BROADSOFT, INC. | 2013 | FY | 3


Multiple Element Arrangements
The Company accounts for multiple element arrangements that consist of software and software-related services, collectively referred to as “software elements”, in accordance with industry specific accounting guidance for software and software-related transactions. For such transactions, the Company generally allocates revenue to the software license by determining the fair value of the undelivered elements, which is usually maintenance support and professional services. The Company establishes vendor-specific objective evidence ("VSOE") of the fair value of the maintenance support based on the renewal price as stated in the agreement and as charged in the first optional renewal period under the arrangement. VSOE for professional services is determined based on an analysis of our historical daily rates when these professional services are sold separately from the software license.
For the Company's cloud offering, multiple element arrangements that include subscription and professional services, the Company allocates revenue to all deliverables based on their relative selling prices. In such circumstances, the Company uses the following hierarchy to determine the selling price to be used for allocating revenue to deliverables (a) vendor-specific objective evidence of fair value, (b) third-party evidence of selling price and (c) best estimate of the selling price. Best estimate of selling price reflects the Company’s estimates of what the selling prices of elements would be if they were sold on a stand-alone basis. Factors considered by the Company in developing relative selling prices for products and services include the discounting practices, price lists, go-to-market strategy, historical standalone sales and contract prices.

us-gaap:RevenueRecognitionMultipleElementArrangements