Revenue Management: #6 Revenue Recognition in Professional Services Industry
If you run a consulting firm, agency, or any service-based business, you have a situation where you have signed the contract, maybe even sent the invoice, and have received some initial payments. So, can you consider this as revenue? What if the project spans several months? What if there is a revision or unplanned scope creep in?
How do service-based businesses recognize revenue for time, materials, and milestones?
Revenue Recognition Scenarios in the Professional Services
This can happen to any service-based firm, like legal advisors, consultants, marketing agencies, and IT services providers, as they don't sell physical goods. Instead, they provide time, expertise, and deliverables with different timelines. This means, the revenue is recognized as work is performed and not when the invoices are sent. Here are some of the common scenarios that a service-based company faces:
Time & Material Billing
Many firms work on time and material contracts, where billing is based on hours logged. In contrast, fixed-fee projects promise a set scope for a lump sum. Revenue must be recognized based on the work delivered, not simply how much time has passed or been billed.
Example: A consultant bills $150/hour. If 40 hours are worked in April, $6000 is recognized for that month.
Bundled Services
Like SaaS, A contract might include onboarding, implementation and support. Each has a different timeline and must be recognized separately. Without clear performance obligations, firms risk misstating their revenue.
Example: A network provider sells routers, installs them, and provides support for a one-year period for $50,000. Here, the revenue earned by routers is recognized immediately; revenue from installation will be recognized as and when it is done. However, the revenue for support will be recognised only at the end of the year.
Milestone-Based Deliverables
Some contracts are milestone-based. Even if the client pays upfront or monthly, revenue must be recognized only when the milestone is met. This leads to uneven revenue patterns and complex tracking.
Example: A $20,000 marketing strategy contract has different stages, starting with $500 for discovery, $10,000 for planning, and $5000 at the time of delivery. Revenue aligns with each milestone.
Different Start Date
There can be cases where the client pays upfront for a project that begins after a few weeks. The revenue cannot be considered recognized until the project begins, and it will be deferred until the actual start date.
Example: $10,000 was paid in June for a project that starts in August. The revenue will have to be maintained as a liability/deferred until August.
Scope Changes & Goes for Rework
Projects often evolve with new tasks, changes in timeline, or even the entire deliverable gets changed. These contract modifications require updated revenue allocation and potentially re-recognition of previously booked revenue.
Example: A legal advisory firm signs a six-month contract for $60,000. After two months, the clients expanded the scope by adding training and doubling the reviews from the earlier contract, which required reallocating revenue for the remaining months.
Since service delivery isn't always linear, tracking obligation completion is essential. Manually doing this for a large-scale contract is going to be close to impossible.
Scenario:
A digital consultancy service signs a contract for $60,000 with a client that includes $10,000 worth of an upfront discovery workshop. Additionally, System implementation is planned for $30,000 and will take three months to complete. Technical assistance will be offered at $20,000 for six months.
Zoho Billing for Professional Service Revenue Recognition
Zoho Billing allows professional services firms to configure revenue recognition rules tailored to the contract's stages and services.
For the scenario above, the rule could be set as follows:
| For Discovery Workshop | For Implementation | For Technical Assistance |
Recognition Frequency | Once | Monthly | Monthly |
Recognition Method | Daily | Evenly Distributed | Evenly Distributed |
Recognition Time | Period Start | Period Start | Period Start |
Once configured, Zoho Billing will take care of recognizing the revenue automatically.
It recognizes $10,000 after the discovery sessions are done. For implementation, $10,000 will be recognized per month for the next three months. For technical assistance, $3,333 per month will be recognized, which sums up to $20,000 for the committed six-month period.
Reports in Zoho Billing
If you look at the Revenue Recognition reports after two months in Zoho Billing, you can find,
i) Recognized Revenue Report
Two months into the engagement, the discovery workshop is over, two months of implementation have been delivered, and two months of technical assistance have been rendered.
Component | Recognized Revenue | Description |
Discovery Workshop | $10,000 | Fully recognized |
System Implementation | $20,000 | $10,000/month for two months |
Technical Assistance | $6666 | $3333/month for two months |
Total Recognized | $36,666 | Revenue earned in two months |
ii) Deferred Revenue Report
The remaining revenue in deferred is for pending implementation and assistance services that are to be done.
Component | Deferred Amount |
System Implementation | $10,000 (one month left) |
Technical Assistance | $13,334 ($3333/month x4) |
Total Deferred | $23,334 |
iii) Revenue Waterfall Report
Month | Discovery Workshop | Implementation | Assistance | Total |
Month 1 | $10,000 | $10,000 | $3,333 | $23,333 |
Month 2 | --- | $10,000 | $3,333 | $13,333 |
Month 3 (upcoming) | --- | $10,000 | $3,333 | $13,333 |
Month 4 (upcoming) | --- | --- | $3,333 | $3,333 |
Month 5 (upcoming) | --- | --- | $3,333 | $3,333 |
Month 6 (upcoming) | --- | --- | $3,333 | $3,333 |
Best Practice for Professional Services Revenue Recognition
- Define Deliverables Clearly: Break work into explicit deliverables/obligations to know how it will be delivered.
- Match Revenue with Service Period: Use time-based or milestone-based rules depending on the service to be recognized.
- Reassess on Scope Changes: The system should be equipped to automatically understand contract changes and recognize scheduled changes when the project terms shift.
- Manual Revenue Recognition: It is best to use Manual Revenue Recognition based on completion for long-term milestone-based projects.
Topic Participants
Hari Hara Sudhan. S
Sticky Posts
Community Learning Series | Digest #5 — September 2020
Dear customers, We're happy to bring you the September edition of our #CommunityDigest! Keep track of your subscription KPIs right from your smartphone: Last month, we enhanced our Android mobile app to help our customers get daily updates on their business health. We got to know from a lot of customers that this has made their job much more easier because they no longer have to keep a reminder to manually check on the previous day's revenue or activations. If you have not downloaded it yet, here'sCommunity Learning Series | Digest #4 - August 2020
Dear customers, We hope you're staying safe and healthy. I'm happy to bring you the fourth edition of our #CommunityDigest with some brand-new updates from us. 1. Daily Business Updates (for Android users) The Zoho Subscriptions Android app has got a cool new update: You can now get a push notification to your smartphone that lets you know how many activations and cancellations have taken place, and what's the net revenue for the previous day. The best part is, you can tell the app when exactly youCommunity Learning Series | Digest #3 - July 2020
Dear customers, We hope you're staying safe and healthy. We're glad to bring you the July edition of our #CommunityDigest. New community members can view our previous newsletters here. This time, we have two major updates and three interesting topics for you: 1. Zoho Subscriptions Developer Community Since the inception of Zoho Subscriptions, our team believed that the recurring billing platform we provide should be able to offer an extensive API library that empowers businesses to automate mostIntroducing: Community Learning Series | Digest #1 - May 2020
Dear customers, We hope you are staying safe and healthy. Helping businesses manage their customer subscriptions more efficiently has always been, and always will be, our goal at Zoho Subscriptions. We strongly believe this is possible if we grow together as a community and share what we know with each other. To nurture this shared learning experience, here is our brand-new Community Learning Series! Welcome to the first edition of our digest! Each edition of our community digest includes guides
Recent Topics
kanban view for client portal
Are kanban views an option for client portals? Access to Kanban views in the client portals would solve some mobile-compliant issues I have with the UI. Kanban functions very nicely on mobile and would be a super asset for my clients and vendors as theyCredit Card Pre-Authorization with later Capture/Settlement
We really enjoy the convenience of being able to pay off a customer's invoice using our Auth.Net integration with Zoho Books. Unfortunately, we can only take advantage of this feature with a small percentage of our customers as it leaves a gaping holeZoho Cliq not working on airplanes
Hi, My team and I have been having this constant issue of cliq not working when connected to an airplane's wifi. Is there a reason for this? We have tried on different Airlines and it doesn't work on any of them. We need assistance here since we are constantlyZoho Sign 2025–2026: What's new and what's next
Hello! Every year at Zoho Sign, we work hard to make document signing and agreement execution easy for all users. This year we sat down with our head of product, Mr. Subramanian Thayumanasamy, to discuss what we delivered in 2025 and our goals for 2026.Work Orders / Bundle Requests
Zoho Inventory needs a work order / bundle request system. This record would be analogous to a purchase order in the purchasing workflow or a sales order in the sales cycle. It would be non-journaling, but it would reserve the appropriate inventory ofIzettle or Sumup Integration for Zoho Books.
The Stripe & Square clearing works great in Zoho Books. Any further integrations planned in the future for Izettle or Sumup? These card processors are very common for taking payments with a card reader.Train Zoho Answer Bot Based on Customer
Hi all, Is it currently possible to mark Help Centre articles to a specific customer, and restrict the answer bot to only use relevant information if it is either marked as "General", or tagged for the specific customer in question? We currently haveDetailed list of scoring rules in Zoho CRM
Good morning Zoho community, warm greetings The reason for my message today is that I have a problem with my CRM, which I will explain below: Our organization has scoring rules designed to rate our potential customers or leads in the application basedTrying to access records in a custom module in Zoho Desk and not having luck
I've built a custom module in Zoho Desk and am using a custom function to query the records in the module and I'm not having any luck. The only way I have found to retreive a record is by getting it by its recordID (the long zoho assigned one). The functionComposite items inside of composite items; bill of materials needed
Hi Zoho and Everyone, I am evaluating whether Zoho Inventory will work for my small business. I grow and harvest herbs and spices but also get from wholesalers. I use all these items to make herbal teas, but also sell them as individual items on my Shopify store and Etsy. I discovered the composite item bundling and am wondering if I could get some assistance since there is no bill of materials: Our herbal company's best selling tea is a sleepytime tea. Sleepytime Tea can be purchased in three weightsZOHO Books Smart Accounting Software for Travel Agency
Dear Travel partner, Contact for Travel Agency Accounting Setup & Training Vansh Travel (ZOHO Books Authorised partner) Email: info@vanshtravel.com Mo: +91 98984 95155 Please find PDF452 Mailbox delivery restricted by policy error
We have been testing Zoho desk for about a week now and have been forwarding emails in via an Exchange Online Mail flow rule without issue until yesterday. Suddenly yesterday morning we started getting the vast majority of the emails stuck in PendingSend Email reply on behalf of Agent
Hi, When using the send email reply via the API I can set the reply on behalf of the customer by using impersonatedUserId in the header of the API call. Is there a way to do this for Agents too? I need to be able to send an email reply on behalf of anSharing Tickets to a team within a department
Hi there, We have a need for one department to be able to share tickets to a specific team within a department, I'm wondering if this is possible? All the shared tickets are going into the 'Shared Tickets' view for the whole department but is there aRemoving To or CC Addresses from Desk Ticket
I was hoping i could find a way to remove unnecessary email addresses from tickets submitted via email. For example, a customer may email the support address AND others who are in the helpdesk notification group, in either the TO or CC address. This resultsDo not use isnull()
Does not always return booleans. Can also return null. Never use this function. Just use var==null instead.Organization wide Account and Contacts Visibility/Sharing Capabilities?
Has anyone figured out a way to make visibility or sharing of Accounts and Contacts to be available across the entire organization without having to have every individual user edit their Sharing permissions? For our sales folks they need to be able toIs there a way to configure dark mode for Campaigns emails that go out to customers?
I've found a lot of information on how to configure dark mode for my (The user) personal Zoho workspace and email, but is there any way to edit dark mode settings on emails that we send out to customers via campaigns? We sent out a test email the otherWhen Does WorkDrive integrate with Books?
When Does WorkDrive integrate with Books?How do I import Connected Records for a Deal?
Can you point me to an example of the CSV file that would add related records to an existing CRM Deal? I imported a Deal, then tried importing a connected record using a unique ID that references the Deal ID, but it doesn't attach it to the Deal recFSM integration with Books
Hi, I have spent a few months working with FSM and have come across a critical gap in the functionality, which I find almost shocking....either that, or I am an idiot. The lack of bi-directional sync between Books and FSM on Sales Orders/ Work OrdersHow to close an estimate ?
Hello, I have created estimates, and converted them to invoices to get 50% payment. Now I have 2 cases where the estimate stills shows status partially invoiced, however: 1. for one of them, project stopped half way, so the remaining part will never bePower up your Kiosk Studio with Real-Time Data Capture, Client Scripts & More!
Hello Everyone, We’re thrilled to announce a powerful set of enhancements to Kiosk Studio in Zoho CRM. These new updates give you more flexibility, faster record handling, and real-time data capture, making your Kiosk flows smarter and more efficientHow do you print out the invoices comments
I have some invoices where i need to print out the comments that show when reminders and etc were sent how do we print those out in Zoho Books.Unable to load a specific image
Hi I am trying to upload an svg file, which reports that there is "a problem with the file", but does not say what sort of problem. I can't find anything which says which files are supported, so it may be it does not support svg. (which would be a real shame) The file itself will open in either Firefox or Chrome without problem. For the moment I am using a png file, which does not zoom well of course. DavidWhy does the Address field show the wrong map location even with a correct Pincode?
I am noticing an issue with the Address field map in Zoho Creator. When I enter a city name that exists in multiple locations within the same state, the map sometimes points to the wrong area even if I have entered the correct Pincode. Currently, it seemsUploaded files are not included when using "Include user submitted data" in Email Notification
In Send Email notification workflow in Zoho Creator, there is an option called "Include user submitted data" which allows the email to contain all the form submission details. However, when this option is enabled, files or images uploaded through FileBooks <-> CRM synchronisation with custom Fields
Hello, We are synchronising Books Customers with CRM Accounts. In CRM Accounts I set up last year a "segments" multiselect field shown below In Books, I set up a custom multi-select field with the same value as in the CRM And set up the synchronisation inside Books. Want to synchronise the Books Segments with the CRM Segments, but the later doesn't exist, and another non-existing is there ?! First, I don't understand where the field Segmentation is coming from. Second, I set CRM Segmentation to syncCRM x WorkDrive: We're rolling out the WorkDrive-powered file storage experience for existing users
Release plan: Gradual rollout to customers without file storage add-ons, in this order: 1. Standalone CRM 2. CRM Plus and Zoho One DCs: All | Editions: All Available now for: - Standalone CRM accounts in Free and Standard editions without file storageArchive Option in Conversation View
Hello, I have a suggestion\request to add an "Archive Thread" button in conversation view of Zoho Mail. The best suggestion I have is to put an "Archive Thread" button next to the "Label Entire Thread" button in conversation view. Most users don't justOutlook/Hotmail Blocking Zoho SMTP IPs (S3150)
We are currently facing a serious deliverability issue with Zoho SMTP while sending transactional OTP emails for our production application. Emails sent to Outlook / Hotmail addresses are being rejected with the following error: 550 - 5.7.1 Unfortunately,Outlook is blocking incoming mail
Outlook is blocking all emails sent from the Zoho server. ERROR CODE :550 - 5.7.1 Unfortunately, messages from [136.143.169.51] weren't sent. Please contact your Internet service provider since part of their network is on our block list (S3150). It looksTrack Marketing Automation Campaigns in Zoho CRM
Hello, I've been searching but haven't found the exact answer to this question. I am looking to track Marketing Automation email campaigns and activities inside of Zoho CRM. Use Case: Action: Prospect Submits A Lead Form Outcomes: Prospect created inZoho Social API for generating draft posts from a third-party app ?
Hello everyone, I hope you are all well. I have a question regarding Zoho Social. I am developing an application that generates social media posts, and I would like to be able to incorporate a feature that allows saving these posts as drafts in Zoho Social.Temporarily rate limited due to IP reputation.
We have suddenly started receiving the following Mail Delivery Status Notification: Diagnostic-Code: 4.7.650 The mail server [136.143.184.12] has been temporarily rate limited due to IP reputation. For e-mail delivery information, see https://aka.ms/postmasterIncorrect Functioning of Time Logs API (Version 3)
We need to fetch the list of time logs for each task for our company internal usage. We are trying to achieve it by using the next endpoint: https://projects.zoho.com/api-docs#bulk-time-logs#get-all-project-time-logs Firstly, in the documentation theIMPORTANT: It doesn´t search for letters with portuguese characters.
Some of my articles have for example the word "vídeo". But if I search for "vídeo" it doesn´t find them. If I search for "video" it does find them. Idealy, it should find the articles either way. But if I have to choose, it would be better to find theIMPORTANT: It doens´t show full article name on search - Should add line break
When we search for articles, it doesn´t show the full name. There should be a line break so the user can see the full article name, otherwise the user can´t know if that´s the article he/she is looking for. This is very important, otherwise the user hasZoho Books - Payment Gateway - Revolut
Hi Books Team, My feature request if to include the popular platform Revolut as a payment collection option on invoices in Zoho Books. Please upvote if you are also looking for this option.Zoho Books | Product updates | January 2026
Hello users, We’ve rolled out new features and enhancements in Zoho Books. From e-filing Form 1099 directly with the IRS to corporation tax support, explore the updates designed to enhance your bookkeeping experience. E-File Form 1099 Directly With theNext Page