Revenue recognition and forecasting

A revenue forecast provides insights into your company's financial health, helps set realistic goals, and enables proactive decision-making to ensure you are on track to meet your financial objectives. It makes it easier to tackle such questions as:

• Do we have enough business lined up for the next quarter? 
• Are we hitting our growth targets?
• Should we include freelancers, hire more people, or cut back? 

In Scoro, revenue forecasting works on the revenue recognition principle – it relies on the logic that revenue is actually being earned as you deliver services to the client, not when you issue invoices or receive payments.

You can see the company-level revenue forecast from the Revenue report, which draws its data from quotes and projects, giving you a holistic overview based on the pipeline and already ongoing projects.

To make life easier for you, revenue distribution and forecasting take place automatically on both quotes and projects. However, you have the power to overwrite these calculations manually to ensure that the forecast reflects reality as accurately as possible.

This article will describe in detail how revenue recognition and forecasting works on a quote and project level and how that data ends up in the Revenue report.

1. Revenue forecasting on a quote level

Revenue forecasting kicks in already in the sales phase. The quoted amount is automatically considered pipeline revenue and reflected in the Revenue report. However, you decide how to distribute that sum over the months. Let’s see how that works:

1. Start by specifying the Estimated duration of the potential project. By default, the estimated duration is always one month. If you don’t modify it, the entire quoted sum, i.e., the pipeline revenue, will be allocated into a single month (= the month the quote is created). As soon as you adjust the number of months, Scoro will automatically redistribute the quoted sum equally across those months.
   
   If equal distribution works for you, you don’t need to take any further action.
2. If you want to see the exact revenue distribution or modify the monthly revenue schedule, open the revenue distribution modal from the graph icon next to the Estimated duration field.
3. In the revenue distribution modal, you can:

• Adjust the estimated starting month of the project to ensure the pipeline revenue is allocated into correct months. By default, the starting month always follows the estimated closing date.
  
• Choose whether you want pass-through costs, i.e. bills and expenses for outsourced services, to be counted as revenue in full or only by margin. This toggle is relevant for you only if you outsource services and use external vendors on the quote. You can find a more detailed description of this setting in the paragraph below.
  
• Manually override the equal revenue distribution with more accurate sums to reflect reality better. Remember that the Estimated duration field determines the number of periods you see here. As soon as you adjust one field, the rest of the fields are automatically recalculated as per the total quoted amount. Tip! Instead of putting in a concrete sum, you can also just enter the percentage into the field (e.g. 50%), and Scoro will calculate the respective sum for you.
  

The data from the revenue distribution modal will instantly feed into the Revenue report as your pipeline revenue. Once the quote is confirmed, it will also form the basis for the initial revenue distribution on the project level.

2. Revenue recognition and forecasting on a project level

After your client confirms the quote and you create a project from it, you can go to the Budget section in the project view and open the Revenue sub-tab to monitor and control revenue distribution at the project level. 

By default, Scoro uses equal split logic and distributes your budget automatically across the project duration to help you out, while also considering any adjustments you made to the revenue schedule at the quote level. However, you always have the final say on recognized and forecasted amounts, since you can manually overwrite both to reflect reality.

Revenue sub-tab legend for editable fields:

• Light grey numbers indicate an automatic calculation
• Black numbers indicate a manually overwritten value

Rows:

The three revenue rows divide the revenue into three different categories, each of them serving a distinct purpose, allowing you to track, adjust, and analyze your project revenue in context:

• The Earned revenue row indicates how much you’ve already theoretically earned with the work your team has completed. In other words, it helps you track the effort your team has already put in. For example, for Time & material projects, earned revenue is most likely equal to recognized revenue.
  • It is calculated per calendar month as follows: (completed time x selling price) + outsourced services that have been invoiced that month.
  • If the Earned row has an asterisk *, the Count pass-through cost as revenue toggle (in one-off projects) or Deduct bills and expenses toggle (for retainers) in the project's budget settings is disabled, meaning that for outsourced services, only the profit margin is factored in once they have been invoiced. Enable this toggle in the project's budget settings if you want to include the pass-through costs fully as revenue.
  • This row cannot be modified. 
    
    • NB! If you outsource any services, the Count pass-through cost as revenue toggle will affect the earned revenue calculations as well. You can read more about that logic below. Note that outsourced services will be reflected in earned revenue only once they have been invoiced to the client.
• The Recognized revenue row represents the revenue you can consider realized based on the services you’ve already delivered to the client.
  • The recognized revenue fields are always filled in automatically based on Earned revenue to make life easier for you. However, if you know that you have actually delivered more or less to the client, you can adjust these numbers manually to keep revenue distribution as accurate as possible. For example, for fixed-fee projects, your team might log X amount of hours, but you might want to actually recognize the agreed-upon fixed sum for the month.
    
• The Forecasted revenue row is the rest of the budgeted total – meaning, the part that is not yet recognized.
  • It is automatically distributed across the months as forecasted revenue, helping you see how much revenue you can expect to realize over the remaining project duration. The automatic distribution accounts for the number of workdays in each month, keeping the split proportional.
  • You can easily adjust the automatic numbers by simply overwriting them. For a more detailed overview of how these fields are populated, see the Revenue forecasting logic section. 
    

The Revenue row at the bottom of the Revenue sub-tab combines the data from the Recognized and Forecasted rows above. The Revenue row feeds data into the revenue report.

Here's an overview of the colums in the Revenue sub-tab:

• The Total column tracks the totals for each revenue row. The final total takes into account Recognized and Forecasted revenue. You can compare that number with the Quoted amount to ensure you are not distributing more or less revenue than you’ve budgeted.
• The Quoted column shows the total quoted sum, i.e., the expected total revenue. If you created the project from scratch, the column is called Budgeted instead.

Number of periods:

If your project has a start date but no end date, you only see a single month in the Revenue section, as Scoro doesn’t know how long the project will run.

As soon as you assign an end date, Scoro will create a separate field for each month so you can recognize monthly revenue.

Periods always start from the month of the project's start date and end with the month of the project's end date. However, the periods extend accordingly if tasks, events, or time entries are scheduled beyond the project's end date.

Revenue forecasting logic

Scoro will always propagate the Forecasted revenue fields to help automate revenue forecasting as much as possible. So let’s dive a bit deeper to see how these automatic Forecasted numbers come about.

First, keep in mind that if you created your projects from a quote…

• … and kept the equal split logic on the quote, Scoro will automatically apply equal split logic on the project level as well.
• … and adjusted the revenue distribution manually on the quote, Scoro will carry the manually entered numbers over to the project level. Manual numbers always take precedence.

The automatic propagation works as follows:

How forecasted revenue is distributed

When distributing revenue, the Forecasted row takes into account the number of working days each month. This means you will likely see different monthly revenue numbers even when equal split logic is applied. This is because the number of workdays varies from month to month. For example, you may have 23 working days in January, but only 21 in February. Or you may be already halfway through the month.

Keep in mind that if your site settings include weekends in the workweek (Settings > Work and projects > Projects), then this also affects the distribution.

How forecasted revenue is calculated

To forecast revenue, Scoro considers scheduled future time entries, tasks, and any remaining project budget that has not been covered by tasks or time entries. The fields are recalculated whenever data is updated; for example, when a new task is created or a new time entry is scheduled.

If you adjust any of the fields on the Forecasted row manually, Scoro will consider it the most accurate revenue number and use that one instead of the automatic calculation. If you manually adjust one field, the rest of the untouched fields get recalculated based on the remaining budget.

Things to keep in mind:

• Earned revenue for tasks falls into the same month as their due date.
• Tasks must have end dates and assignees to be included in the revenue.
• If you use the default automatic equal revenue split, Scoro ensures that your project revenue forecast does not exceed the Quoted/Budgeted amount.
• If you overwrite automatic calculations manually, the Total column may exceed the Quoted/Budgeted column to indicate that the budgeted amount has been exceeded.
• Revenue forecasting works slightly differently if you do not create your project from a quote:
  • If you create a project from scratch and set the budget manually, Scoro will automatically distribute your project budget equally across the project duration.
  • If you create a project from scratch but set no monetary budget, your Revenue subtab will simply show empty fields as there’s no set budget to distribute. The forecasting will kick in only once you start planning tasks or enter some values manually.

3. Counting pass-through costs as revenue

The Count pass-through cost as revenue toggle is relevant for you if you outsource any of the services for the project, e.g. use freelancers, print materials, order merchandise, etc. With this toggle, you get to decide how the bills and expenses sent in by external vendors affect the revenue calculation.

• When enabled, outsourced services are included in the revenue at their full selling price. In other words, everything you’ve quoted is considered revenue, even if it’s outsourced.
• When disabled, only the margin from the quote is counted as revenue. In other words, all the in-house lines from the quote + the margin of the outsourced lines are considered revenue.

You can toggle the Count pass-through cost as revenue setting on or off at any time from the project modify view.

Example:

Let’s say you have a EUR 10,000 project that consists of 100 consulting hours that you sell at a price of EUR 100 per hour. You outsource this service to a supplier at a cost of EUR 7,000, which gives you a margin of EUR 3,000.

• If you switch the toggle on, all of EUR 10,000 will be considered revenue (outsourced part + margin).
• If you switch the toggle off, only the margin of EUR 3,000 will be considered revenue. The part that you pass through to the client (i.e. the bill) will not be counted as revenue.

4. Troubleshooting