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As the saying goes, the best things come in threes. Turns out Teamwork.com couldn't agree more and we’re thrilled to now offer three different budget types: Time and materials, Retainer … and Fixed fee!
Perfect for teams that complete project-based work on a set-fee, our new Fixed fee budget offers financial stability, profit margin tracking, and revenue transparency.
Intro to fixed fee
Regardless of how much time is spent on the work, in a fixed fee budget the agreed-upon amount with the client remains true throughout the duration of the project. It’s the ultimate in controlled budgeting as you know exactly how much you will be bringing in. Guardrails are in place to ensure no extra pennies are grabbed since the price of work has been agreed up front.
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The Fixed fee budget can also be set to repeat to help effectively plan and prepare for upcoming budget cycles. And don’t forget to set-up those handy budget threshold notifications, so you’re proactively in the know about how your budget is progressing.
Stronger profitability facilitating
You heard that right—the new Fixed fee budget allows you to set a target profit margin so you can benchmark against it and always know how your profitability is tracking. Whether you choose a target % or $, monitor this throughout the project to land in the sweet spot of profitability - as defined by you.
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The budget overview graph will now include three lines (we love this number):
The solid blue line tracks your actual “Costs” (time logs and other expenses)
The dotted red line represents “Total budget” (the agreed-upon fixed fee that you’ll invoice the client for)
The dotted blue line represents “Target costs” (where you want to be at the end of the project)
Assume the project has ended. If your cost line ends under the “Target” line, you make more than your profit target. If your cost line ends on the “Target” line, you’ve hit your target profit margin. If your cost line ends in between the “Target” and “Total budget” line, you’re still profitable, but less than your target. And lastly, if your cost line ends above the “Total budget” line, you’ve lost money on this project.
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Cost tracking transparency
A fixed fee budget is simple on one hand, since you always know the amount of money you'll be bringing in. However, on the other hand, don’t ignorantly turn a blind eye to how much the work is costing you! To ensure you stay efficient with your internal spend, it’s imperative that your team members have a cost rate (the hourly rate you pay your employee).
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Cost rates are heavily identified throughout the Fixed fee budget, so that with every time log, your costs are naturally rising and there’s no surprises. Having cost rates in place will ensure you understand the value of your team’s work and impact it has on the profitability potential of the project.
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