Salesforce.com 2015 Annual Report Download - page 84

The Company commences revenue recognition when all of the following conditions are satisfied:
• there is persuasive evidence of an arrangement;
• the service has been or is being provided to the customer;
• the collection of the fees is reasonably assured; and
• the amount of fees to be paid by the customer is fixed or determinable.
The Company’s subscription service arrangements are non-cancelable and do not contain refund-type
provisions.
Subscription and Support Revenues
Subscription and support revenues are recognized ratably over the contract terms beginning on the
commencement date of each contract, which is the date the Company’s service is made available to customers.
Amounts that have been invoiced are recorded in accounts receivable and in deferred revenue or revenue,
depending on whether the revenue recognition criteria have been met.
Professional Services and Other Revenues
The majority of the Company’s professional services contracts are on a time and material basis. When these
services are not combined with subscription revenues as a single unit of accounting, as discussed below, these
revenues are recognized as the services are rendered for time and material contracts, and when the milestones are
achieved and accepted by the customer for fixed price contracts. Training revenues are recognized as the services
are performed.
Multiple Deliverable Arrangements
The Company enters into arrangements with multiple deliverables that generally include multiple
subscriptions, premium support and professional services. If the deliverables have standalone value upon
delivery, the Company accounts for each deliverable separately. Subscription services have standalone value as
such services are often sold separately. In determining whether professional services have standalone value, the
Company considers the following factors for each professional services agreement: availability of the services
from other vendors, the nature of the professional services, the timing of when the professional services contract
was signed in comparison to the subscription service start date and the contractual dependence of the subscription
service on the customer’s satisfaction with the professional services work. To date, the Company has concluded
that all of the professional services included in multiple deliverable arrangements executed have standalone
value.
Multiple deliverables included in an arrangement are separated into different units of accounting and the
arrangement consideration is allocated to the identified separate units based on a relative selling price hierarchy.
The Company determines the relative selling price for a deliverable based on its vendor-specific objective
evidence of selling price (“VSOE”), if available, or its best estimate of selling price (“BESP”), if VSOE is not
available. The Company has determined that third-party evidence of selling price (“TPE”) is not a practical
alternative due to differences in its service offerings compared to other parties and the availability of relevant
third-party pricing information. The amount of revenue allocated to delivered items is limited by contingent
revenue, if any.
For certain professional services, the Company has established VSOE as a consistent number of standalone
sales of these deliverables have been priced within a reasonably narrow range. The Company has not established
VSOE for its subscription services due to lack of pricing consistency, the introduction of new services and other
factors. Accordingly, the Company uses its BESP to determine the relative selling price for its subscription
services.
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