The customer is billed for the actual time for the Work item to be completed.

Benefits

Flexible timeline.
Accuracy. real-time project plans are the optimal way to monitor accurate monthly, quarterly and yearly revenue projections based on in-flight and pipeline projects.

Considerations

Uncertain deadlines. Any adjustments to the project can postpone the final delivery and the project can become overdue.
Undefined budget. The price is approximate, so the client doesn’t know for sure how much money they’ll spend since the timeframe for designing and implementing features is flexible.

Mixed

This Pricing model is set by default in the application and allows you to define different Billing types for Work Items. For example, a Mixed project can include sub projects, some are T&M and some are Fixed Price.

Capped Times and Materials

(also known as Capped T&M)

Capped Time and Materials (T&M) contract is a hybrid billing arrangement that combines elements of both T&M and fixed-price contracts. In this model, the client agrees to pay the contractor based on the actual time spent and materials used, but with an agreed-upon maximum limit or "cap" on the total cost.his cap ensures that the project does not exceed a specified budget, providing financial protection for the client.

Benefits:

Adaptability: Suitable for projects where the scope is not fully defined or is expected to evolve over time.
Risk Mitigation: The cost cap protects clients from unexpected budget overruns, while contractors are assured payment for documented work up to the cap.

Considerations:

Scope Definition: While flexibility is a benefit, it's essential to have a clear understanding of project objectives to prevent scope creep.
Monitoring: Regular tracking of incurred costs is crucial to ensure they align with the project's progress and stay within the agreed-upon cap.

Capped T&M contracts are particularly beneficial in industries like construction and software development, where project requirements may change, but budget constraints are a priority. By setting a maximum cost limit, both clients and contractors can manage expectations and responsibilities more effectively.