When implementing Revenue Recognition standards such as ASC 606 and IFRS 15, one of the most critical concepts is the Standalone Selling Price (SSP). Organizations must determine how to allocate transaction prices to performance obligations fairly and consistently.
To achieve this, businesses often use SSP Representations — structured methods that help define, calculate, and validate pricing across different products, services, and customer segments. Below, we’ll explore the most common types of SSP representations and why they matter.
1. Unit Price
Definition
Unit price represents the base list price of a product or service, typically captured per item or unit. It forms the foundation of SSP representation and is often the most straightforward pricing method.
How it works
- Companies create separate price lists for each category of customers (e.g., retail vs. wholesale, enterprise vs. SMB).
- The SSP is derived directly from these established lists.
Example
A telecom company may charge:
- $100 per SIM card for individual retail customers.
- $80 per SIM card for enterprise customers purchasing in bulk.
In both cases, the SSP is the unit price, adjusted per customer segment.
Why it matters
Unit price ensures pricing transparency and standardization, making it easier to validate SSP against actual transaction data.
2. Discount Percentage of Unit List Price
Definition
This method represents SSP as the list price minus a standardized discount percentage, based on business rules. Discounts can be tied to factors like volume purchased, deal size, customer category, or loyalty tiers.
How it works
- Organizations set a list price for each product or service.
- Discounts are systematically applied based on qualifying conditions.
Example
Software license list price = $1,000 per user.
- Deal size over 100 licenses → 20% discount.
- Non-profit organizations → 15% discount.
So, for a non-profit purchasing 120 licenses:
- Adjusted SSP = $1,000 – 20% = $800 per license.
- Applied discount aligns with consistent policy.
Why it matters
This approach prevents arbitrary discounting and aligns pricing with measurable customer or transaction attributes, making it easier to defend SSP during audits.
3. Gross Margin Percentage
Definition
For businesses where deals are non-standard — especially in professional services — SSP can be determined by targeting a consistent gross margin percentage across engagements.
How it works
- The total price is calculated based on expected costs (resources, duration, scope).
- A margin target is added (e.g., 25% gross margin).
Example
Consulting project estimated cost = $80,000.
Target gross margin = 25%.
- Final price = $80,000 ÷ (1 – 0.25) = $106,667.
This ensures the SSP is tied to a repeatable pricing principle, even if every project is unique.
Why it matters
Gross margin percentage aligns non-standard deals to corporate profitability goals and ensures SSPs reflect a consistent margin policy across services.
4. Percentage of Base Unit Price
Definition
In many industries, especially after-sales support, warranties, or extended service agreements, SSP is expressed as a percentage of the base product price.
How it works
- The selling price of the main product is used as a baseline.
- Service or warranty price is applied as a percentage of that base.
Example
- Laptop selling price = $1,500.
- Extended warranty SSP = 15% of product price = $225.
The percentage approach ensures service pricing scales logically with the underlying product value.
Why it matters
This method keeps after-sales pricing standardized and avoids arbitrary service fees. It also simplifies allocation since the SSP is directly linked to the base unit sold.
Additional SSP Representations Used in Industry
While the four representations above are the most common, many industries adopt additional SSP methods to reflect the unique nature of their products and services. Here are some widely used ones:
5. Subscription-Based Pricing (Recurring Revenue SSP)
Definition
For SaaS, telecom, and streaming industries, SSP is often tied to recurring subscription fees, either monthly, quarterly, or annually.
Example
- Cloud storage: $50 per month per TB.
- Streaming service: $12 per user per month.
Why it matters
This method ensures SSP reflects ongoing value delivery rather than one-time transactions. It aligns directly with performance obligations over time.
6. Tiered or Volume-Based Pricing
Definition
Here, SSP varies based on volume bands or tiers, rewarding higher consumption with lower unit prices.
Example
API usage pricing:
- First 10,000 calls → $0.01 per call.
- Next 40,000 calls → $0.005 per call.
- Over 50,000 calls → $0.002 per call.
Why it matters
This aligns SSP with economies of scale and incentivizes customer growth while still maintaining audit-compliant pricing bands.
7. Bundled or Package Pricing
Definition
When products or services are typically sold together, SSP can be represented by allocating the total bundle price across performance obligations using a relative fair value approach.
Example
Mobile plan with:
- Device = $600.
- Data plan = $400.
- Bundle sold for $850.
SSP allocation is required across both components.
Why it matters
Bundle pricing ensures compliance with ASC 606 by preventing over- or under-recognition of revenue across bundled elements.
8. Cost-Plus Pricing
Definition
A method where SSP is determined by adding a standard markup on top of actual or estimated costs.
Example
Medical equipment cost = $5,000.
Standard markup = 30%.
- SSP = $6,500.
Why it matters
Frequently used in regulated industries (e.g., healthcare, defense), this ensures transparent cost recovery with consistent margins.
9. Market-Based Benchmarking
Definition
SSP is determined by analyzing external market data for comparable products or services.
Example
- Cybersecurity software SSP benchmarked against industry competitors charging between $200–$250 per license.
Why it matters
Benchmarking ensures SSP reflects market reality, which is critical for compliance in industries with competitive or regulated pricing environments.
10. Usage or Consumption-Based Pricing
Definition
SSP is tied directly to customer usage of a service, common in utilities, SaaS, and cloud computing.
Example
- Cloud compute hours: $0.12 per hour.
- Electricity billing: $0.15 per kWh.
Why it matters
This ensures SSP scales dynamically with actual consumption, aligning revenue recognition with delivered performance.
Why SSP Representations Matter
Each SSP representation method:
- Provides a repeatable, auditable framework for determining SSP.
- Ensures consistency across different product lines and customer segments.
- Helps meet ASC 606 / IFRS 15 compliance by supporting transparent allocation of transaction prices to performance obligations.
By carefully selecting the right SSP representation method, organizations can strike the balance between business flexibility and accounting rigor.
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