Oops! Something went wrong while submitting the form.
Get a Demo
See your data in HubiFi < 2 days
Get clear, actionable steps for determining ASC 606 standalone selling price and learn how to keep your revenue recognition accurate and audit-ready.
As your business grows, the spreadsheets that once managed your finances start to break. This is especially true when it comes to revenue recognition. With a higher volume of contracts and more complex product bundles, manually tracking each component becomes nearly impossible and introduces significant risk. This is where a deep understanding of the ASC 606 standalone selling price becomes a strategic necessity. It’s the key to building a scalable and repeatable process for allocating revenue correctly, no matter how many transactions you’re handling. This article will cover the essential practices for establishing a robust SSP framework that can support your company’s growth, maintain compliance, and provide the financial clarity needed to make smart decisions.
If your business bundles products or services together in a single contract, understanding the Standalone Selling Price (SSP) is non-negotiable for ASC 606 compliance. Think of it as the foundation for recognizing revenue correctly. While the term might sound like accounting jargon, the concept is pretty straightforward: it’s all about figuring out the individual value of each item you sell. Getting this right is crucial for ensuring your financial reports accurately reflect how and when you earn your revenue. For companies with high transaction volumes, this process can become complex quickly, which is why many turn to automated revenue recognition to maintain accuracy and efficiency. Properly determining SSP helps you create a clear, defensible, and compliant revenue story that stands up to scrutiny from auditors and investors alike. It’s the difference between a clean audit and a series of painful questions about your methodology. Without a solid SSP framework, you risk misstating revenue, which can have serious consequences for financial reporting, investor confidence, and even your company's valuation. It’s not just about following the rules; it’s about building a financially sound business from the ground up.
At its heart, the Standalone Selling Price is simply the price you would charge a customer for a good or service if they bought it separately. Imagine you sell a software subscription that comes with a one-time implementation service. If you also offer that implementation service on its own for $500, then $500 is its SSP. It’s the observable, fair market price for that specific deliverable. This price is the anchor you’ll use to figure out how much revenue to recognize from a bundled deal. It’s not a guess, but rather a figure based on your actual pricing strategy or solid market data.
SSP is the key to correctly allocating a contract’s total price across multiple performance obligations—a term ASC 606 uses for each distinct promise you make to a customer. When you sell a bundle, you receive a single payment, but you deliver value at different times. For example, you might deliver software access over a year and a training session in the first month. You need to split the total payment between the software and the training to recognize revenue as each is delivered. SSP provides the method for this split, ensuring your revenue reporting aligns with your actual performance and meets ASC 606 compliance standards.
It’s easy to confuse SSP with the contract price, but they serve different purposes. The contract price (or transaction price) is the total amount a customer agrees to pay for a bundled package, which often includes a discount. The SSP, on the other hand, is the full price of an individual item if sold alone. For instance, if your software’s SSP is $1,200 and support’s SSP is $300, the combined standalone value is $1,500. If you sell them together for a discounted contract price of $1,300, you can’t just assign the full $1,200 to the software. Instead, you must allocate the $1,300 discount proportionally across both items based on their SSPs.
Determining the Standalone Selling Price (SSP) is the cornerstone of allocating revenue correctly under ASC 606. While it might sound complicated, the standard provides a few practical methods to get you there. The goal is always to estimate the price a customer would pay for a good or service if they bought it separately. Think of it as finding the "fair value" for each distinct promise you make to your customer. Choosing the right approach depends on the data you have available and the nature of your products or services. Let's walk through the accepted methods you can use.
This is the most straightforward and reliable way to determine SSP. The idea is simple: if you already sell a specific product or service on its own, that price is your observable SSP. You don't need to estimate anything because you have direct evidence of what the market is willing to pay. For example, if you sell a software license bundled with a support package, but you also sell that same support package separately for $500 a year to other customers, then $500 is your observable SSP for the support. This method is preferred by auditors because it’s based on concrete, verifiable transaction data.
What if you don't sell a particular item separately? The next best thing is to look at what your competitors are charging for a similar product or service. This approach requires you to do a bit of market research to figure out the price a customer would realistically pay. You might look at competitors' public price lists or industry reports. You’ll then need to adjust that market price to reflect your own company’s costs, expected margin, and market position. For instance, if a competitor’s product is slightly more advanced, you might adjust your estimated SSP downward to account for that difference.
When you can't find a direct observable price or a comparable market price, you can build the SSP from the ground up. This method involves forecasting the total costs required to fulfill the performance obligation and then adding a normal profit margin. The costs should include direct labor, materials, and any other allocated expenses. The key is to ensure the margin is reasonable for your industry and consistent with what you apply to similar products. This approach is often used for new or highly customized services where no direct market equivalent exists, making it a valuable tool for innovative business models.
This method is a bit different and should only be used in specific situations. You can use the residual approach when you have a bundle of goods or services where the SSP for some items is highly variable or uncertain, but you have a reliable SSP for the other items. You start with the total transaction price and subtract the known SSPs of the other items in the bundle. The leftover amount becomes the estimated SSP for the uncertain item. The Financial Accounting Standards Board (FASB) has specific criteria for using this method, so it’s important to document your reasoning carefully if you choose this path.
You aren't limited to using just one method for a single contract. In fact, for complex bundles, it’s common to use a combination of approaches. You might use the observable price for one performance obligation, a market assessment for another, and a cost-plus-margin approach for a third. This flexibility allows you to use the most reliable data available for each distinct part of the contract. The ultimate goal is to arrive at an SSP that faithfully represents the value of each item. Managing these different inputs can be complex, which is why many businesses rely on automated solutions to maintain consistency and ensure compliance.
Determining the standalone selling price for your products and services sounds simple enough on paper. But when you start applying the principle to real-world scenarios, things can get complicated quickly. Several common hurdles can make estimating SSP a genuine challenge for finance teams, requiring careful judgment and a solid strategy to overcome.
What do you do when a product or service has never been sold on its own? This is a common problem for businesses that offer integrated solutions or add-ons that are always part of a package. Without a history of standalone sales, you have no direct observable price to use. In this case, you have to estimate its standalone selling price based on the best available information. This often means relying on estimation techniques and exercising significant judgment, which can feel uncertain and open up your process to scrutiny during an audit.
Many companies sell products and services in bundles—think of a software license that comes with implementation services and a year of customer support. When you sell a package like this, ASC 606 requires you to allocate the total transaction price across each distinct item. The challenge lies in figuring out the standalone selling price for each component to ensure the revenue is recognized correctly as each obligation is fulfilled. This process can be complex, especially when the bundle includes a mix of goods, services, and licenses with different delivery timelines.
Your business doesn't operate in a vacuum. Market conditions, competitor pricing, and customer expectations are constantly changing, and these factors can directly influence a product's standalone value. An SSP you determined last quarter might not be appropriate today. To stay compliant, you need to use as much real-world information as you can gather, considering everything from broad market trends to specific customer segments. This requires ongoing analysis and a willingness to adjust your estimates as the market shifts, making SSP a dynamic target rather than a fixed number.
Determining SSP isn't just a job for the accounting department. It requires input and collaboration from multiple teams, including sales, marketing, finance, and product development. Your sales team has insights into pricing strategies and what customers are willing to pay, while your finance and accounting teams understand the compliance requirements. Getting everyone on the same page is crucial for accuracy. Without clear communication and a collaborative process, you risk using inconsistent data, leading to inaccurate revenue allocation and compliance issues down the road.
Under ASC 606, it’s not enough to simply estimate your SSP; you have to document how you arrived at that figure. You must establish the SSP at the beginning of a contract and maintain thorough records of the methods, data, and judgments you used. This documentation is your proof of compliance and will be essential if you’re ever audited. For many businesses, creating and managing this audit trail can be a significant administrative burden, especially when dealing with a high volume of contracts or complex offerings. Failing to meet these documentation demands can put your company at risk.
Determining your Standalone Selling Price is a critical step, but implementing it consistently and accurately is where the real work begins. Getting it right means you can confidently recognize revenue, pass audits, and make smarter business decisions. The key is to build a process that is clear, repeatable, and grounded in solid data. These best practices will help you create a framework that not only ensures compliance but also supports your finance team instead of creating more headaches for them. Think of it as building a strong foundation—once it’s in place, everything else becomes much easier to manage.
Your SSP doesn't need to be a single, rigid number. In fact, it’s often more practical to use a range. The trick is to make sure this range is meaningful. According to ASC 606 guidance, your SSP range should be narrow enough to be precise and concentrated enough that the majority of your standalone sales for that item fall within it. For example, setting a range of $100-$500 is probably too wide, but $100-$120 could be perfectly acceptable if most of your transactions land there. This approach gives you flexibility while maintaining the integrity of your revenue allocation.
Markets shift, pricing strategies evolve, and customer behaviors change. Because of this, your SSP is not a "set it and forget it" figure. You should plan to review and update your SSPs on a regular basis—at least annually, or more often if you’re in a fast-moving industry. If you use a specific estimation method, like the residual approach, you need to periodically confirm it’s still the most appropriate choice. A regular review process ensures your SSPs continue to reflect market realities and keeps your revenue recognition accurate and defensible. It’s a simple habit that can save you from major compliance issues down the road.
The quality of your SSP estimate depends entirely on the quality of your data. That’s why a strong data management strategy is non-negotiable. Always start by looking for the most direct, observable evidence available. Before you turn to more complex estimation methods, you should be pulling data from your CRM, ERP, and billing systems to find actual standalone sales. Having a system that can integrate disparate data is a huge advantage here. It gives you a single source of truth, making it easier to find the observable prices you need and build a reliable foundation for any estimates you have to make.
When it comes to an audit, you’ll need to show your work. The best evidence for your SSP is the price at which you sell a good or service separately to similar customers in similar circumstances. If you have that, your job is much simpler. If you don’t, you’ll need to document how you arrived at your estimate using one of the approved methods. This means keeping detailed records of the market data you analyzed, the cost-plus calculations you performed, or the logic behind your residual approach. The goal is to create a clear audit trail that justifies your conclusions and demonstrates a consistent methodology.
Consistency is key for ASC 606 compliance. Once you’ve chosen a method for determining the SSP of a particular item, you should apply it consistently across all similar contracts. The best way to ensure this happens is by creating clear, written policy guidelines. This document should act as a rulebook for your team, outlining which methods to use in which scenarios and how to document the process. It removes guesswork, reduces the risk of human error, and makes training new team members much more straightforward. An automated solution can also help enforce these policies, ensuring every transaction is handled correctly.
Determining SSP is straightforward when you sell one product at a fixed price. But business is rarely that simple. Contracts evolve, product bundles get complicated, and pricing strategies shift. These situations can turn revenue allocation into a serious puzzle. When you’re dealing with moving parts like contract changes or bundled services, you need a clear strategy to stay compliant and ensure your financial reporting is accurate. Let’s walk through some of the most common complex scenarios and how to handle them.
Contracts aren't always set in stone. When a customer adds a service, removes a product, or changes the terms of your agreement, it’s considered a contract modification. This requires you to re-evaluate the transaction price and how it’s allocated across the performance obligations. The key is to determine standalone selling prices for each distinct good or service at the contract's inception. When a modification occurs, you treat it as a new, separate contract or as a change to the existing one, depending on the specifics. This decision impacts how you recognize revenue moving forward, making it critical to get right.
Similar to contract modifications, your performance obligations—the promises you’ve made to your customer—can change over time. You might add a new feature, extend a service period, or remove a deliverable. If you don’t have a directly observable price for a new or altered obligation, you’ll have to estimate its SSP. To do this, you should use all the observable information you can, considering market conditions and customer-specific factors. This ensures your revenue recognition roadmap remains accurate even when the scope of your deliverables shifts.
Many businesses sell goods and services together in a single package or bundle. These are known as multi-element arrangements, and they are a primary reason SSP is so important. Under ASC 606, you must allocate the total contract price to each separate item in the bundle based on its relative SSP. This process ensures that you recognize revenue as each distinct promise is fulfilled. The main challenge is accurately identifying the standalone selling prices for each component, especially when some items in the bundle aren't typically sold on their own.
Variable consideration includes things like discounts, rebates, refunds, or performance bonuses that can change the total transaction price. This uncertainty adds another layer of complexity to SSP. If the price of a good or service is highly variable, you might use the residual approach to estimate its SSP. This involves taking the total transaction price and subtracting the known SSPs of the other items in the contract. The remaining amount is then allocated to the item with the uncertain price. However, this method should be used carefully, as it’s only appropriate in specific situations where an item’s value is not easily determined on a stand-alone basis.
Determining your Standalone Selling Price isn't a one-time task you can check off your list. Think of it as a living component of your financial reporting that requires ongoing attention to stay accurate and compliant with ASC 606. Market conditions shift, pricing strategies evolve, and new products are launched. Your SSP methodology needs to keep pace with these changes.
Maintaining your SSP is about more than just following the rules; it’s a strategic practice that ensures your revenue recognition is always based on a solid foundation. When you have a reliable process for reviewing and updating your SSP, you’re not just preparing for a smooth audit—you’re also gaining a clearer, more accurate view of your company’s performance. This clarity helps you make better decisions about pricing, product bundling, and overall business strategy. By establishing a routine for SSP maintenance, you can confidently stand behind your financial statements and focus on growing your business.
Your prices don’t exist in a vacuum, and neither should your SSP. To keep your estimates accurate, you need to regularly look outside your own company and assess the broader market. This involves considering all the information you can reasonably get your hands on to understand what customers are willing to pay. Keep an eye on your competitors’ pricing for similar goods or services, and pay attention to industry trends and customer demand. If you operate in a market with dynamic pricing, this step is even more critical. A consistent market assessment ensures your SSP reflects current economic realities, not just historical data.
Once you’ve gathered market intelligence, you need a formal process to act on it. While an SSP is determined at the start of a contract, the assumptions behind it can become outdated. That’s why it’s essential to regularly check that your methodology is still appropriate. Establish a cadence for these reviews—whether quarterly, semi-annually, or annually—and stick to it. You should also define triggers for an ad-hoc review, such as a significant change in your pricing strategy or a major market shift. This creates a systematic approach that keeps your SSP analysis relevant and defensible.
SSP determination shouldn't fall on the shoulders of a single department. True accuracy comes from collaboration between your pricing, sales, accounting, and finance teams. Building strong internal controls means creating a clear, documented workflow for how SSP is established, reviewed, and approved. Each team brings a valuable perspective: sales can provide on-the-ground pricing insights, while finance and accounting ensure the methodology aligns with ASC 606 guidelines. Using systems with seamless integrations can make this cross-functional collaboration much easier by ensuring everyone is working from the same set of data.
If an auditor ever questions your SSP, your documentation will be your best defense. A well-managed audit trail tells the story of how you arrived at your SSP estimates. It should include the data you used, the valuation method you chose, the rationale for that choice, and the approvals you received. This is especially important if you use a method like the residual approach, which requires strong justification. Keeping meticulous records demonstrates a good-faith effort to comply with ASC 606 and provides concrete evidence to support your financial reporting. For more tips on financial operations, you can find helpful articles on the HubiFi blog.
Determining and managing Standalone Selling Prices is a detailed process, and doing it manually can feel like a full-time job. As your business grows, tracking every performance obligation, market shift, and contract modification in spreadsheets becomes a huge source of risk. You’re not just dealing with complex calculations; you’re also trying to keep up with a mountain of data from different systems. This is where manual processes often fall short, leading to errors, compliance issues, and a lot of time spent on tedious work.
An automated revenue recognition solution takes this burden off your plate. Instead of manually pulling data and running calculations, you can let a dedicated system handle the heavy lifting. These platforms are designed to manage the complexities of ASC 606 by connecting your financial data, applying consistent logic, and maintaining a clear audit trail. It’s not about replacing your team’s expertise but giving them the right tools to work more efficiently and accurately. By automating SSP management, you can free up your finance team to focus on strategic analysis rather than getting stuck in the weeds of compliance.
One of the biggest headaches in SSP calculation is getting all your data in one place. Your customer information might be in a CRM, your billing details in another platform, and your financial records in your accounting software. Manually consolidating this information is not only time-consuming but also prone to human error. An automated solution acts as a central hub, connecting directly to your existing systems. This creates a single source of truth for all your revenue data. With seamless integrations, you can ensure that your SSP calculations are always based on complete, consistent, and up-to-date information without the manual data entry.
Markets change, pricing strategies evolve, and your product catalog grows. Your SSPs need to reflect these dynamics, but manually reviewing them quarterly or annually might not be enough. An automated system can monitor your sales data and market inputs in real-time. This means you can spot trends and adjust your SSPs as needed, ensuring they remain accurate and defensible. For businesses with complex product bundles or dynamic pricing, this continuous oversight is essential for staying compliant. It allows you to be proactive, making sure your revenue recognition practices keep pace with your business. You can find more helpful articles on financial operations in our HubiFi blog.
How do you know you’re using the best information to estimate your SSP? ASC 606 guidance suggests using the most observable evidence available. An automated solution can help by running validation checks on your data automatically. You can set rules to compare your SSPs against historical transaction prices, competitor data, or other market indicators. The system can flag any outliers or inconsistencies that need a closer look. This automated validation adds a crucial layer of assurance, helping you build a stronger, more defensible SSP analysis that will stand up to scrutiny during an audit.
Creating and maintaining the documentation required for ASC 606 compliance is a significant undertaking. You need a clear audit trail that shows how each SSP was determined, what data was used, and why a specific method was chosen. An automated platform handles this for you. It logs every calculation and change, creating a detailed, time-stamped record of your SSP policies and their application. When it’s time for an audit, you won’t have to scramble to pull together spreadsheets and notes. All the supporting evidence is organized and easily accessible, making the entire process much smoother. You can schedule a demo to see how HubiFi can streamline your documentation.
SSP determination isn’t just a finance task; it requires input from your sales, legal, and product teams. When everyone is working out of different spreadsheets, it’s easy for wires to get crossed. An automated solution provides a centralized platform where all stakeholders can collaborate effectively. Everyone works from the same data set, ensuring alignment across departments. This transparency breaks down silos and fosters a more cohesive approach to revenue recognition. It ensures that your pricing strategies and SSPs are developed with a complete picture of the business, leading to more accurate and strategic decisions.
What's the simplest way to think about Standalone Selling Price? Think of it as an item's "sticker price." It's the price you would charge a customer if they bought that single product or service on its own, without any bundling or special discounts. This price is the foundation you use to fairly divide the total revenue from a bundled contract across each individual promise you've made to your customer.
What if we never sell a particular product on its own? How do we find its SSP? This is a very common situation, and you have a few options. You can look at what your competitors charge for a similar offering and adjust that price to fit your business. Another way is to calculate your direct costs to deliver the product or service and then add a reasonable profit margin. The most important thing is to choose a logical method, apply it consistently, and document why you chose it.
Why is it so important to document our SSP methodology? Your documentation is your proof of compliance. When an auditor reviews your financials, they will want to see how you arrived at your revenue figures. A clear audit trail that explains the data, methods, and judgments you used to determine your SSPs shows that you have a thoughtful and consistent process. It’s your best defense against compliance issues and demonstrates the integrity of your financial reporting.
How often should we be reviewing our SSPs? Your SSPs are not set in stone because markets and pricing strategies change. A good rule of thumb is to review them at least once a year. However, if you're in a dynamic industry or you frequently adjust your pricing, you may need to conduct reviews more often, such as quarterly. The goal is to ensure your SSPs always reflect the current value of your offerings.
Can we use different methods to determine SSP for different items in the same contract? Yes, you absolutely can, and for complex contracts, it's often necessary. You might have a clear, observable price for one part of the bundle and use that. For another, more customized service, you might need to use a cost-plus-margin approach. The standard allows for this flexibility so you can use the most reliable and appropriate method for each distinct performance obligation in the contract.
Former Root, EVP of Finance/Data at multiple FinTech startups
Jason Kyle Berwanger: An accomplished two-time entrepreneur, polyglot in finance, data & tech with 15 years of expertise. Builder, practitioner, leader—pioneering multiple ERP implementations and data solutions. Catalyst behind a 6% gross margin improvement with a sub-90-day IPO at Root insurance, powered by his vision & platform. Having held virtually every role from accountant to finance systems to finance exec, he brings a rare and noteworthy perspective in rethinking the finance tooling landscape.
Copyright © 2025 HubiFi | All rights reserved.
