Average Sale Price Meaning
The average sale price (ASP) is the average amount a customer pays when they buy a product or subscribe to a service. It’s calculated by dividing the total average recurring revenue (ARR) from new customers by the total number of new customers during that period. ASP does not include revenue from upgrades or renewals. It is also known as the average selling price or average revenue per new account.
For example, if a business earns $10,000 in subscription fees from 100 customers, the ASP would be $10. Note that the ASP is an average metric. In this example, perhaps the new customers paid subscription fees ranging from $5 to $50 depending on the features and services they opted for.
Factors affecting the ASP include:
- Competitor action and other shifts in market conditions.
- Transaction volume. Higher volumes allow price reduction taking advantage of economies of scale.
- Brand strength. More recognizable brands can set higher prices than their less known competitors.
- Maintaining profit. Tight profit margins may require maintaining higher ASP to stay profitable and competitive.
ASP is a sales metric that assesses the performance of sales and marketing teams and whether your product is a good fit for the market. It provides insights on product demand and important insights on your business overall. The ASP could serve as a benchmark of current market prices when developing pricing for new product offerings.
More granular analysis of ASP data will show, for example, what regions, segments or personas tend to have larger transaction sizes. This could inform how much advertising spend you should allocate to each region or segment.
When making business decisions, the ASP is usually evaluated against other performance metrics such as annual contract value (ACV), average revenue per account (ARPA) and customer lifetime value (CLV/LTV).