Customer options for additional goods or services
Customer options are rights to acquire additional goods or services, free or at a discount, such as renewal options, add-on pricing, loyalty points or volume tiers. An option is a separate performance obligation only if it provides a material right; otherwise it is a marketing offer and nothing is allocated to it until exercised.
Standard references
- ASC 606606-10-55-41 to 55-45
- IFRS 15paragraphs B39–B43
- Ind AS 115paragraphs B39–B43
Worked example
Illustrative: a subscription lets the customer add seats at any time during the term.
- Case A: extra seats cost $40 per seat per month, the same price similar customers pay. No material right; account for added seats when bought.
- Case B: extra seats cost $25 when similar customers pay $40, and the discount is available only because of this contract. That is a material right and part of the price is allocated to it.
- Contrast with usage fees under the existing contract, which are variable consideration, not options.
Result: Only Case B changes the allocation at inception.
Illustrative figures for explanation only, not taken from a real contract.
Common mistakes
- Treating optional purchases as variable consideration, or the reverse.
- Ignoring volume tiers that apply a retrospective discount.
- Not comparing the option price with the discount normally given to that class of customer.