Overview

Understanding how the different Financial Models work is vital to selecting the Model that fits best for each Offering within your Project.  While we've already broken down what the different Models are here, we wanted to dig a little deeper to break down the differences and similarities with our two easiest-to-confuse Models: Fixed Bid and Retainer. 

How are they similar?

The biggest similarity between Bids and Retainers is that they both work backwards from static Revenue to calculate a Bill Rate based on Hours.  The core formula of (Revenue / Hours = Bill Rate) is the same for both Models, they're just applied differently.

In both cases, you set your Service Revenue on the Financial Settings page prior to starting the Project (moving it to In Progress Status), and in both cases, you can either manually set that Service Revenue or you can use a Rate Card to auto-populate that Revenue by applying a Rate Card to Hours you've already shaped.

Lastly, in both cases once the Project is In Progress, you can manually change the Service Revenue and the Hours, but you cannot manually change the Bill Rate, because they calculated automatically from Revenue/Hours.*

*What if there are no Hours?

How are they different?

The two differences between Fixed Bid and Retainers are how the Service Revenue is split out and how revenue is recorded in Insights - Revenue - Overview.

Service Revenue Splitting:

• Fixed Bid Projects divide Total Revenue by Total Hours to get a single Bill Rate.  We call this the Blended Rate, and it applies to every hour of the Project.  While the Bill Rate can change over time based on the number of hours, that Rate will change for the entire project.
  • In Financial Settings, you'll see a Blended Rate column telling you the Bill Rate that is applied to every hour.
• Retainer Projects divide Monthly/Weekly Revenue by Monthly/Weekly Hours to get a different Rate for each Month/Week.  When you select a Retainer Project in Financial Settings you will choose either a weekly or monthly.  Whichever you choose Parallax will add up the Service Revenue attributed to each period and calculate a different Bill Rate that applies only to that period.
  • In Financial Settings, you will not see a Blended Rate, because each week or month will have a different Bill Rate.

Since Retainer Projects split Revenue out by week or month, the date which Service Revenue is attributed matters, whereas in Fixed Bid Projects it does not (since it's spread across the whole Project).  As an extremely simplified:

Offering A runs from June 3, 2024 - June 28, 2024 (4 weeks).  The Hours for each week are 8 hours (week 1), 2 hours (week 2), 5 hours (week 3), 5 hours (week 4), for a total of 20 hours. 

The Service Revenue for Offering A is with Service Revenue of $2000.  It is split (in Costs and Revenue) as $500 each week.

• If Offering A is Fixed Bid:
  • The Offering will have a Blended Rate.
  • That Blended Rate will be calculated as ($2000 / 20h = $100 per Hour).
• If Offering A is a Weekly Fixed Retainer:
  • The Offering will not have a Blended Rate, each Week will have a separate Bill Rate.
  • Those Rates will be calculated as:
    • Week 1: $500 / 8h = $62.50 per Hour.
    • Week 2: $500 / 2h = $250.00 per Hour.
    • Week 3: $500 / 5h = $100.00 per Hour.
    • Week 4: $500 / 5h = $100.00 per Hour.

Insights - Revenue - Overview:

The other difference between Fixed Bid and Fixed Retainer models is how revenue is recorded in the Revenue - Overview Report.

• Fixed Bid revenue for a project, although entered with Service Revenue for a specific date, proportionally distributes the revenue across the actual and planned hours for the lifecycle of the project.  This is what drives the blended rate calculation seen in the project and is used to calculate revenue attribution per period of the project in Insights.
• Fix Retainer revenue is attributed to a specific date as entered when creating Service Revenue events.  This means Insights reports on the Service Revenue record regardless of the hours attributed to the time period of the project's revenue record.

Attributing Service Revenue Correctly

If the Dates attributed to Revenue are specifically important in Retainer Projects, how do I make sure Service Revenue is attributed to the correct Week or Month?

Great question!  When you move a Project to In Progress Status, your Service Revenue is locked in and added to the Service Revenue section of the Costs and Revenue page as a single Revenue entry.  Hovering your mouse next to that Service Revenue will show a splitting icon - just click that icon and enter the number of periods you want to split it across and Parallax will evenly split your single Service Revenue Entry into weekly or monthly entries.**

**What if I don't want to distribute Service Revenue evenly?

Great question!  Each Revenue Entry can be edited manually, so once you've split Service Revenue out, you can adjust the amounts, change the dates or even remove Service Revenue Entries entirely (though keep in mind that adding/removing/changing Service Revenue Entries will affect the overall Service Revenue of the Offering).

Which Model should I use?

The best part is of these Financial Models is that they are meant to be flexible - which one makes sense for your business is totally up to you and how you bill the Client for a Project. If you expect to bill a Client quarterly, yearly or based on a sum for the Project overall, then Fixed Bid is a great option.  It allows you to see at a glance what you're charging for every hour so you can make broad adjustments to the Offering as a whole without worrying about how each week/month is going to stack up.

However, if you expect to bill Clients a static amount each week or month, and you need to be able to adjust Hours quickly to protect your margins, then Fixed Retainer is the way to go.  They're also useful for top, middle or bottom heavy Projects, allowing you to easily normalize Revenue across weeks or months with fewer hours needed.

Both are great options - if you're not sure which is going to be the better fit for a Project, feel free to reach out to your CSM for world-class advice!