Annual Contract Value and Revenue Measurement

The FDE motion depends on putting skilled engineers inside a customer's organization. Those engineers are expensive, and their cost has to be paid for by the revenue a customer generates each year. That makes a practical question unavoidable: how large does a customer's annual revenue have to be before the motion can work at all? The source answers this with a single threshold, which it calls the contract-size floor.

In this article you will follow a contract value step by step through the viability check. You will see where the value sits relative to the floor, how the cost of embedded labor is weighed against it, and what verdict the check produces. Keep the question in mind as you read: does this contract's annual revenue carry the cost of the engineers placed inside it?

Imagine every possible annual contract value laid out along a line from small to large. The contract-size floor is a single marker on that line, placed by the source at roughly $100,000 of annual contract value. Every contract falls either below the marker or at and above it. Your first job when assessing a contract is to find its position relative to that marker.

Read the diagram from left to right. Values to the left of the marker fall below the floor, and values to the right reach or exceed it. The example values in the diagram are illustrative; the source gives only the approximate position of the marker itself.

A helpful way to picture the floor is as a break-even line. On one side, the contract brings in enough annual revenue to carry the cost of embedded FDE labor. On the other side, the labor costs more than the contract can support. The floor is the point where those two quantities meet. Because the source calls the figure a rough planning number, treat it as a place to start judging a contract, not as a sharp cutoff.

The floor is best understood as a lower limit. It tells you the smallest annual contract value at which the motion can plausibly work. It does not tell you that a contract above the floor is a good one, only that it has cleared the first screen.

Now trace the check itself. Every contract begins with the same question about annual contract value. The answer decides which of two branches the contract follows. Each branch ends in a verdict, and the two verdicts are different in kind: one sends the contract onward to fuller review, and the other concludes that the motion is not viable for it.

The floor is a shortcut for a larger comparison. The embedded FDE labor cost sits on one side, and the annual contract value sits on the other. The contract has to generate enough annual revenue to cover that labor. Whatever remains after labor is paid is what the contract contributes to the business. When labor costs more than the contract can support, the motion is dilutive.

Read the comparison as a subtraction in words: start with annual contract value, then take away the cost of the embedded engineers. A positive remainder means the contract covers its labor. A remainder that is negative or too small to matter means the contract cannot carry the motion. The source does not give a formula for this remainder, so use the comparison as a way of thinking about the question rather than a precise calculation.