How do you check contract value against realised revenue?

You check contract value against realised revenue by building an expected revenue schedule for each contract, meaning what should have been invoiced per month or quarter, and comparing it cumulatively with what has actually been invoiced. A contract worth EUR 180,000 over three years should have produced roughly EUR 90,000 after eighteen months, plus indexation. If you are well below that, something is wrong: invoicing that stopped, a minimum commitment that was not invoiced, a termination without a termination fee, or a customer scaling back what they buy. The difference between those causes determines what you do about it.

Why checking invoices alone is not enough

A check per invoice tells you whether each invoice is correct. It does not tell you whether there have been enough invoices. A contract can produce correct invoices for years and still fall well short of its value: because invoicing stopped for a few months, because a phase never started, or because the customer consistently buys less than was planned.

That is why this check complements checking that contracts are billed correctly. That check looks at the accuracy of each line. This one looks at the total over the term. Together they cover the two questions that matter: is what we invoice correct, and do we invoice everything the contract promises?

Committed and expected contract value

Before you compare, you need to know what kind of value a contract represents. There are two kinds, and the difference is essential.

Committed value. The customer has committed to an amount or volume. A fixed monthly amount over three years, a minimum annual volume, a project price. If realised revenue falls short of this without the contract being amended, you are entitled to the difference. A gap here is a possible leak.

Expected value. The customer has no obligation, but an estimate has been made. A framework agreement with an expected volume, a contract with rates but no purchase commitment, a deal in the CRM with an estimated annual value. If realised revenue falls short, you are not entitled to the difference. But the gap is still information: the customer is buying less from you than expected, and that may mean they are buying elsewhere.

In practice both kinds sit side by side in the CRM, with no distinction. So record for each contract which part is committed and which part is expected.

Step by step

1. Select the contracts. All running contracts with a term of more than a year, plus contracts that ended in the past twelve months.
2. Record the value per contract. Total contract value, term, committed part, expected part, indexation, invoicing schedule.
3. Build an expected revenue schedule. Spread the value over the term according to the invoicing schedule. A fixed monthly amount is simple. A project contract with milestones follows the planning of those milestones. Include indexation from its effective date.
4. Pull the realised revenue. All invoices belonging to the contract up to today, excluding VAT and net of credit notes.
5. Compare cumulatively. Expected to date against realised to date. Calculate the difference in euros and as a percentage.
6. Flag contracts with a significant difference. For example more than 10 percent or more than EUR 5,000 behind schedule.
7. Find the cause for each flagged contract. Use the list below.

What causes a gap?

The first four are direct leaks. For expired or prematurely terminated contracts it depends on what the contract says about termination. The last three are not leaks, but they do require action: a revised plan, a conversation with the customer or a recorded contract amendment.

A framework agreement under which the customer buys less and less deserves particular attention. Nothing has been invoiced incorrectly, but the customer may be switching supplier. How to spot those customers early is covered in how to spot customers who are quietly buying less.

Worked example

Worked example: suppose a cleaning company checks five contracts that have all been running for eighteen months. Each contract has a fixed monthly amount and indexation of 3 percent after twelve months.

The expected amount is twelve months at the base amount plus six months at the indexed amount. For contract C, three months of invoicing are missing and indexation was not applied. For contract D, the customer agreed verbally to have fewer rooms cleaned, without a contract amendment. That is not a leak, but it is a contract that no longer matches reality.

Direct leakage: EUR 990 + EUR 38,160 + EUR 1,170 = EUR 40,320 over eighteen months. Contract D needs a contract amendment, so that the gap does not keep reappearing as a deviation in future.

What else this check tells you

Comparing contract value with realised revenue is also a reality check on your CRM. If the CRM says you have EUR 3 million in running contract value and realised revenue from those contracts is consistently 15 percent lower, your CRM is too optimistic. That has consequences for your forecast, your budget and how you value your customer portfolio.

For companies with subscriptions or recurring contracts, this check is also a way to track down errors in recurring invoicing. A fuller approach is in how to find errors in recurring revenue. And for the broader framework of where to look in your revenue chain, see how to find revenue leakage in a business.

Quarterly checklist

• Does every running contract have an expected revenue schedule?
• Is it recorded for each contract which part is committed and which part is expected?
• Is any contract more than 10 percent behind schedule?
• Are there months with no invoice on a running contract?
• Is indexation included in the expected amount and in the invoicing?
• Is a minimum commitment invoiced when the customer falls below it?
• Have verbal scope changes been recorded as contract amendments?

Frequently asked questions

How is this different from an ordinary invoice check?

An invoice check looks at whether each invoice is correct. This check looks at whether the total of all invoices matches what the contract promised. A contract can have correct invoices and still be well behind, for example because months were skipped.

Am I entitled to the difference if a customer buys less?

Only if the contract contains an obligation, such as a fixed amount or a minimum commitment. Under a framework agreement with no obligation, lower volumes are not a leak, but they are a signal that you need to talk to the customer.

How often should I check this?

Quarterly is enough for most companies. For contracts with high monthly amounts, monthly is better, because a missed month quickly becomes a large amount.

Can I do this check without a contract register?

You can, but it takes much more time, because you have to extract the terms from the document for each contract. This check is often what prompts a company to set up a contract register.