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

• Best way to fetch employee names from Zoho People into Zoho Creator Inventory Stock Form field Employee Name Lookup

  Hi Team, I have a requirement in my Zoho Creator application (Inventory Stock Adjustment) where I need to fetch employee names from Zoho People and use them as a lookup in a form. Currently, I am considering using an integration field to fetch this data

• get file api is returning Junk data

  I am working on extension development where at one point I need to retrieve attachments on records I found out I can use only invokeconnection and not invokeurl in extension development The invoke connection returns the image in raw binary format. When

• Need help with message box

  End user updates many records at once. Each have unique serial number. They want a confirmation box that says starting number, ending number and qty. Is there any way to do this? I been searching and asking support but seems like no great solution.

• [Webinar] The Transformative Power of Gen BI

  Traditional decision-making tools are no longer enough. The integration of generative AI into business intelligence (BI) is proving to be a true game changer—enabling businesses to make faster, smarter, and better informed decisions. Early adopters of

• Backorder process review - Automating Removal of Sales Order from "On Hold" When PO is Received

  Hello Zoho Inventory Team, Currently, sales orders in On Hold status are released only when the bill for the purchase order is created. In our workflow, it would be much more efficient if the sales order could automatically move out of On Hold as soon

• How to access the saved Query using API?

  I have created a query in setting. Is it possible to access it from a API? What's the endpoint? I tried /v8/queries/important_deals but didnt' work.

• création d'une base de données

  base de donnee d'un lycée

• User Session variables to recall after form submit & redirect to menu

  Hey, Forgive me if this is a simple answer I have overlooked. I have built a big onboarding process for my SAAS platform which is built and managed by an external Dev team. I am hoping to embed my new creator app on the SAAS platform. I have a menu page

• Zoho Writer Merge Template with data from Zoho Analytics Views

  Hello, Is there any way to pull information from Zoho Analytics and put it into a Merge Template? I am trying to create a bulk export of one report that filters on a field to create a single document for each of the filter fields.

• Having to enter bill before stock shows as available.

  Hi, Am I right in thinking you must create a bill from the purchase order receipt before the goods are available for shipping?

• Agent Availability report

  From data to decisions: A deep dive into ticketing system reports Businesses need to track when their support agents check in and check out from work. This report, titled Agent Availability, is one of the static reports that helps managers track the number

• Writing by Hand in "Write" Notes

  Hi there! I just downloaded this app a few moments ago, and I was wondering if there was a way to write things by hand in "Write" mode instead of just typing in the keyboard. It would make things a bit more efficient for me in this moment. Thanks!

• AI-driven construction analytics using Zoho Projects Plus

  Construction projects thrive on timelines; if a project is completed on or before the expected time, it makes headlines, but if it gets delayed, the company’s credibility will be at risk. Such projects require precise planning and constant monitoring,

• Canadian payroll

  Hello ZOHO, is any updates on when payroll for Canada will be available?

• Unified customer view: Bringing product intelligence into your CRM data

  For businesses today, applications and digital interfaces are the main touch points in the customer journey. While Zoho CRM data already tells who your customers are and what they buy, Zoho Apptics tells you how they interact and engage with your product.

• Zoho Creator SaaS app with multiple client AND multiple users

  I am close to finalizing a Zoho Creator app that will be used by different companies to manage sale info, and each company can have multiple users using the app. Things were going perfectly until I tried a search on a report. I use a database field in each table to separate the data for each company, which works great. BUT when I do a search, I get to see ALL the data. This means that Company A could easily see the data from Companies B and C via the built-in search. Is there a way to set up the

• Project Change Orders and Additions

  We are in the process of migrating from QuickBooks Online to Zoho Books. We have Zoho One and like the ability to sync all of our data across everything. And I like that projects work in a way that's less dumb than QuickBooks. I'm trying to figure out

• Track online, in-office, and client location meetings separately with the new meeting venue option

  Hello everyone! We’re excited to announce meeting enhancements in Zoho CRM that bring more clarity and structure to how meetings are categorized. You can now specify the meeting venue to clearly indicate whether a meeting is being held online, at the

• Create custom rollup summary fields in Zoho CRM

  Hello everyone, In Zoho CRM, rollup summary fields have been essential tools for summarizing data across related records and enabling users to gain quick insights without having to jump across modules. Previously, only predefined summary functions were

• Possible to send Zoom AI Companion transcripts and summaries to contacts in CRM?

  Title says it all. Is it possible to send Zoom AI Companion transcripts and summaries to contacts in Zoho CRM?

• Introducing segments for targeted user engagement

  Hello everyone, We’re excited to announce Segments in Zoho Apptics, a new way to group users based on their behavior, preferences, and app activity. With Segments, you can deliver more meaningful, timely, and relevant experiences to your users. When combined

• How do I edit the Calendar Invite notifications for Interviews in Recruit?

  I'm setting up the Zoho Recruit Interview Calendar system but there's some notifications I don't have any control over. I've turned off all Workflows and Automations related to the Calendar Scheduling and it seems that it's the notification that is sent

• Posibility to add Emoticons on the Email Subject of Templates

  Hi I´ve tried to add Emoticons on the Subject line of Email templates, the emoticon image does show up before saving the template or if I add the Emoticon while sending an Individual email and placing it manually on the subject line. Emoticons also show

• Clarity on extended contract status

  Clarity on “extended” status- How does Zoho “extend” a contract?  E.g. if client extends by 1 month, can the “end date” be adjusted accordingly in Zoho and tagged as “Extended” with a clear audit trail that also captures the client’s email? Note- Email

• Customizing contract status

  Can we customize/add/remove status on Zoho contracts ourselves or does Zoho needs to do this? Context- There is a long list of status on Zoho but not all of them are relevant for us . There are few status which are missing and needs to be added. E.g-

• Set Custom Business Calendars and Holidays for Global Teams

  Managing a project across diverse teams means accounting for more than just tasks and deadlines; it means acknowledging how and when each team actually works. Users might follow different working days or observe region-specific holidays that cannot be

• [Integration edition] Deluge learning series - Integrations between Zoho apps and Third-party services with Deluge | 28 August 2025

  We’re excited to welcome you to the Deluge learning series: Integration edition! The Integration edition will run for three months: Session 1 – Integrating Zoho Apps with Deluge using inbuilt integration tasks Session 2 – Integrating Zoho Apps with Deluge

• Critical Vulnerability in all major password manager plugins - is Zoho Vault affected?

  Hi Zoho, a security researcher found a critical clickjacking vulnerability in all major browser password managers: DOM-based Extension Clickjacking: Your Password Manager Data at Risk | Marek Tóth Is Zoho Vault affected as well? Apparently the Vault extension

• Introducing SecureForms in Zoho Vault

  Hey everyone, Let’s face it—asking someone to send over a password or other sensitive data is rarely straightforward. You wait. You nudge. You follow up once, twice—maybe more. And when the information finally arrives, it shows up in the worst possible

• Tables from ZohoSheets remove images when updated from source

  I have a few tables from a ZohoSheet in a ZohoWriter document that will remove the images in the cells when I refresh from the source. The source still has the images in the table when I go to refresh. After updating from the source, as you can see the

• Change eMail Template for Event-Invitations

  Hello ZOHO-CRM Team How I can change the eMail Template for Event-Invitations? I work with the German Version of the Free Version. I know how I can modify eMail alerts or Signature Templates, but where I can other eMails modify you send out? Thank you for your answer. Regards, Juerg

• Inventory Adjustments

  Hi, How to transfer the material from one head to another ? Like materials purchased for manufacturing the laptop need to transfer from consumption inventory (Quantity of raw materials reduced) to destination inventory ( Quantity of Laptop increased)

• Need Your Insights

  Hi Zoho, I'm confused why the flow only sends to one output. setVariable15 is from a list. It doesn't consider the 2nd entry. Any thoughts?

• Map Dependency Fields - How can can I limit picklist values from a multi-select Parent field?

  I know the "Map Dependency Fields" feature doesn't allow a multi-select parent field. However, I need the functionality. Can I do it through a deluge function, and would it still support color coding picklists? We need the color coding for quick scanning

• DYK 1 - Color Palette for Enhanced Visual Identification of Status

  Introducing the Did You Know series of posts. The goal of this series is to familiarize users with certain features or enhancements in Zoho Projects that may not be evident at first glance. The first post in this series deals with color palettes for indicating

• Invalid field in the COQL query

  Dear Zoho Support! I believe that you already helped me with a similar problem a few years ago. One of my clients has a custom field named "LOB" in the "Deals" Module (see the field's metadata below). The COQL query using this field: : "select id, Deal_Name,

• Automating Employee Birthday Notifications in Zoho Cliq

  Have you ever missed a birthday and felt like the office Grinch? Fear not, the Cliq Developer Platform has got your back! With Zoho Cliq's Schedulers, you can be the office party-cipant who never forgets a single cake, balloon, or awkward rendition of

• Transferring domain registration to new registrar and switching email hosting at the same time?

  I need to transfer an existing domain uv cure adhesive that's currently with SiteGround to Porkbun. I also need to move the existing custom email addresses from SiteGround to Zoho Mail. I'm not sure if I should transfer the domain first and then tackle

• Split deposits

  Can Zoho do split deposits. One deposit, two checks for two separate invoices from different customers. This is one of the most common tasks I can imaging. When I mark the two invoices paid, there are two deposits in bank register. When I try to match,

• Feedback: Streamlining Note Management in Zoho Notebook

  Dear Team/Support, I would like to share some feedback regarding the note management system that could help improve usability and accessibility for users like myself. Notebook 1 (screenshot attached): Currently, the system does not allow selecting and

• Next Page