How to Calculate Service Revenue

by Chirantan Basu; Updated September 26, 2017
Service and product revenues make up a company's sales.

The service revenues account records the service fees earned by a company during a period, which could be a month, a quarter or a year. Service revenues are recorded on the income statement and include work completed during the period, whether or not it was billed. The expenses incurred in providing these services, along with overhead, interest and tax expenses are deducted from revenues to result in the bottom line or net profit.

Step 1

Collect invoices and work orders for services performed during a period. If you are using a software application, such as Microsoft Excel or Sage Simply Accounting, ensure that you record each customer order promptly. If you use ledgers or other nonautomated recording systems, collect your invoices and orders for the period. File your records; do not throw them away because you might need them for a tax audit later.

Step 2

Verify that you are following revenue recognition guidelines. This is especially important for public companies, which must follow U.S. Securities and Exchange Commission Staff Accounting Bulletin No. 101, or SAB 101. It is also important for nonpublic businesses to ensure compliance with generally accepted accounting principles, or GAAP. SAB 101 requires that before revenue is recognized, certain conditions must be met. These include persuasive evidence of an arrangement, such as a written contract or a work order, and the completion of services even if cash has not been received. For example, if you have performed 20 hours of management consultancy services for a client from January to March, you should include the service revenue for those hours in your March income statement even if the contract calls for the client to pay a lump-sum at the end of June.

Step 3

Tabulate the total hours or days of service performed along with hourly or daily rates for each contract. The rates may vary with each project. For example, accounting services may be billed at a different rate than management advisory services. The experience and skill level of the person providing the service factors in, for example, an experienced senior partner at a law firm will bill clients at a different rate than a junior associate. The status of clients effects billing -- for example, a long-term client who does the bulk of his business with you might be charged a different rate than a new or occasional client who is looking to get a small project done.

Step 4

Calculate the service revenue. Multiply hours by hourly rate or days by daily rate, and add the results for all clients and projects. For example, if you did 30 hours of work for Client A at $50 per hour and 10 days of work for Client B at $225 per day in a period, then your total service revenue is $3,750 : (30 x 50) + (225 x 10).

About the Author

Based in Ottawa, Canada, Chirantan Basu has been writing since 1995. His work has appeared in various publications and he has performed financial editing at a Wall Street firm. Basu holds a Bachelor of Engineering from Memorial University of Newfoundland, a Master of Business Administration from the University of Ottawa and holds the Canadian Investment Manager designation from the Canadian Securities Institute.

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