Revenue recognition lets you set up when and how the revenue from your jobs is recognized.
There are several factors that dictate how revenue is recognized:
1) the relevant financial item,
2) the billing type of the service,
3) the service unit, and
4) your revenue recognition settings.
We will start by explaining the financial items and their relation to revenue.
Financial items
There are four financial items that have an effect on your revenue, and this effect can come in two ways.
A financial item generates revenue if its revenue did not exist prior to the creation of that financial item. For example, creating a new Fixed service on a budget.
A financial item may also assume revenue. This occurs when revenue is generated by another financial item, and this new financial item takes over part of that older item's revenue. For example, creating a new booking on a Fixed service.
The financial items are:
Services. Only services set up as the Fixed billing type will generate revenue. This is so called surplus revenue. Services set up as Actuals do not generate revenue by themselves.
Time. Time tracked against a service on a budget will either generate (Actuals) or assume (Fixed) revenue. The exception to this are Piece services (see chapter Service configuration).
Bookings. Bookings created against a service will also either generate (Actuals) or assume (Fixed) revenue. However, note that a booking has to be in the future to generate/assume revenue. Bookings in the past have no associated revenue.
Expenses. Similarly to time and bookings, expenses tracked against a service either generate (Actuals) or assume (Fixed) revenue.
Service configuration
When setting up your services, both the billing type and the unit affects how revenue is recognized.
Service billing types
There are three service billing types in Productive. Each billing type affects revenue recognition in a different way.
Non-billable services never generate revenue, and neither do time, bookings or expenses associated with them. Simply put - you do not generate revenue with non-billable services since you do not charge them to your clients.
Actuals services do not generate revenue on their own. However, time, bookings, and expenses tracked against these services generate revenue.
Fixed services generate revenue. Time, bookings and expenses tracked against these services may assume a part of the revenue.
Service unit types
There are three unit types when setting up a service in Productive:
Hour. Time entries and bookings created against these services generate or assume revenue directly proportionate to the price set up on these services. If each hour is valued at 150 $, each hour tracked or booked generates or assumes 150 $.
Day. Nearly identical to hours. Time entries and bookings created against these services generate or assume revenue based on your settings. This is set up in Settings - General, under Person-hours. For the purposes of this article, we will treat Days as if they were Hours.
Piece. Time entries and bookings created against these services will never generate or assume revenue. However, expenses will both generate or assume revenue (based on the billing type).
Revenue recognition table
| Time & bookings | Expenses |
Actuals Hours/Days | Generate revenue | / |
Actuals Piece | Do not generate or assume revenue | Generate revenue |
Fixed Hours/Days | Assume revenue | / |
Fixed Piece | Do not generate or assume revenue | Assume revenue |
❗ Examples❗
Actuals Hours
We have an Actuals Hours service, charged at 100 $ per hour to our client. The service in and of itself does not generate any revenue. However, if we were to track 3 hours and book another 6 hours, our revenue breakdown would look like this:
Time (3 hours): 300 $
Booking (6 hours): 600 $
Service: 0 $
We cannot track expenses against this service, as it is not defined as Piece.
Actuals Piece
We have an Actuals Piece service, set up as a 1.000 $ lump sum. The service does not generate any revenue, and neither do time entries or bookings created against it. The 1.000 $ amount is merely an estimate. However, each expense tracked against this service generates revenue. So a 400 $ expense would generate 400 $ worth of revenue.
Time (3 hours): 0 $
Booking (6 hours): 0 $
Expense: 400 $
Service: 0 $
Fixed Hours/Days
We have a Fixed Hours service, charged at 100 $ per hour for a total of 10 hours. This brings the total revenue of the service to 1.000 $. The service generates these 1.000 $. However, each time entry or booking created against this service assumes revenue at a rate of 100 $ per hour. So a 3-hour time entry assumes 300 $, thus reducing the revenue of the service to 700 $. A 6-hour booking further assumes 600 $ revenue, bringing the service revenue down to 100 $.
Time (3 hours): 300 $
Booking (6 hours): 600 $
Service: 100 $ (1.000 $ - 300 $ - 600 $)
We cannot track expenses against this service.
Fixed Piece
We have a Fixed Piece service, charged as a 1.000 $ lump sum. The service generates the entire 1.000 $ worth of revenue. Time and bookings created against it do not assume any revenue. However, each expense tracked against this service assumes revenue. So a 400 $ expense would assume 400 $, thus reducing the revenue of the service to 600 $.
Time (3 hours): 0 $
Booking (6 hours): 0 $
Expense: 400 $
Service: 600 $ (1.000 $ - 400 $)
Fixed Price Revenue Recognition Models
Productive allows you to choose when the revenue from Fixed price services will be recognised - as opposed to hourly services, where revenue is always recognised at the moment of the booking, time entry or expense.
To select your desired fixed price revenue recognition method, go to Settings > Revenue Recognition:
Here you can choose between two options:
1. Revenue from fixed-price services is recognised on a single date.
If this option is chosen, bookings and time entries for Fixed Hour/Day services will never assume revenue. All of the revenue will be retained on the service itself.
2. Revenue from fixed-price services is spread across time.
If this option is chosen, bookings and time entries for Fixed Hour/Day services will assume revenue. All remaining revenue will be retained on the service itself as surplus revenue.
Additionally, both options above have several options for when the surplus revenue is recognized.
💡 A fallback options means that if the primary option is not available, a secondary option will be used. The option "End date with budget date fallback" means that revenue will be reported on the budget's end date. However, if a budget does not have an end date, it will be recognized on the budget date.