How to Forecast Recognised Revenue with Operations Hub Enterprise

Solve how to forecast recognised revenue and get a more accurate picture of your company’s finances using HubSpot Operations Hub Enterprise.

Running a business blindfolded?

When you’re not able to accurately forecast recognised revenue, it can feel that way. On its own, technology is rarely an answer, but in this particular case the right systems are key to unlocking the accounting capabilities required for you to accurately understand your business.

What do those accounting capabilities look like? Why is your ability to forecast recognised revenue so important now? And how can HubSpot get you there? Read on to find out more.

I’ve solved this challenge in my own business. Prefer to chat to me about it? Get in touch.


Recognised revenue explained

In any business with a service or subscription-type model, revenue is rarely realised at the point of sale.

In models like these, the point of purchase covers services or products delivered over a period of time (say, the length of a project or subscription) — usually months or years.

Businesses that sell this way need to be able to attribute the revenue they’ve closed to the point in time at which their offering is actually delivered, instead of when the sale was made, for an accurate picture of everything from the company finances to resourcing. 

Recognised revenue example

You close a £60,000 deal for a project that is due to be delivered across six months. Your services break down evenly for each month of the project and there’s no variation, month on month, between the kind of skills, services, or teams involved. In this overly simplified example, revenue should be attributed at £10,000 for the next six months, instead of one £60,000 recognition at the point of sale, for a more accurate picture of the commercial impact of the project, its duration, and the resources associated with the revenue. 


This is what we mean by revenue recognition, or accrual accounting. For a service business like us, for example, it’s about recognising the revenue in the month when we perform the service, even though a client may pay upfront for six months or a year.

For businesses that operate in this way, the need to recognise their revenue is evergreen. So why is it so important that you address this issue now?


The link between revenue forecasting and resilience

In its recent article on preparing for a European recession, McKinsey puts organisational resilience front and centre.

“Businesses need new approaches to build the resilience required,” it writes, “through a perceptive response to current challenges, foresight to anticipate the next round of disruptions, and capability for adaptation that will set the business on a foundation for successful growth.”

If your business is service or subscription-led, accrual accounting is key to discovering what these approaches look like and building resilience across your operations. 

  • The view it gives you over your company finances helps you to understand how much you can spend, where to spend it, and when. 
  • It paints a more accurate picture of your profit margins. 
  • And because it breaks down revenue month on month, you get a stronger grasp on your teams’ capacity levels because you can see in advance when they need to deliver work (or for companies selling subscriptions for products, when you need stock to dispatch).

Adopting accrual accounting offers you a more accurate representation of your company’s finances, but it’s inherently complex to manage if you don’t have the right systems in place.

It also takes a lot of time and effort. How did we get there — and how can you?


How we used HubSpot to track recognised revenue 

The right software will be capable of automating and streamlining your recognised revenue process, reducing errors and minimising staff costs. We’ve been exploring how we can use HubSpot to solve these challenges in our business. Could it help you achieve the same?


Our accounting software

Like many businesses, we manage our finances using Xero, our accounting software, but we’ve previously been unable to forecast revenue in HubSpot until Operations Hub Enterprise was launched earlier last year.


The business challenge

Obviously, revenue is critical to the success of our business. Bringing it in can be difficult enough but accurately tracking it was proving to be even more challenging. Calculating revenue and knowing where your organisation stands financially certainly takes some work.


Why we adopted revenue recognition

Revenue recognition and the way it’s calculated has helped us see how each of our services are contributing to our gross and net profits. This impacts our product (service) strategy.

It has also impacted sales targets and KPI and targets, but could also impact your compensation structures. How do you target your sales teams? If it’s an annual sales target and they sell the majority in their last quarter, you’re very unlikely to service all of that and what you don’t service will be recognised in the following year. This also applies if your sales team have a quarterly target. So, alongside these methods of targeting, you are also likely to give them a recognised revenue target. For us, sales decisions are often affected by how much recognised revenue can be expected from a sale, so having our CRM set up to see this was critical.


How Operations Hub Enterprise helped

To solve the challenge, we set up Operations Hub Enterprise to automate revenue calculations and show in, a dashboard report, the financial performance of each service.

Revenue information in HubSpot is captured on the deal record and more granularly on the line items associated with a deal. There are many benefits of utilising line items in this way. For one, each line item on a deal record can be associated to a different team/owner, enabling multi-department/owned deals. For another benefit, each line item represents a different product/service so reporting can be broken down into revenue by product/service.

“Imagine the deal is the whole receipt and line items are each of the lines on that receipt that detail what you have bought!” Hannah Fisher, HubSpot platform consultant, BabelQuest

It’s possible to have calculated properties for both standard (contact, company, deal, ticket) and custom objects in HubSpot but currently not for product properties (these being those properties used in the line item record.)

Operations Hub Enterprise also includes datasets, which allow you to access the data in the line items and apply calculations.

“For example, dataset formula fields can be used to calculate values based on properties in the dataset. To be able to calculate the monthly recognised revenue, divide the line item's net price by the term (months). If the net price for a 12-month retainer is £1,200 then £1,200 ÷ 12 = £100 monthly recognised revenue.” Hannah 

Dataset conditional fields enable users to group data based on set conditions. This makes it possible to assign the monthly recognised revenue to a month property if it meets set conditions, determining whether or not the line item is still being delivered during that month. 

For example, a conditional field will be created called “January 2023 Recognised Revenue”. If the Delivery start date is on or before 01/01/2023 and Delivery end date is on or after 31/01/2023 then January 2023 Recognised Revenue = Monthly recognised revenue.

Create a conditional field for each month, quarter, half, year (or whatever your reporting time frame) in your dataset.


Revenue reporting in action

At BabelQuest, we evenly divide the net price by the term and assign it to all months in which a line item is being delivered evenly. But it’s possible to apply whatever formulas are required within the dataset to calculate the metrics desired. 

Where previously our accounting team would put in long hours painstakingly evaluating our contracts, quotes, and statements to ensure proper reporting for each of our different revenue streams, now HubSpot does this all for us, guided by a set of specific rules.

Interested in Operations Hub’s other product features? See this article. 


See clearly with Operations Hub Enterprise

To get an accurate picture of your finances, you need to understand where you are when it comes to revenue recognition. Operations Hub can help your business achieve this, giving you and your board visibility over the data you need to scale and grow the business.

A demo says a thousand words, so instead of us talking you through the technical steps here, book in a meeting and we’ll show you and your finance/technology heads how you can use HubSpot’s software to improve your revenue operations overnight.   

For a personalised Operations Hub demo, click the image below to book a meeting. 

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