Revenue Management: #4 What if there are uncertainties in project or service delivery?

Revenue Management: #4 What if there are uncertainties in project or service delivery?

Our previous post taught us how Zoho Billing makes life easy for businesses with its automated revenue recognition rule. However, certain businesses have more challenges that an automated system cannot handle, and there are certain situations where automated revenue recognition is not feasible. For example, construction services paid in advance but with uncertain start dates can make the revenue recognition rule look inappropriate. Some manual interventions are needed to handle this scenario.

Manual revenue recognition
in Zoho Billing helps you handle these uncertainties. It is used when the timing and amount of revenue cannot be determined accurately through automated rules. This is common in industries such as construction, where project completion is tied to milestones that may occur at irregular intervals.


Example 1:

Imagine a construction firm signs a $50,000 contract to renovate a commercial building. The client pays the entire amount upfront, but the agreement specifies that the revenue will be recognized only as key project stages are completed. Each milestone carries a defined value or percentage of the total contact, say,

  • Design & Approval Phase: $5000

  • Demolition & Site Preparation: 30% of the total contract value

  • Structural & Roofing Work: 40% of the total contract value

  • Interiors & Handover: 100% of the remaining

Milestone

Recognition

Completion Date

Amount Recognized

Design & Approval

Fixed Cost

12/Jan/2025

$5000

Demolition & Site Preparation

30% of the total contract

20/Feb/2025

$15,000

Structural & Roofing Work

40% of the total contract

25/Apr/2025

$20,000

Interior & Handover

100% of the balance

30/Jun/2025

$10,000

Total Revenue Recognized= $50,000


The company ensures that its financial statement accurately reflects real project progress by only reporting revenue when each phase is completed, rather than relying on an automated schedule that may not match the actual work done.

If you look at the revenue recognition report, it will show up like this,


i) Recognized Revenue Report

At the end of the project,

Month

Recognized Revenue

Jan 2025

$5000

Feb 2025

$15,000

Mar 2025

$0

Apr 2025

$20,000

May 2025

$0

Jun 2025

$10,000

Total Recognized

$50,000

 

ii) Deferred Revenue Report

As the project progresses, deferred value gets recognized.

Month

Deferred Revenue

Jan 2025

$45,000

Feb 2025

$30,000

Mar 2025

$30,000

Apr 2025

$10,000

May 2025

$10,000

Jun 2025

$0

 

iii) Revenue Waterfall Report

Billing Date

Total Billed

Jan 2025

Feb 2025

Mar 2025

Apr 2025

May 2025

Jun 2025

Recognized Revenue

Deferred Revenue

Jan 2025

$50,000

$5,000

$15,000

$0

$20,000

$0

$10,000

$50,000

$0

 

The project owner ensures that revenue is recorded accurately only after each milestone is completed, and this is done manually without any specific frequency.


Example 2:

A software consulting firm signs a $120,000 contract to implement an in-house ERP solution with a client. The client pays the amount upfront, but the project involves phases that don't follow uniform timelines/deadlines.

The defined timelines are,

  • Requirement Analysis & Resource Planning: $10,000

  • System Customization: 25% of the total contract

  • Testing & QA: 35% of total contract

  • Deployment & Support: Remaining contract value

 

Milestone

Recognition

Completion Date

Amount Recognized

Requirement Analysis & Planning

Fixed Cost

15/Jan/2025

$10,000

System Customization

25% of the contract value

10/Mar/2025

$30,000

Testing & QA

35% of the contact value

25/May/2025

$42,000

Deployment & Support

100% of the balance

30/Jul/2025

$38,000

Total Revenue Recognized= $120,000

 

When you look at the revenue recognition report for this software deployment, it will show up as follows,


i) Recognized Revenue Report

At the end of the deployment,

Month

Recognized Revenue

Jan 2025

$10,000

Feb 2025

$0

Mar 2025

$30,000

Apr 2025

$0

May 2025

$42,000

Jun 2025

$0

Jul 2025

$38,000

Total Recognized

$120,000

 

ii) Deferred Revenue Report

As the development progresses, deferred value gets recognized.

Month

Deferred Revenue

Jan 2025

$110,000

Feb 2025

$110,000

Mar 2025

$80,000

Apr 2025

$0

May 2025

$38,000

Jun 2025

$38,000

Jul 2025

$0

 

iii) Revenue Waterfall Report

Billing Date

Total Billed

Jan 2025

Feb 2025

Mar 2025

Apr 2025

May 2025

Jun 2025

Jul 2025

Recognized Revenue

Deferred Revenue

Jan 2025

$120,000

$10,000

$0

$30,000

$0

$42,000

$0

$38,000

$120,000

$0

 

Manual revenue recognition is critical when automated rules don't serve the purpose. As we saw through construction and IT consulting examples, Zoho Billing allows businesses to recognize revenue at the right amount and time, ensuring financial statements remain aligned with real project progress.


While we learn the manual recognition process, we will explore these specific industry types in future posts and provide a detailed walk-through of how these businesses record their earnings.

Our next post will start with the SaaS industry, where revenue recognition follows a very different pattern. Unlike milestone-based revenue recognition, SaaS depends more on a recurring billing cycle.

Stay tuned as we explore revenue recognition for SaaS businesses in a few days. 
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