Revenue Management: #7 Revenue Recognition in Construction & Real Estate Industry

If you are in the construction or real estate business, you are used to long project timelines and progressive invoicing to keep up with your billing. But when does revenue get recognized? Will it happen when the contract gets signed? At different milestones or only at the end of the project? Each phase has its own pace, and the revenue needs to be tracked carefully throughout the end.

How do long-term projects and contract-driven businesses recognize revenue?   

Revenue Recognition Scenario in Construction & Real Estate

With long-term projects and multiple deliverables in place, construction and real estate businesses often stretch the process across months or even years. Revenue recognition in these industries is less about timing and more about progress.

Long-Term, Multi-Phase Projects

Construction projects often span many months or years. Recognizing revenue based solely on billing milestones (say 30% upfront, 40% midway, and 30% on completion) doesn't reflect the actual progress or value delivered. Companies must track and report revenue based on performance progress, not payment terms.

Example: $5,00,000 real estate development, $1,00,000 recognized after land acquisition, $2,00,000 during construction in progress and remaining during handover.

Percentage of Completion Method

This industry often uses the percentage of completion method, where revenue is recognized based on the cost incurred or work completed relative to the entire project. Misjudging this percentage can result in misstated finances.

Example: For a $1 million project, if 40% of the work is completed, $4,00,000 is recognized regardless of its payment terms.

Retainage Clauses

In construction, it's common for clients to withhold a portion of the contract until completion. Although the work is completed, the revenue may remain deferred depending on the contract terms.

Example: 10% of the $2,00,000 contract is retained as a deposit. That is, $20,000 will be kept as deferred revenue until completion.

Change Orders and Delayed Delivery

Projects might include design, foundation, electrical, plumbing, and landscaping. Each component might have a separate delivery schedule and must be tracked as a performance obligation. When the scope changes during the progress, companies must reassess the total contract value and the revenue allocation accordingly. On the other hand, if the project execution is postponed, all the revenue earned will remain deferred even if an upfront payment was made.

Example: If a client makes a $5,00,000 upfront payment but the work is delayed, the entire amount will stay in deferred revenue until the obligations are fulfilled.

Proper recognition in this space depends more on accurately tracking project progress and billing terms. It's hard for any business to track all these manually, as any deviation in this might lead to the risk of under- or over-recognition. Sometimes, automated recognition rules may not fit a construction contract, specifically when project timelines are uncertain, milestones don't follow a uniform schedule, or the scope frequently changes.

Businesses may prefer manual revenue recognition to mitigate the risk of miscalculation or inappropriate revenue recognition. This ensures revenue is recorded only when specific deliverables are actually completed.

Scenario:

A construction company signs a $600,000 contract to build a commercial warehouse. The client pays the full payment upfront, but the contract specifies that revenue will only be recognized at key stages of the project completion and not based on the period.

Project stages are defined as:

•  Site Preparation & Foundation: $100,000

• Structural Framework: 30% of contract value

• Roofing & Utilities Installations: 40% of the contract value

• Interior Finishing & Handover over: Remaining balance
  

Revenue Recognition with Zoho Billing

Zoho Billing enables businesses like the one above to create flexible revenue recognition rules tied to the project progress and with several deliverables.

Companies rely on manual revenue recognition in most construction projects because project timelines and deliverables are often unpredictable. Manual recognition ensures revenue is recorded only when specific milestones are completed. Automated rules like the percentage of completed or scheduled milestones can still be configured where timelines are more predictable, but manual recognition remains the default approach in this industry. In such cases, rules don't need to be pre-configured; the revenue is recognized manually when the milestone is completed.

Reports in Zoho Billing

At the end of the project, recognition happens only at milestone completions based on the manual entry made by the project management team.

Recognised Revenue Report: 

Phases	Completion Date	Recognized Revenue
Site Preparation & Foundation	15/Jan/2025	$100,000
Structural Framework	10/Mar/2025	$180,000
Roofing & Utilities Installation	25/May/2025	$240,000
Interior Completion & Handover	30/Jul/2025	$80,000
Total Recognized		$600,000

 

Deferred Revenue Report: 

Month	Deferred Amount
Jan 2025	$500,000
Feb 2025	$500,000
Mar 2025	$320,000
Apr 2025	$320,000
May 2025	$80,000
Jun 2025	$80,000
Jul 2025	$0

 

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	$600,000	$100,000	$0	$180,000	$0	$240,000	$0	$80,000	$600,000	$0

 

Zoho Billing can efficiently handle change orders, as revenue is recognized manually (Manual Recognition Method). It also allows contract amendments and dynamic revenue reallocation based on project alignment.

Best Practices for Construction & Real Estate Firms' Revenue Recognition

• Break Down Phases as Obligations: Identify architecture and construction as distinct deliverable components.
• Use Percentage of Completion Metrics: Set the base recognition based on cost or time progress, not on the invoicing period.
• Handle Change Orders: Adjust the revenue schedule dynamically when the scope of the project changes. 
  

Up Next: Revenue Recognition in EduTech & Online Training Platforms

Previous: Revenue Recognition in the Professional Services Industry

• 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'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

• How do I trigger a Flow based on a campaign response?

  Is there a way to trgiider a Zoho Flow based upon a lead opening an email sent via Zoho Campaigns? I see that the data is recorded in the 'Campaigns' section of Zoho CRM under 'Member Status' and I want to trgigger a flow based upon that record changing.

• All Zoho Flows are filtered

  My two flows operate perfectly when I run them as a test, but when they're activated each run ends with a status of neither success, nor fail, but filtered. I haven't set up any filters. I don't see where to turn off filters. When I test run on a sequence

• Creating Multiple Items on Sales Order

  Hi, I’m trying to automate some processes using Zoho Flow, specifically the creation of sales orders in my Zoho Inventory. However, Zoho Flow's Create Sales Order function can only add one item. I would like to include multiple items in a single sales

• Problem Connection from Zoho Flow and Gravity Form

  I obtained my API key from Gravity Forms via WordPress. However, when I enter my Zoho Flow, it states: Gravity Forms says, 'You are not authorised to access the API." I tried recreating a new API key, but it is still not working.

• Eventbrite Email Field in Zoho Flow Returns "Info Requested" Instead of Actual Email

  Hi Zoho team, I'm using Zoho Flow to connect Eventbrite with Zoho CRM. My goal is to automatically add event attendees as leads in Zoho CRM. I’ve set up the flow and mapped the ${trigger.profile_email}} field to the Email field in CRM. However, I'm running

• "Invalid value passed for Product ID" Error in Zoho Flow "Create Sales Order" Node

  Hello Zoho Community, I’m facing an issue with Zoho Flow while trying to create a sales order in Zoho Inventory using the "Create Sales Order" node. Here’s a detailed explanation of my setup and the problem: What I’m Trying to Achieve I’m building an

• Associating Project with an Account via Flow

  I'm using flow to create a Project based on a Deal status update using flow. The fields exist to pass the Account Name through properly, but when you view the Projects module in a CRM Account Record it doesn't automatically associate the new Project Record

• How to follow up a member in a meeting?

  Hello, I make weekly meeting online with a lot of people. I want(I've been using calendly to do it). I want to do a follow-up to it. I want to send messages via Zoho-flow to all the member that participated in the meeting. How can I do it?

• Setting Delays in Invoice Reminder Flow

  I am currently working on a flow that sends reminders for unpaid invoices. The flow is designed to delay actions until specific intervals before the due date: A reminder should be sent 7 days before the due date. A second reminder should be sent 3 days

• Get Sales Orders Related to Inventory Item

  Dear Team, I'm just wondering if there is a way to get a list of all Sales Orders related to a specific Inventory Item. I did search all articles but couldn't find any article that could help.

• Endpoint Central Cloud Asset Update from Fresh Service

  All, Does anyone use the asset management feature in Fresh Service? I'd like some help on building a flow to update asset attributes in Endpoint Central Cloud based off of an update to that same asset in Fresh Service. The trigger is "asset is updated"

• Zoho Flow Export to Deluge

  It would be great to take a user built zoho flow and export the entire flow as a deluge script including having multiple connected applications (showing the API connections and webhooks) and different functionality in the other applications interacting

• Action Iteration/Loop using Zoho Flow

  Trying to use Zoho Flow for automating following Context - A zoho form entry which has image upload field with upto 5 images setting and files are saved into Workdrive. After form is submitted need to create folder based on some fields and move files

• Zoho Flow - Unable to evaluate formatDate with Zoho Invoice Date Field for Calendar Integration

  Hello Community, I'm trying to automate the creation of all-day events in Zoho Calendar whenever a new invoice is created in Zoho Invoice. I'm using Zoho Flow for this automation. My Goal: When an invoice is created with a specific "Event Date," I want

• Zoho Inventory Sales Order Items

  I'm trying to build automation using Zoho Flow to add items to a Sales Order. In the automation options for both "create sales order" and "update sales order", The item ID is required. However, when I update the Sales Order, it's just replacing the item

• Permissions for Azure Devops connection

  I am trying to set up a connection with our Azure DevOps org but it keeps giving me this error. On Azure I should be able to have admin-level access to everything. Can you please point me to which permission this is checking for so I can enable it?

• My IMAP mail suddenly stopped working

  On my iPhone and iPad, IMAP stopped working for my Zoho account with the error "User name or password incorrect" and "Invalid credentials failure" however I was able to access via web with the same credentials. Also stopped working on Apple Mail client.

• Confused by the distiction between matched and categorized when reconciling a bank statement an how to

  I used to use quickbooks. In quickbooks, it was possible to use the check writing feature to add an expense that was on the bank statement that did not go through the AP and check writing process. I would write a check, assign it a number like etf (for

• Not Receiving OTP • https://voters.eci.gov.in/home/family

  Hello Customer, Greetings from Zoho Mail. Upon a detailed review of our delivery logs, we can confirm that other Zoho Mail users are successfully receiving OTP emails from eci.gov.in. However, in your specific case, it appears that the OTP emails are

• WorkDrive for Excel Add on

  Dear Sir/Madam Have installed Workdrive for Microsoft add on But unable to view the same added in Excel

• Splitting Transactions in Zoho Books

  I have read in past forum posts that the ability to split bank transactions would likely be implemented - it's definitely a typical accounting program feature.  I'm new to Zoho and thought I'd found nirvana until I realized this feature doesn't seem to

• Zoho Calendar s’enrichit avec une intégration à Zoho People et Zoho Cliq

  Les journées de travail ne se déroulent jamais exactement comme prévu. Une conversation informelle devient une séance d’échange d'idées, une absence modifie un planning, et votre agenda se retrouve vite décalé par rapport à la réalité. Chez Zoho Calendar,

• Holidays

  Hi; For defining Holidays, you need to add logic to handle the year as well as the month & day. We need to be able to enter Holidays for the next year. I need to add a holiday for January 2, 2017, but I can't until January 1st, which is a Sunday and we

• Zoho public comments are confusing and unnecessary

  Hi, we use zoho desk and have issues with public comments. We started using them because the "Reply" option just seemed very clumsy because of the following reasons: - the top "Reply" button starts what seems to be a regular email, showing the entire

• Zoho API - ticket creation - Validation failed for the condition : Ticket Status Info should not be empty

  Hi ! I'm trying to create ticket through Zoho API, and I'm getting a 422 response : "Validation failed for the condition : Ticket Status Info should not be empty" My request looks like this : curl --location 'https://desk.zoho.eu/api/v1/tickets' \ --header

• Deleting unwanted ticket replies

  Hello, In a Zoho Desk Ticket thread, sometimes one of the recipients has auto-reply activated. This creates a new message in the Ticket thread that not only pollutes the thread, but most importantly cannot be replied properly because usually auto-reply e-mails don't do "reply all", so the other recipients are not included. I want to delete such a message in the Ticket thread. I searched the help of Zoho Desk, but only found a way to mark as Spam (https://help.zoho.com/portal/kb/articles/marking-support-tickets-as-spam)

• System-generated support email added in CC on “Reply All”

  Hi, I recently set up Zoho Desk for a client and we are trying to prevent the Zoho Desk system-generated support email address (not the mailbox used as the department’s "From address") from being automatically added in CC when agents use “Reply All” on

• Convenience Fees

  I use Zoho Invoice for invoicing my billboard customers.  I have a few customers that want to pay using credit cards and ACH.  As a result, I have integrated an Online Payment Gateway (Stripe) for these customers.  I currently charge these customers a "Convenience Fee" of 3% for using this service as I typically only take checks as payment (and the gateway charges 2.9% + $0.30 per transaction).  I do this by creating a separate line item on the invoice and adding 3% to it.  I would like to offer

• HTML Tags added to Reports with Notes

  Recently Zoho added the ability to markup text within notes. That way, users can change font size, colors, etc. It's a great change. However, since the change, reports that include a column for "Note Content" are printing HTML tags within the report.

• Restrict Payment Methods

  Allow us to restrict certain payment methods specific for each customer.

• Emails Getting Delay Error Messages - Status: 451

  Hi. Hoping someone can help. I've been using Zoho for over a year now with no problems at all. Today, the majority of my emails I send out or reply to are getting this error: This message was created automatically by mail delivery system. THIS IS A WARNING MESSAGE ONLY. YOU DO NOT NEED TO RESEND YOUR MESSAGE. The original message was received at Sun, 22 Dec 2019 18:20:19 -0800 from wazza@amninjas.com [wazza@amninjas.com] ----- The following addresses had fatal errors ----- [Status: ERROR, Address:

• Add Domain

  Hello Zoho Support, My Zoho Sites project accidentally auto-added domains with http:// prefix and duplicated domain entries. Current domains list shows: http://www.kinhtethethao.com.vn (Primary – cannot be removed) http://www.kinhtethethao.com.vn (verification

• Kaizen #221: Workflow & Actions Reports APIs

  Over the last few weeks, we have joined Zylker Cloud Services as they restructured their automation ecosystem using Workflow APIs and Actions APIs. Along the way, we discovered how to audit workflows, update old rules, create new ones, and manage associated

• Having an Issue with the Entity ID

  I'm having an issue when trying to use Zoho Flow and the notes function. I currently have it set up when a new response comes into a particular form, all of their responses will go into the notes section of their contact on the CRM. I'm currently mapping

• For Each Loop in Zoho Flow

  I am using Zoho flow to create rows in an google sheets for every new order in Shopify but the issue is that it is creating one row per order and all line items are comma separated values but I want separate rows for each line item. Is there a way to

• Debug and Test not receiving updates

  Hello, I've been trying to debug two of my simple flows between Zoho Projects and Clockify but it seems like the Debug and Test feature is not working for me. When I click the Play button on any of the flows and then perform the trigger actions nothing

• Attendance, Reimagined: Smarter Views for Teams and Individuals

  Tracking attendance shouldn’t feel like a chore. With the revamped Attendance module UI, Zoho FSM makes it easier than ever to monitor work hours, check-in activity, and team availability—whether you’re managing an entire workforce or just keeping an

• Logistics Industry: Learn to create amazing appointment scheduling sites

  In the logistics industry, the quality of service is something that cannot be shown to others unless they experience it.  Sure, there are metrics that show how you fare when compared to your competition, but then, it only communicates little with respect to quality. The usual route which firms in logistics took are advertisements, to which the internet has opened alternatives in today’s digital age like websites and appointment scheduling sites. A great online presence can help you communicate with

• Customer Management: # 1 Pick a Convenient Way to Onboard Customer

  When Meera opened her bookstore, onboarding customers was effortless. A customer walked in, picked a book and left with a handwritten bill. As the store gained popularity, things changed. " Can I place an order over the phone?" a customer asked one day.

• Fetch ALL items from Inventory and send to Google Sheet using Flow

  The title says it all -- I want to fetch the Item name, SKU, Purchase rate, and Sales rate for ALL items in Zoho Inventory and have them populate a tab in an existing Google Sheet. I have already successfully made this work for one item, so the flow is

• Next Page