Standalone Selling Price Estimation

Step 4 of ASC 606 allocates the transaction price to each performance obligation based on relative standalone selling prices (SSP). The ideal evidence is the price you actually charge when you sell the element separately. But many SaaS elements are never sold separately — implementation is always bundled with the subscription, premium support is always included in enterprise tiers. When you do not have observable SSP, you must estimate it — and the estimation method directly determines revenue allocation and timing.

1. Observable Prices (Best Evidence) If you sell the element separately to any customers, that price is the SSP. A training program sold separately for $5,000 has an observable SSP of $5,000. Observable prices are the preferred evidence because they are market-validated. Use them whenever available.
2. Adjusted Market Assessment If you do not sell the element separately, look at what competitors charge for similar elements. Adjust for your positioning (premium vs. value) and your cost structure. If competitors charge $20K-$30K for comparable implementations, your SSP estimate might be $25K adjusted for your delivery efficiency.
3. Expected Cost Plus Margin If no market data is available, calculate the expected cost to deliver the element and add a reasonable margin. Implementation costs $15K in labor and the company targets 40% margin on services: SSP = $15K / (1 - 0.40) = $25K. This method is the fallback when observable and market data are unavailable.