Understanding VSOE Prices and Allocation
The items that your company sells as part of a bundle can have a vendor-specific objective evidence (VSOE) price, based on its fair market value, in addition to an invoice price as part of the bundle. VSOE prices are assigned to items that are part of the bundle and that are dependent on each other. As you sell bundles, it is the VSOE price of each item in the bundle, not its invoice price, that is the revenue amount recognized for the sale. Using the VSOE price, you can recognize deferred revenue according to the fair value of the items in a bundle.
For example, you may sell software that requires an implementation service and a maintenance contract. In the following example, these three items sell for $20,000 as a bundle:
|
Bundle Members |
Invoice price |
VSOE price |
|---|---|---|
|
Software, Product 099 |
$10,000 |
$8,000 |
|
Professional Services, 100 hours |
8,000 |
10,000 |
|
Maintenance, 1 year |
2,000 |
2,000 |
|
Total |
$20,000 |
$20,000 |
If the sales amount of a bundle differs from the bundle's VSOE amount, each member item is assigned an amount to be recognized by allocating the total sales amount across all bundle member items.
To allocate amounts in a bundle, each item must have a VSOE amount on its item record. The system cannot calculate the VSOE allocation if any item in a bundle does not have a VSOE value, and an error occurs.
The VSOE settings and statuses of an item determine the amount of revenue allocated and when it is recognized. These settings include the following:
-
When you sell a bundle, the revenue allocation may be delayed so that a schedule is not created until appropriate conditions are met.
-
When the bundle is billed, the allocated value of the bundle is recognized according to the associated recognition schedule.
When the VSOE amount is properly allocated for an order and the order is billed, the revenue can be recognized for each item based on the revenue recognition schedule generated from the assigned revenue recognition template. See Creating Revenue Recognition Templates and Working with Revenue Recognition Schedules.