Revenue recognition should be straightforward: deliver value, record the sale, move on. But when your business sells bundled software packages, implementation services, and ongoing support as a single deal, that simplicity vanishes. What customers see as one convenient purchase becomes a maze of compliance requirements for your finance team, each component demanding its own standalone selling price, recognition schedule, and audit trail. Welcome to the world of multi-element arrangements, where ASC 606 compliance can transform routine accounting into a full-time headache.
Per compliance frameworks and revenue standards like ASC 606 from the Financial Accounting Standards Board and IFRS 15, the revenue from each distinct performance obligation must be recorded individually, even when sold alongside other elements.
At scale, complying with these revenue recognition processes for MEAs quickly becomes too complex to manage manually or with limited enterprise resource planning (ERP) systems. Instead, businesses need an automated solution for bundled services revenue recognition.
Understanding Multi-Element Arrangements and Performance Obligations Under ASC 606
There’s an understandable disconnect that emerges between properly recognizing revenue for MEAs and efforts to simplify sales and increase conversions. Bundles remain part of our economic reality and often help boost sales, benefiting from psychological effects like customers perceiving a bundle as a unified whole or reducing their overall costs (“bundle and save!”).
During sales and marketing efforts, it makes sense to present MEAs to potential customers as single-solution deals or to focus on the proposed bundle’s overall pricing regardless of how that might adjust individual elements when finalizing a deal.
Conversely, the ASC 606 compliance framework and efforts to organize accounting per Generally Accepted Accounting Principles (GAAP) require separately recognizing the revenue earned from fulfilling bundled performance obligations. Each distinct good, service, or other deliverable that a business provides to customers must be identified as a single performance obligation and assigned its own standalone selling price (SSP).
Furthermore, each performance obligation likely follows its own timeline of when revenue should be recognized. Returning to the software and services bundle already used as an example, implementation and configuration should likely be considered one-time purchases, with their revenue recognized quickly.
Yet the software licenses and support likely get billed through a recurring subscription (e.g., monthly, annually). Although part of the same MEA, it’s more difficult to determine the SSPs and allocate overall transaction prices if the revenue from deliverables is recognized on different timelines.
The major compliance requirements for ASC 606 can be summed up in five steps, demonstrating this process and how MEAs introduce greater accounting complexities:
- Identifying the contract
- Identifying the contract’s separate performance obligations
- Determining the overall transaction price (for the full bundle)
- Assigning percentages of the transaction price to performance obligations
- Recognizing revenue as separately identifiable performance obligations are met
Following these steps not only ensures compliance with ASC 606 but also provides finance teams with a structured framework to handle the added complexities of multi-element arrangements with confidence and accuracy.
The Challenge of Bundled Services Revenue Recognition
Complexity and complications can be introduced into revenue recognition accounting in several ways. Sometimes this might involve determining which revenue recognition method to use for a new product.
But recognizing revenue generally becomes more difficult because of all the little details, determining whether (and how) to separate revenue items, performing time-consuming allocations, and generating reports, which compound at scale.
Complex Contracts
Revenue accountants may not view complexity the same way others do, since breaking down detailed deals is part of their everyday work. But when it comes to multi-element arrangements (MEAs), complexity isn’t optional; it’s built in. Bundled offerings must be deconstructed into their component performance obligations, each with its own SSP and recognition schedule.
For finance teams working without automation, this means painstakingly reviewing every contract to determine the different performance obligations and assigning their revenue treatment, wrestling with spreadsheets, manual calculations, and reporting inefficiencies.
RightRev removes this burden by automatically breaking down bundled components and applying revenue treatment separately, while keeping everything part of the same contract.
SSP Calculations and Allocations
The first common challenge of recognizing revenue with bundles involves determining each performance obligation’s standalone selling price and allocating revenue across the contract accordingly as it’s earned; whatever the promised good or deliverable is worth at its full price and without any other additions constitutes its SSP.
In simple scenarios, a given deliverable’s SSP might be readily observable, but businesses must often estimate these figures.
Other appropriate methods for estimating SSPs that aren’t directly observable include:
- Percentage of Total Transaction: The quickest method for estimating individual performance obligations’ SSPs is doing so according to their percentage of the total transaction price, as seen above in ASC 606’s five steps.
- Adjusted Market Assessment: A business might look to the broader market, its competition, supply and demand, emerging trends, and other relevant factors to determine various SSPs.
- Expected cost plus margin: If you can determine the relevant direct and indirect costs and factor in profit expectations, you can establish a perceived value or expected value.
- Residual: This method solves for a deliverable’s unknown standalone value by removing all known SSPs from the bundle’s overall total price, and deciding allocations based on what amount remains.
However, this challenge doesn’t so much emerge because the calculations are difficult, as once a business decides the appropriate revenue recognition method, the process becomes fairly routine (outside of a la carte bundles that customers can fully customize).
Instead, the real problem with SSP calculations and allocations isn’t the math, it’s the process. Most ERPs don’t manage SSPs in-system, so contracts and revenue arrangements live in one place while SSPs live in another. Accountants are then stuck reconciling multiple sources of truth just to assemble a holistic view of revenue.
Types of Bundled Configurations
It’s important to note that some revenue-related items may be listed in a contract without them constituting an individual performance obligation.
For example, if the SaaS company separately sells a small module that cannot operate outside the software bundle being provided, then it might not require an SSP. The module isn’t distinct or sold separately, so it doesn’t meet the requirements.
These smaller, dependent add-ons can complicate identifying performance obligations and how to break up a contract into its individual components. For example, customer success teams might have their services included for free within every contract.
Businesses that provide bundled offerings this way must determine whether each configuration is a:
- Fully distinct bundle: Everything included within the bundle counts as its own performance obligation, making it easy to break up contracts into their allocation percentages.
- Partially distinct bundle: The bundle comprises both performance obligations and dependent add-ons that don’t require recognizing revenue unless they could be considered part of another obligation.
- Non-distinct/highly interrelated bundle: Following the same pattern, these bundles may only include a small number of performance obligations or many modules to make combined performance obligations. They’re the most complex when it comes to allocating SSPs.
By correctly classifying each bundle type, businesses can ensure precise SSP allocation, avoid revenue mistreatment, and maintain ASC 606 compliance while still offering customers the flexibility of bundled packages.
Contract Modifications
After successfully navigating negotiations and formalizing contract terms that include the appropriately allocated SSPs, contract terms can still change. Sometimes, customers may increase or decrease the number of licenses under their subscription bundle, a project might grow larger than anticipated, or the customer may even drop a service if they are dissatisfied.
Situations like these alter the scope of an existing contract (e.g., reducing quantity, changing price, cancelling/returning, extending term dates, modifying scopes of work).
Resultantly, they also require revisiting the original contract, with three ways to handle the necessary updates:
- Create a separate contract: Particularly when customers capitalize on upsell opportunities, receive service separately, or make simple changes that don’t affect the contract’s scope, businesses can often just create a new contract specific to the change.
- Terminate the old contract and create a new one: If the scope of the original contract changes, it might be best to simply terminate the old contract and draft new documents.
- Contract modifications: This process involves adjusting both the original contract and retroactively adjusting revenue to reflect the new contract’s scope.
Regarding both contract terminations and modifications, businesses will likely need to issue financial restatements that account for any adjustments and keep investors informed of the revenue recognition changes.
High Volume
Accounting and finance teams already stretched thin by manual processes or rigid ERP systems will only feel the strain intensify as the business scales. What works for a handful of contracts quickly breaks down under the weight of hundreds or thousands, leading to more errors, longer closes, and limited revenue visibility and insights.
Industry data confirms this trend: According to Gartner, nearly 60% of accountants report making several errors per month, largely due to unmanageable workloads. Beyond mistakes, slow processes delay month-end closes and deprive leadership of the real-time financial insights they need for strategic decision-making.
The risks don’t stop there. As contract volume grows, so does the likelihood of missed allocations, compliance gaps, and audit headaches. Every SSP allocation, contract modification, or bundled obligation must leave a clear, traceable record, something manual systems and bolt-on ERP modules weren’t designed to deliver.
RightRev solves this by providing comprehensive audit trails that automatically log every allocation, adjustment, and modification. No matter how complex or high-volume the environment, finance teams can maintain accuracy, compliance, and confidence at scale.
How RightRev Simplifies Bundled Arrangements and Revenue Recognition
Accountants seeking timely, accurate revenue recognition (and workload relief) will find the most comprehensive solution with RightRev. The accounting software solution streamlines compliance with ASC 606 for private companies and publicly traded companies.
Unlike ERP systems designed for simplistic revenue recognition processes, RightRev provides the following features and key components directly out of the box, handling complex customer contracts and scenarios.
No costly or clunky custom scripting. No workarounds.
Automatic Allocation of Transaction Price
When getting started with RightRev, businesses will preconfigure (either by upload, formula, or determined based on historical data) SSP policies. That way, RightRev knows how to precisely allocate every new contract across the bundled performance obligations or revenue items.
For example, consider again the SaaS company that provides software licenses, implementation, and support. After implementing RightRev for the accounting team, the SaaS company uses one of the revenue recognition methods described above to determine SSPs and configure the software, allocating 50% of the total transaction price to the software, 30% to support, and 20% to implementation.
From now on, customer purchases will automatically be split according to those preconfigured percentages at contract inception, and the company will satisfy ASC 606 compliance requirements.
Should one of the SaaS company’s customers change their contract’s scope and require modification, RightRev will even detect and automate the necessary recalculations according to the updated contract terms.
Recognition Schedules Tailored to Each Obligation
To remain compliant with ASC 606, the core principle is to recognize revenue once it’s been earned via delivery or transferring control of the contracted goods and services. That’s the major reason why accountants need to factor different performance obligation schedules alongside the SSP distribution when calculating bundles of multiple offerings.
When that SaaS company performs the initial implementation for their new customers, it should be considered a one-time event; when the customer uses the software, it should be considered an ongoing performance obligation with revenue recognized each month.
So, while crucial, it’s not enough for a leading revenue recognition solution to calculate the percentages for each obligation. Beyond those capabilities, supporting ASC 606 compliance at the contract level, like RightRev, requires recognizing different schedules among performance obligations and still successfully automating the allocation process.
Real-Time Updates When Contracts Change
Handling contract modifications usually ranks among the most difficult revenue recognition tasks, as they require retroactive updates to properly recognize the new revenue amounts and extensive double-checking for accuracy. However, RightRev also automates contract changes behind the scenes with ease.
Crucially, RighRev doesn’t merely remove individually cancelled performance obligations; instead, the software analyzes the original contract to determine how the obligation’s percentage of revenue should be redistributed across the contract’s remaining goods and services promised.
Even when contract changes occur mid-term, RightRev maintains the original contract’s rules and ensures operations stay accurate and compliant, helping reduce the need to revise financial statements.
RightRev’s Advantage: Automation at Scale
RightRev isn’t just purpose-built to tackle complex revenue recognition scenarios out of the box; it also delivers optimal performance at scale in high-volume environments.
Beyond ASC 606 and IFRS 15 compliance, RightRev also provides:
- Flexible rules engine: Preconfigure revenue schedules by performance obligations, SSP application rules, bundle configurations, and break down, and more as your business demands require.
- Seamless integrations: RightRev integrates with Salesforce, billing platforms, and ERP systems. These integrations enable RightRev to interoperate with other financial systems and serve as a revenue sub-ledger.
- Dynamic updates: Whenever RightRev’s solution detects a contract change or modification, the software automatically begins recalculating the original contract’s adjusted revenue recognition and the remaining performance obligations.
- Audit trails: To best ensure compliance and accuracy, all system activity is logged and available to regularly review.
Together, these capabilities empower finance teams to streamline revenue recognition, maintain compliance with confidence, and scale operations without the friction of manual processes or outdated systems.
Epicor Case Study
Epicor, a global software provider, struggled to manage revenue recognition across customer contracts with numerous SKUs and performance obligations. Their accounting team spent significant time reconciling data from disparate systems, which slowed month-end close and limited their ability to provide strategic financial insights. The challenge wasn’t the work itself, but the heavy workload and inefficiency of manual processes.
With RightRev, Epicor now automates transaction price allocation across bundled elements, accelerates reporting, and scales revenue recognition without adding headcount. The results are clear: Greater accuracy, faster closes, and stronger compliance confidence.
What Finance Leaders Should Look for in a Revenue Recognition Solution
Finance leaders looking to evaluate revenue recognition software should start by evaluating the complexity of their current processes.
The most important questions to ask include:
- Can the solution handle multi-element arrangements automatically?
- Does it support custom allocation logic and SSP management?
- Is it easily configured right out of the box, or will it require custom code?
- How well does it integrate with the tech environment the company expects?
- Will the solution also provide insight for high-level decision-making and measuring progress?
- Does it maintain detailed records and audit logs?
With RightRev, it’s a resounding yes to all of the above.
Achieve Streamlined Compliance for Multiple Element Arrangements
Accounting operations often experience challenges regarding revenue recognition, whether that’s determining methods, calculating SSP allocations, modifying old contracts, or simply trying to dig themselves out from under their workload.
Introduce MEAs and bundles to these circumstances, along with high-stakes ASC 606 compliance, and you should see a boost to accountants’ exasperation.
Getting bogged down with manual efforts and ill-suited tools isn’t the answer. Speed, accuracy, and flexibility are.
And that’s possible with RightRev.
To discover more about how RightRev automates and accelerates accurate revenue allocation at scale, reach out to schedule a demo, or see for yourself how RightRev handles multi-element arrangements in this short demo.
