Standalone Selling Price

A SaaS company might sell its software subscription, implementation services, and support in one contract and charge a single bundled price. But under ASC 606, the company first has to figure out how much of the transaction price belongs to each promised product or service.

This is where Standalone Selling Price (SSP) comes in.

What is the Standalone Selling Price?

Standalone Selling Price (SSP) is the amount a company expects to receive when selling a product or service separately. Under ASC 606, this price is used to allocate the total contract value across multiple performance obligations, ensuring revenue is recognized correctly.

For example, a SaaS company enters into a contract that includes;

• Annual software subscription: $10,000

• One-time implementation services: $3,000

• One year of premium support: $2,000

In this scenario, the total SSP is $15,000. If the customer buys the package for $12,000, the company allocates $12,000 among the three performance obligations based on their relative SSPs.

How Does ASC 606 Determine the Standalone Selling Price?

When a product or service is regularly sold separately, its observable selling price provides the best evidence of SSP. When an observable price is unavailable, ASC 606 allows companies to estimate standalone selling price using the three approaches:

• Adjusted market assessment approach: Evaluates market conditions and estimates the price customers may be willing to pay for the product or service.

• Expected cost plus a margin approach: Estimates the cost of delivering the product or service and then adds an appropriate profit margin to arrive at its SSP.

• Residual approach: This method estimates the standalone selling price (SSP) by taking the total transaction price & subtracting the observable SSPs of other performance obligations.

Companies cannot use the residual approach simply because estimating SSP is difficult. Instead, it is appropriate only when the selling price varies significantly or cannot be estimated with reasonable confidence.

Discount Allocation Based on Standalone Selling Price

Under ASC 606, discounts are generally allocated proportionally across all performance obligations based on their SSPs. A discount can be allocated to specific obligations only when observable pricing evidence supports it. This matters because discount allocation affects how much revenue is recognized for each obligation and when that revenue is reported.

Can a Standalone Selling Price be represented as a range?

There may be different prices for the same product/service sold to different customers. In this case, the company can determine a reasonable range of standalone selling prices based on sufficient pricing data.

ASC 606 requires the tracking of the standalone selling price, but this can be simplified with revenue automation software that also automates transaction price allocation.