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.
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'sCommunity 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 youCommunity 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 mostIntroducing: 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
Workflow is not triggered with Supervise rule and field update
Hi! I have created a Supervise Rule, which triggers after 5 days a mail to the customer. To avoid sending multiple mails to the customer I have created a checkbox ReminderSent in the ticket properties, which is set to true by a field update. Now I wantNotes Attachments
Two things it would be nice to have the attachment size the same as the attachments sections and it would be nice to be able to attach links like you can in the attachments section. Thank youCanvas: empty images
Hello. If I add an image field like contact photo in a Canvas design, and the field is empty, there is an ugly placeholder in its place. This doesn't happen in the standard view. In the standard view, if the contact photo is empty, nothing appears inGoogle enhanced conversions not working
Hi guys, I've connected Zoho CRM through Google Ads interface with the goal to setup the enhanced conversion tracking in Google Ads. I have to Zoho related conversion goals which you can see in the images below: For the conversion goal above I've setupMS Teams Meeting to Zoho CRM
Has anyone figured out a good way to push MS Teams meeting info on a trigger of "meeting end" to Zoho CRM? We're looking for a way to take attendees of a meeting and meeting duration and push it into Zoho CRM after the meeting has ended. If I can justMicrosoft Teams now available as an online meeting provider
Hello everyone, We're pleased to announce that Zoho CRM now supports Microsoft Teams as an online meeting provider—alongside the other providers already available. Admins can enable Microsoft Teams directly from the Preferences tab under the MeetingsFont Size 11 - Zoho CRM Email Templates
Our company communicates with our vendors exclusively using Calibri Font Size 11, as this is the standard formatting for professional emails. Since the CRM only allows for the selection of font sizes 10 & 12, we have been unable to utilize the CRM emailIntroducing Zoho Creator's 2025 Release Projection 2
Hello Creators! I'm Prakash, from the Creator product management team, and today I'm delighted to unveil our next set of features as part of Release Projection 2 for 2025. With thoughtful analysis and planning, we've curated powerful new capabilitiesCalling Function via REST API with API Key gives 401 using Zoho Developer
Hi, I created a couple of functions using the one month trial of Enterprise edition, which I was able to call using the API Key method from Postman and from an external site. Now that my trial has expired, I have created the same functions in the DeveloperCRM x WorkDrive: File storage for new CRM signups is now powered by WorkDrive
Availability Editions: All DCs: All Release plan: Released for new signups in all DCs. It will be enabled for existing users in a phased manner in the upcoming months. Help documentation: Documents in Zoho CRM Manage folders in Documents tab Manage filesFeature Request: Tag, Search, and Report on Individual Private Comments
Zoho Desk Team, First, I want to say that we are extensive users of Zoho Desk and it is a core part of our support operations. We rely heavily on the private comments feature for internal communication, knowledge sharing, and maintaining a clear historyNew portal SAML authentication error: User not found
Dears, Has anyone else been experiencing this lately? I am creating a new portal authenticated by SAML (Entra ID). I followed the same process as I did with other portals, but any new portal created after this always encounters this error. I’ve been reportingAccess to Detail View From HTML Snippet
Zoho Creator displays a detail view that slides out from the right onClick of a record in a report. Am I able to access that detail view from an html snippet, e.g. click a record in a list and display the detail view? The zc_LoadIn dialog is a bit clunky,In arattai received message can't be deleted
The issue has been noticed in following: arattai app (Android) arattai app (Window) arattai web While the message posted by me may be deleted, the ones received from others can't be. The item <Delete> change to <Report> when the message is a receivedDisplay Client Name in Zoho Creator Client Portal Dashboard
Hello Zoho Creator Team, We hope you are doing well. Zoho Creator recently introduced the option to set a client’s display name in the Client Portal settings, which is very helpful for providing a personalized portal experience. However, there is currentlyZoho Forms - Improved Sub-Forms
Hi Forms team, I'm helping a client move from JotForms to Zoho Forms and I've found another opportunity for improvement. In the below screenshot, JotForm left and Zoho Forms right. The Zoho Forms Sub-Form is quite a poor visually. There is no way to makeZoho Forms - Print Button on Forms
Hi Forms team, I'm replicating a form for a client which is currently based on JotForm. I noticed that at the end of the form there is a button to print the completed form. I thought this would be something worth sharing and a nice to have in Zoho Forms.How do I move a section or element from one page to another in the NEW Zoho Sites UI
I have a section on my home page with numerous elements within it and I'd like to move the entire section to a different page on my site so I don't have to recreate it from scratch. Is there a way for me to do that easily? I could use a quick answer on this please.Elevate your CX delivery using CommandCenter 2.0: Simplified builder; seamless orchestration
Most businesses want to create memorable customer experiences—but they often find it hard to keep them smooth, especially as they grow. To achieve a state of flow across their processes, teams often stitch together a series of automations using WorkflowLoading CSS Stylesheets into HTML Snippet
Combining html/css into a single snippet can grow quite large for a UI that has a lot of functionality/styling. To keep things tidy, are we able to pull files into an html snippet using a <link> tag? If so, what are some best practices?Creator Change History: Ways to improve
Hi Everyone, Recently been working in developing this change history(an idea from Zoho Forms) - unlike forms that you can this with a click but using Creator, we can use "old" keyword. The concept I come up with is to put the result in a table however,Zoho Projects app update: Global Web Tabs support
Hello everyone! In the latest version(v3.10.10) of the Zoho Projects app update, we have brought in support for Global Web Tabs. You can now access the web tabs across all the projects from the Home module of the app. Please update the app to the latestExport as MP4 or GIF
Hi, Just wondering if there's a way to export/convert a presentation to an MP4 video file or even a GIF. One use case would be to use the animation functionality to create social media graphics/charts/gifs/videos. Thanks for a great tool... Rgds JonZoho Books will discontinue support for older browser versions soon
Hello users, Starting from May 15, 2024, Zoho Books will no longer support the following browser versions: Browsers Version Restrictions Firefox Browser Versions older than 100 Google Chrome Versions older than 100 Microsoft Edge Versions older than 100Zoho Projects - Q3 Updates | 2025
Zoho Projects - Q3 Updates | 2025 Hello Users, The final quarter of the year 2025 has begun, and we at Zoho Projects are all set with a plan. New targets to achieve and new milestones to reach, influenced by the lasting imprint of the past quarter. 2025'sZoho Sheet - Printing - Page Breaks and Printing Customization
I think the title is descriptive enough in that I cannot find help documentation on a simple task of adding in page brakes for separating pages on print. ThanksTables for Europe Datacenter customers?
It's been over a year now for the launch of Zoho Tables - and still not available für EU DC customers. When will it be available?Issue with Trident exe file
Hello Team, Exe Setup file It's showing harmful for user pc please check and do needful. this message for developer team. Thanks Bhargav PurohitDifferent languages for users
Hello, Do you plan to enable individual users to select their languages for interface? Currently language can be changed for everyone - it looks like a settings for a whole portal, which is not good when you are working internationally. Best regards,Transaction Locking with the dynamic date
Is it possible to dynamically update dates on transaction locking. We want to lock transaction x days from todayMessages 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,Unable to change sales_order status form "not_invoiced" to "invoiced"
I am automating process of creating of invoice from sales_orders by consolidated sales_orders of each customer and creating a single invoice per customer every month. I am doing this in workflow schedule custom function where i create invoice by gettingApply Vendor Credits Automatically
We are bulk importing Vendor credits in Zoho Books!!! Is there a way to apply vendor credits automatically to the first UNPAID bill of the Vendor?Apply Vendor Credit Automatically
Hello!!! Is there a way where in we can apply vendor credits automatically on the FIRST OUTSTANDING BILL of the vendor?? We have lots of VENDOR CREDITS ISSUES mostly!!! Applying it manually is a pain for us. Would be great if we have a way to apply theNeed 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 pricesCreator problem: Edit form View not displaying whole form
I'm having problems with the form in my database. The edit view is not showing the whole form: This is how it looks in the normal view: As you can see, there is a whole section in the bottom right of the form which is not displaying in the Edit View. This means that I can't change or delete any of these fields... Anybody had a similar problem or know a solution? Any help would be appreciated. Cheers,Vendor Master Enhancements for Faster Purchase Entry
I’d like to suggest a few features that will improve accuracy and speed during purchase voucher entry: Automated Item Tax Preference in Vendor Master Add an option to define item tax preference in the vendor master. Once set, this preference should automaticallyQuick Item Search & Auto-suggestion for Invoices
Hi Team, I am facing an issue while creating invoices in Zoho Books. Currently, I have to type the full item name in the correct sequence and spelling for it to appear. For example, my item name is: "Distemper Acri Silk Special White 10kg" If I type somethingFunction #53: Transaction Level Profitability for Invoices
Hello everyone, and welcome back to our series! We have previously provided custom functions for calculating the profitability of a quote and a sales order. There may be instances where the invoice may differ from its corresponding quote or sales order.Integrating Chatbot with Zoho Creator Application
Is it possible to integrate a chatbot with a Zoho Creator application?Next Page