SSP Representation Types, Extended SSP And Transaction Price Allocation

Executive Summary

In revenue recognition under ASC 606 and IFRS 15, Standalone Selling Price (SSP) is the foundational input for allocating transaction price to performance obligations. However, in operational revenue systems and real‑world contracts, SSP is rarely a single flat number. Instead, SSP is often represented using different representation types—percentages, margins, discounts, or unit prices—that must be translated into an Extended Standalone Selling Price (Extended SSP) before allocation can occur.

This whitepaper builds systematically from core SSP concepts to advanced application of SSP Representation Types, explaining why representation matters, how Extended SSP is derived, and how it directly impacts transaction price allocation. The discussion is system‑independent, standards‑aligned, and intended for architects, finance leaders, and revenue accounting professionals.

1. SSP Refresher: From Concept to Computation1.1 What SSP Represents

Under ASC 606 / IFRS 15, SSP represents the price at which an entity would sell a promised good or service separately to a customer.

SSP is a valuation concept, not necessarily a stored number. In practice, SSP must be expressed in a form that allows:

• Scalability across quantities and durations
• Reusability across contracts
• Mathematical derivation of allocation bases

This leads to the introduction of SSP Representation Types.

2. Why SSP Representation Type Matters

SSP Representation Type determines:

1. How SSP is stored (price, %, margin)
2. How Extended SSP is calculated
3. How allocation ratios are derived
4. How changes in quantity, duration, or price affect allocation

The representation type acts as the bridge between:

• Conceptual SSP defined by policy
• Quantitative Extended SSP used for allocation

Without a representation type, SSP cannot be operationalized consistently.

3. Extended SSP: The Allocation‑Ready SSP

3.1 Definition

Extended SSP is the SSP value scaled to the contract context.

It reflects:

• Quantity
• Service duration
• Base price, list price, or cost

Extended SSP is the only SSP value used in transaction price allocation.

Allocation is never performed on Unit SSP alone—it is always performed on Extended SSP.

4. Core SSP Representation Types and Extended SSP Formulas

4.1 Unit Price Representation

Definition: SSP expressed directly as a price per unit.

Formula:

Extended SSP = Quantity × Service Duration × Unit SSP

Use cases:

• Commodity pricing
• Published rate cards
• Highly observable SSPs

Why used:

• Simplest and most transparent
• Minimal estimation risk

4.2 Percentage of Base Unit Price

Definition: SSP expressed as a percentage of a base price.

Formula:

Extended SSP = Quantity × Service Duration × (% of Base Price × Base Price) / 100

Use cases:

• Maintenance priced as % of license
• Support tied to subscription value

Why used:

• Preserves economic linkage
• Automatically scales with base pricing

4.3 Discount Percentage of Unit List Price

Definition: SSP expressed as a discount off list price.

Formula:

Extended SSP = Quantity × Service Duration × (100 − Discount %) × Unit List Price / 100

Use cases:

• Products sold with standard discount bands
• Channel‑driven pricing models

Why used:

• Aligns SSP to go‑to‑market behavior
• Reflects observable selling practices

4.4 Gross Margin Percentage

Definition: SSP derived from cost plus target margin.

Formula:

Extended SSP = (100 × Cost) / (100 − Margin %)

Use cases:

• Professional services
• Custom deliverables
• Non‑observable pricing

Why used:

• Cost‑plus pricing economics
• Valid when market pricing is unavailable

5. Additional SSP Representation Concepts (Beyond Core Types)

5.1 Fixed Amount SSP

Definition: SSP defined as a fixed extended amount (no scaling).

Use case:

• One‑time deliverables
• Non‑quantity‑based obligations

5.2 Tiered or Volume‑Based SSP

Definition: SSP varies based on quantity or duration tiers.

Extended SSP:
Calculated by applying tier logic prior to extension.

Use case:

• SaaS volume pricing
• Consumption‑based contracts

5.3 Range‑Based SSP (Low / Mid / High)

Definition: SSP defined as a range rather than a point estimate.

Extended SSP:
Derived from the selected point (low, mid, or high) multiplied by quantity and duration.

Use case:

• High judgment areas
• Audit‑sensitive pricing

6. How Extended SSP Drives Transaction Price Allocation

6.1 Allocation Mechanics

Allocation is based on relative Extended SSP:

Allocation % = Extended SSP of PO / Total Extended SSP

Allocated Transaction Price = Allocation % × Transaction Price

6.2 Why Representation Type Impacts Allocation Outcomes

Different representation types can produce materially different Extended SSPs, even when conceptual SSP intent is similar.

Example:

• Margin‑based SSP reacts to cost changes
• Discount‑based SSP reacts to list price changes

This directly impacts:

• Revenue split across obligations
• Timing of revenue recognition
• Contract asset and liability balances

7. Representation Type Selection: Where, Why, and How

7.1 Where

• Product master
• Pricing policy
• Revenue accounting policy documentation

7.2 Why

• Reflects pricing economics
• Reduces estimation bias
• Aligns with audit expectations

7.3 How

• Define SSP policy per obligation type
• Assign representation type
• Derive Extended SSP consistently

8. Audit and Control Considerations

Auditors typically assess:

• Appropriateness of representation type
• Consistency of application
• Sensitivity of allocation to SSP inputs

Key control principle:

SSP representation must faithfully reflect how value is sold, not how revenue is desired.

Conclusion

Extended SSP is the operational cornerstone of transaction price allocation. SSP Representation Types transform abstract pricing policy into mathematically precise allocation inputs. Understanding why representation matters, how Extended SSP is derived, and how it affects allocation outcomes is essential for compliant, defensible revenue recognition under ASC 606 and IFRS 15.

Organizations that treat SSP representation as a strategic design decision—not a system configuration—achieve greater accuracy, audit confidence, and scalability in revenue accounting.