Defining Average Selling Price

The Average Selling Price (ASP) is the price whereat a specific section of service or product is generally sold. The ASP gets impacted by the product type and its lifecycle.

This metric can be used to figure out the average selling price of a product across different channels of distribution, a product category in a firm, or even the Market as a whole.

Understanding the Average Selling Price

The term average selling price is generally used more for such businesses that are running at moderate to high volume, including technology, food, retail and more. However, the use of this metric can be seen in almost every business type.

ASP can be a positive indicator that signifies the sales team's effectiveness, its position in the market, and how the market is being commoditized. Unlike other metrics that help evaluate the revenue, ASP is extremely visible to customers and has to be comprehended and leveraged by both the sales and the marketing team. This metric can also be an effective method for sales executives to compare how various parts of the team are performing. However, this metric may vary to a great extent between segments and companies, like geography, target users and more.

For instance, for a company that is operating in the SaaS domain, the ASP is regarded as the average price that a new customer is paying while subscribing to their service for the first time. In such a situation, it is known as the Average Revenue Per New Account and is regarded as a part of ARPA. Moreover, for Average Order Value (AOV), ASP is one of the excellent support metrics that offers context behind the reasons why AOV is decreasing or increasing.

How to Calculate the Average Selling Price?

To understand this metric better, let’s take an example here. Suppose there is a premium shoe designer who sold 10,000 pairs at a price of Rs. 250 each, 13,000 pairs at a price of Rs. 220 each and 20,000 pairs at a price of Rs. 180 each.

Now, to calculate the average selling price, first of all, the total revenue amount that the designer earned will have to be calculated. So, this will be done by:

• 10,000 * Rs. 250 = Rs. 2,500,000
• 13,000 * Rs. 220 = Rs. 2,860,000
• 20,000 * Rs. 180 = Rs. 3,600,000

This way, the total amount of revenue earned is Rs. 8,960,000. Next, the number of units that have been sold will be added. The result comes out to 43,000.

Lastly, the final step is to divide the total revenue by the total number of sold units. Thus:

Average Selling Price = Rs. 8,960,000 / 43,000 = Rs. 208.37