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.
  

  

Up Next: Revenue recognition for Construction & Real Estate Industry

• Topic Participants

• Hari | Zoho Billing

  

• 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's

• Community 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 you

• Community 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 most

• Introducing: 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

• hiding a topic from all but one segment (or list)

  My organization sends out a number of newsletters using Zoho Campaigns. One of those newsletters is for volunteers. In order to become a volunteer, a person has to first go through our volunteer orientation (training). After that, they can receive newsletters

• How do I set up this automation correctly?

  When contacts enter my Subscribers list, I want it to reference a custom field to see if it is empty. Then I want it to do two things: If empty: Assign a tag based on a different custom field. If that custom field is empty, assign a different tag. If

• Custom confirmation message

  How can I change the message that users see after they submit the booking form? I have to confirm some details before their appointment is officially "confirmed", so I want to change it where it doesn't say their appointment is "confirmed" but rather

• Zoho API connection issues

  Hi, Today at around 1930 GMT our application started experiencing intermittent timeouts from the Zoho API. These intermittent timeouts are not enabling our app to work properly. The API connection was working just fine before. HTTPSConnectionPool(host='www.zohoapis.com',

• Has anyone integrated SMS well for Zoho Desk?

  Our company does property management and needs to be able to handle inbound sms messages which create a ticket for Zoho Desk. We then need to be able to reply back from Zoho desk which sends the user an sms message. This seems like a fairly common thing

• Zoho Desk: Ticket Owner Agents vs Teams

  Hi Zoho, We would like to explore the possibility of hiding the ‘Agents’ section within the Ticket Owner dropdown, so that we can fully utilise the ‘Teams’ dropdown when assigning tickets. This request comes from the fact that only certain agents and

• Desk x CRM Integration

  Howdy! We currently use SalesIQ but we are considering moving across to Desk as it seems to have more functionality that we want. One of the pulls is the ability for our customers to self serve. But, I might be getting over excited and not actually need

• Client Script refuses to set an initial value in Subform field

  I tried a very simple, 1 line client script to set a default value in a custom subform field when the "Add Row" button is clicked and the user is entering data. It does not work - can someone tell me why? ZDK documentation suggests this should be doable.

• Issue with Save & Share Link – Works for Others but Not Creator

  I’ve enabled the "Save and Share" feature in Zoho Forms, and it works correctly for all users accessing the public link—except for me (the form creator). Issue Details: When I save and share the link, recipients see a “no permission” error. The form is

• Save the pdf report from a registration form in a Folder

  Through Zoho Forms I created a registration form with quite a lot of rules to handle different variables (TEAM types, payment in installments, etc.), and the result is pretty good. The automatic PDF that is sent to the respondent upon submission is already

• zoho forms integration to zoho work drive

  Scenario: A user fills out a Zoho Form, entering details such as email, mobile number, and other required information, and uploads supporting documents like PAN, Aadhaar, etc. Upon submission, the data is available in Zoho Forms Reports. Requirement:

• Zoho Forms to Zoho CRM Integration failed - can I restart it?

  The integration of Zoho Form to Zoho CRM has failed. Is there a way for me to restart it for the impacted entry?

• insert an equation, but in document, it shows an image not available.

  I'm new to Zoho writer and used Zoho writer in desktop app version . When I inserted an equation, I got an image not available sign. Any help is appreciated. Thanks, Charles

• Integración Books para cumplir la ley Crea y Crece y Ley Antifraude (VeriFactu)

  Hola: En principio, en julio de 2025, entra en vigor la ley Crea y Crece y Ley Antifraude (VeriFactu). ¿Sabéis si Zoho va a cumplir con la ley para cumplir con la facturación electrónica conectada a Hacienda? Gracias

• Zoho Desk Android app update - Swipe action customization

  Hello everyone! We have brought in support for the swipe action customization in latest version(v2.9.13) of the Zoho Desk Android app update, enabling you to configure left and right swipe gestures on tickets to carry out the actions swiftly without opening

• Import KB template OR Export template for zoho desk?

  Greetings. Can you tell me if there is a way to get an EXPORT of my KB articles? OR is there a template you supply for importing KB articles into my zoho desk? I am looking for a method of understanding what fields can be imported, and what their possible

• XML format to import knowledgebase into Zoho Desk

  Hi, We just started to use Zoho Desk and want to import our knowledgebase from our old support system (Freshdesk) to Zoho Desk. Can anyone give us information about the format of xml file to import? There is no explanation on the related page.

• Zoho Desk integration with Power BI

  Hi, I want to be able to create a Power BI report which has live updates of ticket data from zoho desk, is this possile at all? Thanks Jack

• Enhanced data export features: XLSX format, custom character encoding, and selective record export

  Greetings all, Here are a few enhancements related to exporting CRM data, including the ability to export data in XLSX file format now. The Export feature under Data Administration now offers new options that expand its flexibility and enable users to

• Arranging Ticket Templates

  Is there any way to arrange our ticket templates? It doesn't look very organised when it's just arranged according to when they were created. We want the list to look more organised, by arranging/grouping them by topics, or even just by alphabetical

• New Mandatory One-Click Unsubscribe Link Overshadowing Custom Unsubscribe Link

  I was recently informed by Zoho CRM Support that they are now mandated by the large email service providers like Google and Yahoo to provide a one-click unsubscribe option in the header (not the body) of all mass emails. I have a custom unsubscribe link

• What they mean with "Portal"?

  I just downloaded this app to take my personal notes on digital art studio because it seemed to me the most comfortable app to do it, I use it very often, what do they mean by “no activity on your portal”? I have about 1 year of work here and I don't

• Inactive User Auto Response

  We use Zoho One, and we have a couple employees that are no longer with us, but people are still attempting to email them. I'd like an autoresponder to let them no the person is no longer here, and how they can reach us going forward. I saw a similar

• favorites no longer listed

  Hello, I can no longer navigate to my Favorites from the pulldown at the top of my grid view (see attached screenshot). I wasn't able to find it anywhere! Please help me display my Favorites. Thank you!

• Notecards Disappeared

  Got a new phone. Downloaded and signed in Zoho Notebook. Not finding the Note cards. Just Empty Note books. Frustrating.

• Zoho Assist not rendering NinjaTrader chart properly

  Hi everyone. Just installed and testing Zoho Assist. I want to display my laptop' screen (Windows 11) on a monitor connected to my Mac mini. The laptop is running a stock trading program called NinjaTrader. Basically, when running, this program displays

• Aggregating the First Value in the Group By of a dataset

  Hi I am trying to get the following Aggregate Formula to work in my chart, but cannot seem to get the right format. I have a series of data that I am running an include_groupby and want to SUM only a column in the first row of each group. So for example.

• Problem with reports due to "Connected" items change - Yes this IS a problem

  Now that the change has been made to use "connected" items I can no longer run the reporting I need in CRM. I should be able to start with Deals as the parent, connect down to the Account (Account_Name) on the deal as the child, then to any child items

• Attach Files to Your Notecards and share them on the go!

  Hey everyone! We’re excited to share a feature many of you have been asking for — you can now attach files directly to your text notecards and share with ease! 🙌 This update was built with your feedback in mind, especially for those who wanted a simple

• Problem for EU users connecting Zoho CRM through Google Ads for Enhanced conversions

  Has anyone else experienced this problem when trying to connect Zoho CRM through Google Ads interface to setup enhanced conversions? Did you guys get it fixed somehow? The Problem: The current Google Ads integration is hardcoded to use Zoho's US authentication

• Zoho Tables instead of Zoho Creator Spreadsheet reports <3

  That would make my day for sure. Zoho Creator is create, but miss data entering as AirTable/Spreadsheet can. Seeing Zoho putting effort in this makes me think maybe one day we could see a similar interface for Zoho Creator spreadsheet reports. B.

• Empowered Custom Views: Cross-Module Criteria Now Supported in Zoho CRM

  Hello everyone, We’re excited to introduce cross-module criteria support in custom views! Custom views provide personalized perspectives on your data and that you can save for future use. You can share these views with all users or specific individuals

• Zoho Sheet - Desktop App or Offline

  Since Zoho Docs is now available as a desktop app and offline, when is a realistic ETA for Sheet to have the same functionality?I am surprised this was not laucned at the same time as Docs.

• COQL order by COUNT not working

  Dear community, I am trying to get a list of deal amounts per planner working on it and sorted to get see who has the least amount of deals. For some reason, I am unable to use sort by in combination with a COUNT. My original code was: query = "select

• I want to duplicate a report and name it something else

  Hi, I have created a report, and now want to reproduce it and call it something else. so that I will end up with TWO separate reports with different titles. Please tell me how do I copy / reproduce a report please

• Zoho CRM: Sales Rep Professional Certification Program on Coursera

  We are happy to share that we have published the Zoho Sales Representative Professional Certificate in partnership with Coursera, a leading platform for online learning and career development that offers access to courses and degrees from leading universities

• OS X Notebook quits immediately upon launch

  NoteBook for OS X (Sequoia, but also under Sonoma) always quits immediately upon launch (so I cannot use the "Attach user log" option). I've restarted my MacBook but the problem persists. If it helps, attached is a diagnostic report from Library>Log

• Can External users upload files or images to WorkDrive?

  I want to know if it is possible for someone externally through a link and PW be able to upload files and images onto WorkDrive?

• Multi-line fields character limits

  Is there a way to set the character limit higher on multi-line fields so that we are not losing information pasted into the field? When the text is entered or pasted, there is no error to say that the text is too large. After saving and going back to view most of the text is gone.   Also, when viewing the resume, the text is not wrapped in the multi line fields and can t be read without scrolling across the page.

• Created Date/Invalid Fields

  Since Saturday we have suddenly had issues with our webhooks and data retrieval from CRM. Specifically how Created Date is handled. It appears there was some sort of change within CRM that broke a lot of our code that has been in place for several years.

• Next Page