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Will volume discount for future purchase create an additional element for revenue allocation under EITF 08-1?

We're a software company. Recently, we've rolled out our subscription model in addition to our traditional on-premise licensing.  In the first couple of months of marketing and selling, the sales team realized that there is strong demand from the market for additional discounts based on volume purchased (sort of tiered pricing). The question is, if we include the varying discounts on future purchases (they’re optional) for a SaaS arrangement, will the additional discounts create an additional element when it comes to the allocation of revenue based on the relative pricing under EITF 08-1? I appreciate your professional opinions in advance.



Miklos Szabo
Title: Revenue Recognition Manager
Company: SAP
(Revenue Recognition Manager, SAP) |

I'd say if your volume discount schedule is sufficienty objective and is applied consistently, you could argue that the additional volume discouts no not grant the customer a material right that must be accounted for separately as a future incremental discount.

Keep in mind that the software elements are in the scope former 97-2 (ASC 985) and in a combined deal with software and SAAS elements you might have to allocate the transaction price to the software elements as a group on a relative selling price basis to then in a second step further allocate the transaction price within the software group (probably based on the residual method).

(Sr. Revenue Manager) |

Thanks Miklos. I think that is the answer. If the customer is not provided a discount that is incremental to that which other customers usually receive (for example a customer is given the typical discount off the vendor’s list price) no incremental value has been provided to the customer and the future discount is not considered incremental.


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