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.
  

      Zoho Campaigns Resources


        • Desk Community Learning Series


        • Digest


        • Functions


        • Meetups


        • Kbase


        • Resources


        • Glossary


        • Desk Marketplace


        • MVP Corner


        • Word of the Day


        • Ask the Experts


          • 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

          Zoho CRM Plus Resources

            Zoho Books Resources


              Zoho Subscriptions Resources

                Zoho Projects Resources


                  Zoho Sprints Resources


                    Zoho Orchestly Resources


                      Zoho Creator Resources


                        Zoho WorkDrive Resources



                          Zoho CRM Resources

                          • CRM Community Learning Series

                            CRM Community Learning Series


                          • Tips

                            Tips

                          • Functions

                            Functions

                          • Meetups

                            Meetups

                          • Kbase

                            Kbase

                          • Resources

                            Resources

                          • Digest

                            Digest

                          • CRM Marketplace

                            CRM Marketplace

                          • MVP Corner

                            MVP Corner




                            Zoho Writer Writer

                            Get Started. Write Away!

                            Writer is a powerful online word processor, designed for collaborative work.

                              Zoho CRM コンテンツ






                                ご検討中の方

                                  • Recent Topics

                                  • Mailk got blocked / Inquiry About Email Sending Limits and Upgrade Options

                                    Dear Zoho Support Team, My name is Kamr Elsayed I created this account to use for applying for vocational training in Germany. As part of this process, I send multiple emails to different companies. However, after sending only 8 emails today, I received
                                  • SMTP email sending problem

                                    Hello, I've sent emails before, but you haven't responded. Please respond. My work is being disrupted. I can't send emails via SMTP. Initially, there were no problems, but now I'm constantly receiving 550 bounce errors. I can't use the service I paid
                                  • unblock my zoho mail account. outlines@zoho.com

                                    please unblock my zoho mail account, outlines@zoho.com
                                  • Unable to see free plan option

                                    Hello Zoho Support Team, I hope you are doing well. I am trying to sign up for Zoho Mail, but I am unable to see the option for the free plan. Could you please guide me on how I can access or activate the free plan? Thank you for your assistance.
                                  • Outgoing blocked: Unusual activity detected.

                                    I just made payment for my Zohomail Today and have been debited so i will like to be Unblocked because this is what it says (Outgoing blocked: Unusual activity detected) Thank you i await your swift responses
                                  • How to remove some users in zoho accounts

                                    How to remove some users in Zoho accounts.
                                  • Forwarder

                                    Hi, I tried to add a forwarder from which emails are sent to my main zoho account email . However, it asks me for a code that should be received at the forwarder email, which is still not activated to send to my zoho emial account. So how can I get the
                                  • Forwarder

                                    Hi, I tried to add a forwarder from which emails are sent to my main zoho account email . However, it asks me for a code that should be received at the forwarder email, which is still not activated to send to my zoho emial account. So how can I get the
                                  • DKIM cannot be enabled for the domain as no verified default selector present

                                    Hi Support Team, For Domain DKIM record trying to enable status. but showing error "DKIM cannot be enabled for the domain as no verified default selector present" So, please resolve the issue. Thank you.
                                  • I can't log in to my account on Thunderbird

                                    I've just had to rebuild my PC (calamitous mess from Microsoft with Win10/Win 11 'upgrade' - they confirmed I had to start with a new build). I have used Zoho mail for years via Mozilla Thunderbird, but now I've had to download the latest version of TBird,
                                  • Sorten the domain of zoho mail ids

                                    I recently created zoho mail id and am quite excited with the features. But one issue ig nobody wanna type this big zohoaccounts.com I mean silly bold Suggestion zmail.com (sound gmail) (attraction) or some genz words looks cool
                                  • Weekly Tips : Customize your Zoho Mail Notifications

                                    In a professional context, email communication remains one of the most crucial channels for staying connected and managing workflows. Keeping track of your emails, task updates, or important announcements can be overwhelming—especially if you are juggling
                                  • How to move emails to Shared Mailbox?

                                    Hello, I created a Shred Mailbox instead of using a distribution group. But I cannot move previous emails to certain shared mailbox. Is it possible move some emails from inbox to shared mailbox?
                                  • Email task creator when task is updated/marked complete

                                    I am looking for a way to notify the creator of a task in zoho todo when - Task is updated Task is closed Comments entered 1 and 2 are critical, and I cannot find a zoho flow to do this. There is no way that as a manager I will know when someone has completed
                                  • The attendees will now be redirected to the landing webpage when they exit the webinar, set by the organizer.

                                    Hello All, In the latest version of the Zoho Meeting iOS mobile app (v1.3.16), we have brought in the below enhancements:   Post Webinar Re-direction Revamped exit UI for Webinar Post Webinar Re-direction:  The attendees will now be redirected to the
                                  • Download API file contents from browser

                                    Hi Team - is there something being planned to be able to trigger file downloads from the browser via a deluge script? i.e. retrieve a file via API, trigger the file download directly from the browser. Or... using the convertToPdf function (https://www.zoho.com/deluge/help/functions/file/convert-to-pdf.html)
                                  • March 15, 2023: Zoho Docs is discontinued

                                    As of today (March 15, 2023) Zoho Docs is discontinued for all users. We would like to thank our customers for trusting us for so many years! Going forward, we're confident you'll enjoy using Zoho WorkDrive for all your advanced file management and collaboration
                                  • When using "locations" in zoho books, can you keep the two locations totally separate from each other?

                                    I am looking to add a location but I don't want to intermingle the banking or other accounts. I want that to be like two separate independent branches that use different banking accounts, accounts payable, and accounts receivable. The people who are in
                                  • Adding a Channel to SalesIQ

                                    I have a client that currently uses Zoho CRM and Zoho Desk. They would like a live chat to place on their website that has a mobile app and chat bots (something like SalesIQ). However, they would also like to have all this work over SMS as well. Does the SalesIQ API allow this? Can I add visitors without them being a visitor on a website? Thanks! Bryan Redeagle
                                  • DataPrep Bigquery Connection failed

                                    Hello everybody, I want to create a connnection beetwen Bigquery and Dataprep but when I try to connect my project I got this error Loading tables has failed. Table list fetched from the data source expired.
                                  • How Do I Refund a Customer Directly to Their Credit Card?

                                    Hi, I use books to auto-charge my customers credit card. But when I create a credit note there doesn't seem to be a way to directly refund the amount back to their credit card. Is the only way to refund a credit note by doing it "offline" - or manually-
                                  • Zoho Flow Needs to Embrace AI Agent Protocols to Stay Competitive

                                    Zoho Flow has long been a reliable platform for automating workflows and integrating various applications. However, in the rapidly evolving landscape of AI-driven automation, it risks falling behind competitors like n8n, which are pioneering advancements
                                  • Important Features Missing

                                    Hey all I love linkthread, but i am missing some important features. I want to be able to include my Google Tag Manager. I have all the important stuff in my GTM Container: Facebook Pixel, LinkIn Pixel, Zoho Pagesense and so on. So i am able to do retargeting
                                  • Zoho SignForms: Prefill parameters with spaces render as “+” in the document (even when using %20)

                                    Hello Zoho Sign team, we are using SignForms with prefill parameters passed via URL. Spaces in parameter values are being rendered as “+” in the finalized document—even when we URL-encode spaces as %20. This is critical for us because we prefill addresses
                                  • Currency selector (based on variable) usage in comparsion

                                    Hi, I've developed a currency selector based on the following topic, and it's working well in pivot tables and charts: https://help.zoho.com/portal/en/community/topic/how-can-i-allow-my-users-to-choose-a-currency-for-the-dashboard I also have a comparison
                                  • Customize Column in Projects - Default View for Template?

                                    Is there a way to have the columns you'd like to see added to a template? I want my customized columns to show up every single time I create a project from that template. It appears I can customize them in the template but when I create the project they do not transfer over.  Template: See below how the columns in order are : Task, Owner, Status, Assigned, Website URL, Blog H1..etc. When I create a project from that same template it comes out as: Task, Owner, Status, Tags, Start Date, End Date, etc
                                  • Ask the Experts 24: Analytics, data administration, and mobile experience with Zoho Desk

                                    Hello Everyone! Welcome back to the Ask the Experts(ATE) series! We were so focused on our Autumn 2025 release that we didn't host an ATE session last month. In this month's ATE, we'd like to expand our areas for discussion: we'd like to listen to your
                                  • Multi-Page Forms in Zoho Creator!

                                    Let’s make long applications easier to handle by dividing them into pages, adding a progress bar, and guiding users step by step through complex data entry. This would be a total game-changer for the user experience and could significantly boost completion
                                  • Email login error

                                    Login successfully but email page error
                                  • Shared Mailboxes Disappeared

                                    Zoho Mail users in our company haven't been able to see their Shared Mailboxes for the past few hours. I've checked with App and Web Access, but they can't access them. When I send emails to their addresses, I get no error messages. They're still visible
                                  • Remote Server is misconfigured

                                    Dear Team, I am unable to use email id as remote server is misconfigured. It would be really great if you could help on this and get this resolved. Thanks & Regard Rohit Gupta
                                  • why cant i access my email account. it keeps asking me for reverifiying my account by entering my password.

                                    I cant access my account. it keeps asking me for reverifcaton by entering my password. once its entered it asks for it over and over.
                                  • Free webinar alert on October 16 - Less Complexity, More Security: Workplace + Directory

                                    Hello Zoho Workplace Community! Security and productivity shouldn't be at odds—and with Zoho, they're not. Discover how Zoho Workplace + Directory delivers seamless collaboration with enterprise-grade security, all in one integrated ecosystem. Join our
                                  • Email Recall Feature In Zoho Mail Which Should Also Work For Outside Organisation Members

                                    Add a feature to recall or undo sending an email within a configurable short time window (e.g., 30 seconds to 2 minutes) after hitting send, similar to Gmail’s undo send. Currently the sent email can not be recall If the recipient is not from within your
                                  • Workdrive and ChatGPT Team Synced Connectors

                                    Hi, we want to be able to integrate Zoho Workdrive with OpenAI’s ChatGPT Team plan. Google Drive and OneDrive both offer this, zoho please catch up asap. We dont want to have to put our company files in google drive, we want to allow chatgpt Team edition
                                  • Alias Name (on items) use case in Zoho inventory

                                    Hey, Hope everyone is well. Wondering if anyone can shed some light on the use case of Alias Names on Products in Zoho Inventory? Cheers, Chris
                                  • Updating an Invoice Line Item's Discount Account via API Call / Deluge Custom Function

                                    I need help updating an invoice line item's discount account via API. Below is a screenshot of the line item field I am referring to. Now the field to the left of the highlighted field (discount account) is the sales income account. I am able to modify
                                  • Send e-mail with attachments

                                    Dear Zoho, How is that possible in Zoho Flow to send an e-mail with attachment?  Just a simple example: Zoho Flow checks my Zoho mails and if the conditions starts the trigger then I would like to send an email with the original email's attachment. Any idea? BR, Adam
                                  • How to I get checkboxes on a subform to update via deluge

                                    Hello, would someone be able to tell me what I'm doing wrong here? I am trying to take the contents of a Deals subform and add them to an invoice then update the checkbox on each row so that 'add to invoice' is unticked and 'invoiced' is ticked. The output
                                  • Your bot just got smarter: AI-Powered routing that reads between the lines

                                    What if your bot could tell the difference? Between a visitor who just needs a quick answer, someone actively comparing options, and a frustrated customer one click away from leaving? Most bots can't. They deliver the same response to everyone, missing
                                  • Next Page