top of page


Updated: Oct 3, 2023

In business, revenue is what makes the world go round.

It is one of the most crucial components in a financial statement because it measures the profitability of a SaaS business’ services. Preparing your company’s financial documents can be a very daunting task, so it’s crucial to understand the importance of sales revenue on an income statement so you can accurately report and forecast. In order for your business to actually consider revenue as earned, it needs to be tracked to a correct standard, or to use the more common term, ‘recognized’.

Recognizing your revenue with precision is crucial to your company’s financial performance; once you know the exact financial position of your business, you can manage operations much more efficiently and make necessary investments.

So with that in mind, discover our top methods for recognizing revenue based on your business and its requirements in our detailed guide.

Ready to learn more? In this guide, we’ll look at:


Revenue recognition is an accounting principle that identifies the specific conditions under which a business can record a sale transaction as revenue/cash earned; only then can it then be ‘recognized’. Revenue is typically recognized when a critical event occurs, such as the product being delivered to a customer, and the dollar amount is measured easily by the company.

For example, in SaaS, most companies use a subscription business model, which means that they don’t receive revenue until the service has been actually delivered to the customer (earned). Any prepayment made by a customer before this is a liability because they may cancel their subscription and ask for a refund. This is why a SaaS business cannot treat a subscription payment as money until it earns revenue.

The revenue recognition standard in the U.S, ASC 606, provides businesses with a uniform framework for recognizing revenue from contracts with customers. Read more on that here.


Every business will offer slightly different services, with slightly different ways to pay for them. Some companies offer packages, bundles, and even a pay-as-you-go model that can put a strain on recognizing revenue.

Below are the top methods for recognizing revenue in your organization.

Sales-based method

With the sales-based method of revenue recognition, you can recognize any revenue as soon as a sale is made. If a customer walks into your store and purchases an item for example, you can recognize that revenue instantly.

Whether a customer is paying with cash, on credit, or even just has a very high likelihood of paying, you can use this method of revenue recognition. The sales-based method is not dependent on payment, and it is instead the delivery of the service that triggers the revenue recognition event.

This method is commonplace in retail as delivery is clear and immediate, despite the payment not always being paid straight away.

Installment method

The installment method is normally used for larger purchases, such as real estate, large machinery, and any other items where the reliability of customer payments is not 100% guaranteed. If a company is not sure about receiving payment, the installment method allows them to recognize revenue, as a percentage of total revenue, only when payments are received. This can be over months or even years and can quite often be unexpected.

Percentage of completion method

The percentage of completion method is often used with long-term contract agreements, and it allows organizations to recognize revenue based on milestones and other useful progress indicators. This revenue recognition method requires a contract that clearly outlines each deliverable so every part knows when revenue recognition may take place.

The percentage of completion method enables businesses to recognize revenue in real-time, and eliminates the need of waiting until the end of a long contract. Financial statements show a much more consistent stream of revenue, which is far more predictable as there are fewer large spikes.

Completed-Contract method

The completed-contract method enables you to recognize revenue when the entirety of a contract is fulfilled and all performance obligations have been met. This is an ideal method for businesses to employ over shorter contract periods so they can be sure revenue appears on financials in the correct period. The completed-contract method is not for you if you are offering extended warranty periods or a long-term return policy.

This method of revenue recognition often becomes the default for many companies that cannot recognize revenue on the Percentage of completion method shown above because there isn’t enough clarity around performance obligations or when the contract is enforceable or not.

Cost Recoverability method

The cost recoverability method is another choice when you are unable to estimate the likelihood of collection. The installment method should be used when you know the related costs, and the cost recoverability method when you either don’t know or cannot estimate the cost of goods or services needed to honor the contract.

This is by far the most conservative method of revenue recognition, as you can only do so after all costs associated with the contract have been recouped fully. There is no guarantee of when this will be, and it could even be some time after the contract has been completed and all performance obligations have been satisfied.


Every revenue recognition method discussed here has its advantages and disadvantages and each has its own use case. If you’re scratching your head, wondering which method to pick, you must first look at your business model and how you sell your services. Many of the above methods depend on the length of contracts, so this could be a good starting point. If you work more with shorter contracts, it may be worthwhile to look at the completed contract method, but if it’s longer term contracts you favor, the percentage of completion method may be the way to go.

Take a look below at the advantages and disadvantages of each revenue recognition method:





  • Accurate cash flow

  • Single-entry system makes it easy to use without complex accounting system

  • Single-entry system increases risk of errors

  • Works well for short-term data but makes it more difficult to see full overview of your business


  • Sales generated from customers who otherwise wouldn’t be able to buy from you at all

  • Reduces cash flow problems

  • Increases the profitability if customers return for further business

  • Additional time is needed to track payments and chase them up

  • There is a risk customers may miss payments or not pay the outstanding ones

  • Anticipated income over a specific period of time can be less if payments aren’t made on time by customers

Percentage of completion

  • Increased cash flow due to incoming income at different intervals for each project

  • Reduced risk of non-paying customers, eliminating a significant loss of income

  • Offers real-time estimation for business revenue and cost on each project

  • This is a time-consuming method because you must be up to speed with every project. Must decide whether to continue to next project phase or not

  • If estimated costs need to be adjusted for the payment this requires keen attention to detail


  • This method can encourage tax efficiencies from the delayed reporting of revenue and expenses

  • If projects are completed ahead of the original schedule, the projected profits can increase due to the reduced time needed to complete it and earn the same amount

  • A thorough, dedicated balance sheet must be maintained for each project to record all its revenue and expenses. This is a very time-consuming process

  • This method can lead to cash flow problems for an organization with too many projects not yet paid for

  • If a project requires further time, there will be no additional earnings for it and the overall profit would be reduced

Cost recoverability

  • A dependable method when it comes to projects that have less of a guarantee of recovery of the money from the customer

  • Tax only needs to be paid once the entire cost of the service is recovered

  • With this method, there is a potential delay in the recognizing the gross profit

  • The period in which the sale is made and the period when the profit is actually recorded can differ

It’s important to get this right, as choosing the wrong method for your business can lead to inflated or deflated revenue, expense and profit numbers. Inaccuracy with these numbers can lead to poor management decisions and low investor confidence. With this in mind it’s crucial that you pick the method which best reflects your reality in your financial statements.


Whichever revenue recognition method you decide is best for your business, solutions like Precursive can help you to forecast and recognize revenue aligned to your business model. Precursive can automatically calculate revenue forecasts so you can see where you are at any given time.

Precursive Revenue Dashboard
Precursive Revenue Dashboard

Precursive’s revenue recognition software allows you to:

  • Customize revenue recognition tracking to your business needs

  • Recognize revenue based on project tasks, timesheets or milestone completion

  • Import or export revenue transactions into your financial system

  • Forecast and recognize revenue on both fixed price and T&M projects



Revenue recognition and its methods are not just for compliance. It serves a very important purpose in allowing organizations to maintain revenue recognition accuracy with standards and regulations. Keeping on top of it means you can very quickly understand how you are performing compared to your competitors, and it’s almost impossible to put a price on that.

Want to learn more about how Precursive can help? Book a demo today.

1,206 views0 comments


Find out more about the people and company. You can learn more about what makes us tick. 


We are passionate about changing the game for the world’s best services teams. 


Our mission is to help you improve time-to-value and make every customer a success story.

Asset 27.png


About Us

Find out more about us including our mission, values and get to know the team

Salesforce Native

Give sales, services, support and customer success teams a single, shared view of the customer


Hear from customers on why they prefer Precursive to help them scale and grow their business

Professional Services Delivery

Our services team provides expertise in how the best companies improve services delivery

Support & Success Hub

Find the answer you need at our success-hub where you will find a mix of documentation, video assets and training materials

The Precursive Platform is 100% native to the Salesforce platform. Our solutions can be tailored to your needs and support a range of use cases.


Learn how we take the pain out of complex service delivery activities. 


Do the work, not the admin! 

Asset 22.png

Professional Services Automation

Increase operational efficiency with predictable services delivery and insights on performance

Project Management

Powerful project management capability designed to support high-velocity services delivery

Resource Management

Quickly mobilize your project teams, manage demand and avoid capacity crunches

Customer Workspace

An interactive community portal to collaborate, share dependencies and updates in real-time

Services Billing

Easily manage accurate professional services billing, raise invoices and track payments

Revenue Management

Recognize and forecast revenue with ease and accuracy

Precursive AI ✨

Leverage AI capabilities for better project management and boosting customer success. 

Asset 18.png

Get actionable tips and insight on customer onboarding, resource management and professional services automation via podcasts, blogs, whitepapers, product guide videos and our on-demand webinars.


A vault of knowledge from in-house & guest writers


Repeatable & scalable insight on a platter

Product Guides

Video guides for the Precursive Platform


Industry trends and benchmarking


Listen to all episodes of ‘Precursive Perspective’ with host Jonathan Corrie

Toolkits, templates, tips and more 


Stay in the loop of what Precursive is up to


Watch anytime, anywhere, on-demand


Asset 17.png

Manage people, projects and revenues in one place

Asset 20.png

Staff projects faster with resource planning

Asset 21.png


Improve your implementation experience

Professional Services / Services Delivery

Organize work and collaborate with customers

IT & Professional Services