Choosing a pricing model that aligns with your customer contract terms.
A Project’s Pricing Model defines how your organization earns the fees associated with a project. Setting the Pricing Model also enables additional important functions within your Project—for example, selecting a “Time & Expense” pricing model enables the ability to assign an Hourly Bill Rate for each assigned Team Member on a project.
NOTE: The Pricing Model cannot be changed once you have issued an invoice for the project.
From an accounting perspective, a project’s Pricing Model is independent of the project’s billing terms (invoicing terms). The Pricing Model defines how your fees are earned, whereas the invoicing terms define the schedule of when you invoice your customer.
Pricing Models explained:
- Time and Expense
- Project contract value is based on hours at defined rates, either by role or by person. Expenses (if authorized) are passed through at no mark-up. Each Team Member is assigned to the project with an hourly Billable Rate. Contracts of this nature generally do not have a defined Total Project Fee, and we treat Total Project Fee as an estimate only. Also referred to as a Staffing model.
- Time and Expense Not to Exceed
- Project contract value is based on hours at defined rates, either by role or by person; but there is a specific “cap” fee amount defined in the contract. Customers often use this amount to fund a purchase order (PO) or other internal mechanism and generally the contract is structured to not pay any more than this defined amount without customer approval–often memorialized as an amendment or change order to the contract. These terms often hold true even if you have performed services above this “cap” amount.
- Fixed Fee
- Project contract value is fixed, regardless of effort incurred, in exchange for your organization satisfying a set of defined deliverables. Team Members assigned to this project are not assigned a Bill Rate. The fee may be earned upon the completion of defined milestones, or upon the satisfactory completion of the project.
- Flat Recurring Fee
- Project contract value is based on a defined unit rate for a recurring period of time (often monthly, quarterly, or annually). Often projects with this Pricing Model have deliverables based upon your organization’s performance obligation—frequently specified within a Service Level Agreement (SLA). Can also be described as a support contract or a subscription.
- Price Per Unit
- Project contract value is based on non-labor based quantities of service at defined rates. Examples of quantity-based services can include number of users supported, service requests fulfilled, or tasks performed.
- No Fee
- No Fee: There is no fee associated with this contract.