Understanding Selling Price Ranges, Range Policies, and Applied SSP Values
1. Introduction and Context
ASC 606 and IFRS 15 require entities to allocate the transaction price to performance obligations based on their Standalone Selling Prices (SSP). While the standards clearly define the objective of SSP—the price at which an entity would sell a good or service separately—they deliberately allow flexibility in how SSP is determined, acknowledging that pricing in real-world commercial arrangements is rarely static or uniform.
In practice, organizations often sell the same product or service at different prices depending on factors such as customer segment, geography, deal size, timing, bundling, and negotiated discounts. As a result, a single fixed SSP value may not faithfully represent the economics of standalone pricing. To operationalize this flexibility while maintaining consistency and audit defensibility, revenue management applications introduce the concept of SSP price ranges and range-based allocation policies.
This section explains SSP ranges from first principles, describes how selling prices are evaluated against those ranges, and illustrates how the final SSP value used for revenue allocation is determined.
2. Why SSP Ranges Exist
2.1 What the Standards Require
ASC 606 and IFRS 15 require that:
- The transaction price be allocated to performance obligations based on relative SSP
- SSP may be directly observable or estimated
- Estimation methods may include adjusted market assessment, expected cost plus margin, or residual approaches
Notably, the standards do not require SSP to be a single deterministic value. Instead, they permit a range of reasonable prices, provided the approach is applied consistently and reflects observable market evidence.
2.2 Why Applications Implement SSP Ranges
In operational systems:
- Prices fluctuate over time
- Discounts vary by deal
- List prices may not reflect actual standalone transactions
SSP ranges provide:
- A controlled “corridor” of acceptable standalone pricing
- Guardrails to prevent extreme discounts or premiums from distorting revenue allocation
- A defensible framework for auditors and regulators
3. What Is an SSP Price Range?
An SSP price range defines the lower and upper bounds within which a selling price is considered a reasonable proxy for standalone selling price.
A typical range consists of:
- SSP Low Point
- SSP Midpoint (optional but often used)
- SSP High Point
Example:
| SSP Attribute | Amount |
| SSP Low | $90 |
| SSP Mid | $100 |
| SSP High | $110 |
This range indicates that any selling price between $90 and $110 is considered consistent with SSP.
4. Selling Price vs SSP: A Critical Distinction
It is important to distinguish between:
- Selling Price: The contractual price negotiated with the customer
- SSP: A theoretical price representing standalone economics
- SSP Range: The acceptable boundary for SSP determination
Revenue systems compare the selling price to the SSP range to determine whether it is reasonable to use directly for allocation.
5. SSP Range Test Result
The SSP Range Test Result indicates the outcome of comparing the selling price to the SSP low and high points. The result typically falls into one of three categories:
5.1 In Range
Example:
| Attribute | Amount |
| Selling Price | $100 |
| SSP Low | $90 |
| SSP High | $110 |
Result: In Range
Interpretation:
The selling price is a reasonable approximation of SSP and may be used directly.
5.2 Below the Low Point
Example:
| Attribute | Amount |
| Selling Price | $80 |
| SSP Low | $90 |
Result: Below the Low Point
Interpretation:
The discount is deeper than expected and may not represent a standalone price.
5.3 Above the High Point
Example:
| Attribute | Amount |
| Selling Price | $130 |
| SSP High | $110 |
Result: Above the High Point
Interpretation:
The price reflects a premium and may distort allocation if used directly.
6. SSP Range Policies
When selling prices fall outside the SSP range, the system must decide which SSP value to apply for allocation. This decision is governed by SSP range policies, which are configured to ensure consistency and compliance.
Range policies answer the question:
Should the selling price be trusted, or should it be overridden with a defined SSP value?
7. SSP Range Value Applied
The SSP Range Value Applied represents the SSP amount ultimately used in the allocation calculation. Common values include:
7.1 Selling Price
When used:
- Selling price is within the SSP range
- Or policy allows limited deviations
Example:
| Selling Price | $100 |
| SSP Range | $90–$110 |
| SSP Applied | $100 |
Interpretation:
The selling price is accepted as a valid SSP proxy.
7.2 SSP Low Point
When used:
- Selling price is below the SSP range
- Policy caps SSP at the lower bound
Example:
| Selling Price | $80 |
| SSP Low | $90 |
| SSP Applied | $90 |
Interpretation:
Extreme discounts are prevented from reducing SSP below reasonable market levels.
7.3 SSP High Point
When used:
- Selling price exceeds the SSP range
- Policy caps SSP at the upper bound
Example:
| Selling Price | $130 |
| SSP High | $110 |
| SSP Applied | $110 |
Interpretation:
Premium pricing does not inflate SSP allocation.
7.4 SSP Midpoint
When used:
- Conservative or statistically neutral approach
- Selling price deemed unreliable
Example:
| SSP Low | $90 |
| SSP High | $110 |
| SSP Applied | $100 |
Interpretation:
A neutral midpoint SSP is applied for defensibility.
7.5 Sales Point
Definition:
The Sales Point typically represents a policy-defined reference price, such as:
- List price
- Catalog price
- Approved price book value
Example:
| List Price | $120 |
| SSP Range | $90–$110 |
| SSP Applied | $120 |
Interpretation:
The organization trusts standardized pricing more than negotiated deal prices.
This approach is valid but often receives heightened audit scrutiny.
8. End-to-End Allocation Example
Contract Overview:
| Item | Selling Price |
| Product A | $80 |
| Product B | $120 |
| Total | $200 |
SSP Ranges:
| Item | SSP Low | SSP High |
| A | $90 | $110 |
| B | $100 | $120 |
Range Test Results:
- Product A → Below Low → Apply SSP Low ($90)
- Product B → In Range → Apply Selling Price ($120)
Allocation Basis:
- Total SSP = $210
| Item | Allocated Revenue |
| A | (90 / 210) × 200 = $85.71 |
| B | (120 / 210) × 200 = $114.29 |
This approach prevents excessive discounting on one item from disproportionately shifting revenue.
9. Audit and Governance Considerations
Auditors typically evaluate:
- How SSP ranges were established
- Consistency of policy application
- Justification for overrides
- Governance over range changes
SSP ranges enhance audit defensibility by:
- Introducing objective boundaries
- Reducing judgment volatility
- Enforcing consistent allocation logic
10. Key Takeaways and Conclusion
SSP ranges do not alter the principles of ASC 606 or IFRS 15—they operationalize them. They provide a structured, defensible mechanism to translate variable real-world pricing into consistent revenue allocation outcomes.
In simple terms:
- SSP Range defines acceptable pricing guardrails
- Selling Price is evaluated against those guardrails
- Range Policy determines the action
- SSP Value Applied drives allocation
When properly designed and governed, SSP ranges significantly improve consistency, transparency, and audit readiness in revenue recognition processes.
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