Revenue Management: #6 Revenue Recognition in Professional Services Industry

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.


Info
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

 

 

Idea

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.
  
    • 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

    • Need Easy Way to Update Item Prices in Bulk

      Hello Everyone, In Zoho Books, updating selling prices is taking too much time. Right now we have to either edit items one by one or do Excel export/import. It will be very useful if Zoho gives a simple option to: Select multiple items and update prices
    • Please Make Zoho CRM Cadences Flexible: Allow Inserting and Reordering Follow-Up Steps

      Sales processes are not static. We test, learn, and adapt as customers respond differently than expected. Right now, Zoho Cadences do not support inserting a new step between existing follow-ups or changing the type of an existing primary step. If I realize
    • Vendor Signatures Needed for Purchase Orders

      Hello everyone, We have a unique requirement that necessitates that Vendors & Suppliers formally acknowledge our Purchase Orders upon receipt. I was hoping that there would be an option to do so in Zoho Books, but that does not appear to be the case.
    • Is there an API to "File a Ticket" in Desk

      Hi, Is there an API to "File a Ticket" in Desk to zoho projects?
    • Critical Issue: Tickets Opened for Zoho Support via the Zoho Help Portal Were Not Processed

      Hi everyone, We want to bring to your attention a serious issue we’ve experienced with the Zoho support Help Portal. For more than a week, tickets submitted directly via the Help Portal were not being handled at all. At the same time no alert was posted
    • Tip of the Week #72– Assign thread ownership to avoid confusion.

      When teams handle a large volume of emails, managing threads becomes important to stay organized. Without a clear system, duplicate replies, missed follow-ups, or confusion over responsibilities can happen. Thread assignment solves this by designating
    • Migrate Your Notes from OneNote to Zoho Notebook Today

      Greetings Notebook Users, We’re excited to introduce a powerful new feature that lets you migrate your notes from Microsoft OneNote to Zoho Notebook—making your transition faster and more seamless than ever. ✨ What’s New One-click migration: Easily import
    • Should I Use DMARC?

      When I configure Zoho Mail's DMARC settings, it's mandatory to fill in the RUA and RUF (Aggregate notification email address*, Forensic notification email address*) addresses. When we enter an email address in these fields, we receive reports from the
    • Unarchive tickets

      How can I manually unarchive tickets?
    • Optimize your Knowledge Base for enhanced accessibility by adding alt tags for images

      Let's learn why alt tags are crucial for your articles. You can add alternative tags (alt tags) and alternative text (alt text) to the images you share on your community forums or when embedding them in articles. Alt tags refer to the HTML attribute,
    • FSM trying again

      have not linked FSM yet to the rest of out Zoho suit. It certainly looks like the apointment and service part is more manageable for our staff. The question is that our engineers multi task examples 1. deliver products to customers not fitted 2. Service
    • Feature Request: Conditional Field Mandatoriness Based on Display Status

      Hello Zoho Creator Team, I would like to suggest an enhancement to improve the flexibility of form validations. Currently, when we need a field to be mandatory only if it's displayed on the form, the only option is to: Set the field as not mandatory in
    • Data Migration Strategies for Moving to a Cloud Solution

      Hi everyone, I’ve been working on moving some of our critical systems, including CRM and project data, to a Zoho cloud solution, and one of the biggest challenges I’ve encountered is data migration. Transferring large volumes of data while keeping it
    • Commerce Order as Invoice instead of Sales Order?

      I need a purchase made on my Commerce Site to result in an Invoice for services instead of a Sales Order that will be pushed to Books. My customers don't pay until I after I add some details to their transaction. Can I change the settings to make this
    • How to set different item selling prices for Zoho Commerce and Zoho Books

      Item selling prices for Zoho Commerce and Zoho Books are in sync. If we update the Item selling price in Books, the same will happen in commerce and vice versa. I need a separate commerce selling price for online users and a separate books selling price
    • report showing assignment type

      Hi, We've created a number of workflows to allow us to auto assign tickets to agents based on keywords and other criteria. I'm struggling to create a report that would show me what is the percentage of tickets that are assigned automatically via workflows
    • Time Entry Notifications

      Hi All - I have support staff who place notes of their work in the time entry section of Zoho Desk. Is there a specific workflow or setting I need to enable to have the ticket holder updated via email when an entry is saved?
    • Zoho CRMの流入元について

      Zoho CRMとZoho formsを連携し、 formsで作成したフォームをサイトに埋め込み運用中です。 UTMパラメータの取得をformsを行い、Zoho CRMの見込み客タブにカスタム項目で反映される状況になっています。 広告に関してはUTMパラメータで取得できているため問題ないのですが、オーガニック流入でフォーム送信の場合も計測したいです。メールやGoogle、Yahoo、directなどの流入元のチャネルが反映されるようにしたいのですが、どのように設定したら良いでしょうか。 また、
    • How to report 'Response violation' OR 'Resolution violation'

      Hi, I want to report on SLA Violation Type. I grouped my tickets on this column. It seems I only get 'Response and Resolution Violation' or 'Not Violated'. The former seems to be given to a ticket if only the Response Time was violated. I would expect
    • Edit Permission during and after approval?

      When a record is sent for approval Can a user request for edit permission from the approver? We don't want to give edit permissions for all the records under approval Only on a case-by-case basis How can we achieve this?
    • Messages not displayed from personal LinkedIn profile

      Hello. I connected both our company profile and my personal profile to Zoho social. I do see all messages from our company page but none from my private page. not even the profile is being added on top to to switch between company or private profile,
    • [Webinar] Automate sales and presales workflows with Writer

      Sales involves sharing a wide range of documents with customers across the presales, sales, and post-sales stages: NDAs, quotes, invoices, sales orders, and delivery paperwork. Generating and managing these documents manually slows down the overall sales
    • Power of Automation :: Quick way to associate your Projects with Zoho CRM

      A custom function is a software code that can be used to automate a process and this allows you to automate a notification, call a webhook, or perform logic immediately after a workflow rule is triggered. This feature helps to automate complex tasks and
    • Date triggering Workflow rule

      I have a function triggered by a workflow rule. The function takes a date and creates a task for that date and fills in a field with the name of the day for that date. It also updates the status field of the record. The workflow rule is set to run whenever
    • Unable to retrieve Contact_Name field contents using Web API in javascript function

      Hello, I've added a field in the Purchase Order form to select and associate a Sales Order (Orden_de_venta, lookup field). I've also created a client script to complete some fields from the Sales Order (and the Quote), when the user specifies the related
    • Restricting contact creation

      Hi all! I am looking to use Zoho Desk in a part of the business that takes end user enquiries. These are generally single interactions, and not linked to an account name. As Desk is Account centric, has anyone designed a way to manage these incoming emails
    • Import Holiday Calendars

      HI Zoho Is there anyway of importing an online calendar like https://www.calendarlabs.com into the business hours calendars, to speed up setup of holiday calendars. Also could we also request a feature where you can specify a Holiday as hours, i.e it could be that the company is on a 1/2 day due to a holiday or when it is Eid in the UAE and they are only allowed to work restricted hours so we need the calendar to be flexible to allow for this. Regards Jamie
    • Filtering Tickets based on Email headers

      We're starting to get a lot more junk coming into our Zoho Desk, which is then triggering unnecessary email alerts to agents. Once thing we could do to cut this junk in half, is to filter tickets based on email headers. Any email containing the `List-Unsubscribe`
    • Zoho Books - France

      L’équipe de Zoho France reçoit régulièrement des questions sur la conformité de ses applications de finances (Zoho Books/ Zoho Invoice) pour le marché français. Voici quelques points pour clarifier la question : Zoho Books est un logiciel de comptabilité
    • Im Stuck in an EDIT ONLY WITH WIZARD issue

      So I found Wizards to be a really helpful tool in minimizing the exposure of redundant, superfluous fields to staff that would never otherwise have to edit those fields. My issue is, that when the record (in this case a lead) is created with a wizard,
    • Formula field with IF statement based on picklist field and string output to copy/paste in multi-line field via function

      Hello there, I am working on a formula field based on a 3-item picklist field (i.e. *empty value*, 'Progress payment', 'Letter of credit'). Depending on the picked item, the formula field shall give a specific multi-line string (say 'XXX' in case of 'Progress
    • Bulk Moving Images into Folders in the Library

      I can't seem to select multiple images to move into a folder in order to clean up my image library and organize it. Instead, I have to move each individual image into the folder and sometimes it takes MULTIPLE tries to get it to go in there. Am I missing
    • Error 550 5.4.1

      I’ve tried sending an email to someone but keep receiving this back. Any help would be greatly appreciated 
    • Billing Management: #2 Fair way of Billing- Prorated Billing

      Hello, From speaking about the traditional ways of billing in the previous post, we are moving into the deep sea of billing. We are now in a zone to break out the most complex yet, I would call it the fairest way of billing, the Prorated Billing. Prorated
    • Automatic Matching from Bank Statements / Feeds

      Is it possible to have transactions from a feed or bank statement automatically match when certain criteria are met? My use case, which is pretty broadly applicable, is e-commerce transactions for merchant services accounts (clearing accounts). In these
    • Has Anyone successfully integrated Zoho and Sage Intact?

      Hey all, We’re evaluating Zoho One + Sage Intacct and I’m trying to connect with anyone who has actually implemented the two together.Specifically, I’d love to know: -- Which functions you kept in Zoho vs. Intacct (e.g., Product Catalog, AR/AP, invoicing,
    • Store "Sign in with Google/Microsoft/GitHub etc." details

      Quite often now, users are using a sign-in provider like Google or Microsoft to sign into various apps and services. It would be great if Vault could remember which providers you use for each website and sign you in with that provider instead of a username
    • Placing a condition before converting the LEAD

      Hi,  I need some assistance with Lead conversion. I need to place certain conditions before allowing the user to convert the lead.  For example: up until the certain status's doesn't equal "green" don't allow to convert lead.  I tried creating this using
    • Subform edits don't appear in parent record timeline?

      Is it possible to have subform edits (like add row/delete row) appear in the Timeline for parent records? A user can edit a record, only edit the subform, and it doesn't appear in the timeline. Is there a workaround or way that we can show when a user
    • How can I filter a field integration?

      Hi,  I have a field integration from CRM "Products" in a form, and I have three product Categories in CRM. I only need to see Products of a category. Thanks for you answers.
    • Next Page