Adjusted market assessment approach
The adjusted market assessment approach estimates standalone selling price by evaluating the market in which the entity sells and estimating the price customers in that market would pay. It can start from competitors' prices for similar goods or services, adjusted for the entity's own costs, margins and market position.
Standard references
- ASC 606606-10-32-34(a)
- IFRS 15paragraph 79(a)
- Ind AS 115paragraph 79(a)
Worked example
Illustrative: a new analytics add-on has never been sold on its own. Two competitors publish comparable add-ons at $30 and $36 per user per month. The vendor's documented positioning is about 10% below the market midpoint.
- Market midpoint: ($30 + $36) / 2 = $33 per user per month.
- Adjust for positioning: $33 × 0.90 = $29.70 per user per month.
- SSP for 200 users over 12 months: $29.70 × 200 × 12 = $71,280.
Result: Estimated SSP of $71,280, with the competitor evidence and the 10% adjustment kept in the workpaper.
Illustrative figures for explanation only, not taken from a real contract.
Common mistakes
- Using competitors' list prices without adjusting for the discounting typical in that market.
- Not documenting why the competitor products are comparable in features and customer class.
- Applying the adjustment percentage without evidence for it.