Example Calculations

Revenue Management automatically allocates a revenue contract's Total Revenue value to its performance obligations in proportion to each obligation's standalone selling price (SSP). This is illustrated in the examples below, starting with a straightforward allocation in Example 1.

You can override a performance obligation's SSP and Allocated Revenue amount. This will affect how revenue is allocated across the contract as illustrated in Examples 3 and 4.

Note:

Cost values are ignored by the allocation process.

Example 1: A simple allocation

This contract has three performance obligations (A, B and C). The contract's Total Revenue is 120. The Total SSP of the performance obligations is 150.

PO

Revenue

SSP

Allocated Revenue
A 35 50 40
B 20 25 20
C 65 75 60
Totals 120 150 120

A's SSP (50) is one third of the total SSP (150) so it is allocated one third of the total revenue (120): 40

B's SSP (25) is one sixth of the total SSP (150) so it is allocated one sixth of the total revenue (120): 20

C's SSP (75) is half of the total SSP (150) so it is allocated half of the total revenue (120): 60

Example 2: Where one item is given away free of charge

This contract has three performance obligations (A, B and C). The contract's Total Revenue is 30 but C earns no revenue because it is given away free of charge. The Total SSP of the performance obligations is 40.

PO

Revenue

SSP

Allocated Revenue
A 20 20 15
B 10 10 7.5
C 0 10 7.5
Totals 30 40 30

A's SSP (20) is half of the total SSP (40) so it is allocated half of the total revenue (30): 15

B's SSP (10) is one quarter of the total SSP (40) so it is allocated one quarter of the total revenue (30): 7.5

C's SSP (10) is one quarter of the total SSP (40) so it is allocated one quarter of the total revenue (30): 7.5

Example 3: Where one item's SSP has been overridden

You can optionally set a different SSP from the value derived from the source record.

This contract has four performance obligations (A, B, C and D). The contract's Total Revenue is 180. The SSP for D has been overridden (reduced from 60 to 50) so the total SSP to use is 200.

PO

Revenue

SSP

SSP Override

SSP to use

Allocated Revenue
A 35 50   50 45.00
B 60 55   55 49.50
C 35 45   45 40.50
D 50 60 50 50 45.00
Totals 180 210   200 180

A's SSP (50) is 25% of the total SSP to use (200) so it is allocated 25% of the total revenue (180): 45

B's SSP (55) is 27.5% of the total SSP to use (200) so it is allocated 27.5% of the total revenue (180): 49.50

C's SSP (45) is 22.5% of the total SSP to use (200) so it is allocated 22.5% of the total revenue (180): 40.50

D's overridden SSP (50) is 25% of the total SSP to use (200) so it is allocated 25% of the total revenue (180): 45

Example 4: Where one item's Allocated Revenue has been overridden

When a revenue contract has multiple performance obligations, you can optionally set the allocated revenue value for a performance obligation. The remaining revenue will then be allocated across the remaining performance obligations.

This contract has three performance obligations (A, B and C). The contract's Total Revenue is 100 but the allocated revenue amount for A has been overridden.

PO

Revenue

SSP

Allocated Revenue Override

SSP of POs with values to allocate

Allocated Revenue
A 15 40 40   40
B 50 55   55 33
C 35 45   45 27
Totals 100 140   100 100

You have overridden the allocated revenue amount for A to 40. This means that of the total revenue (100) there is only 60 remaining for allocation to B and C.

B's SSP  (55) is 55% of the total SSP of POs with values to allocate (100) so it is allocated 55% of the remaining total revenue (60): 33

C's SSP (45) is 45% of the total SSP of POs with values to allocate (100) so it is allocated 45% of the remaining total revenue (60): 27

Note:

If a revenue contract has only one performance obligation, an error message is displayed if you try to override its allocated revenue value because there are no other performance obligations to allocate the remaining revenue to.