What is Average Selling Price?
The Average Selling Price (ASP) is the approximate amount a customer pays to purchase a specific product.
How to Calculate Average Selling Price (ASP)?
The average selling price, or “ASP”, represents the average price paid by customers for past sales.
To calculate a company’s average selling price, the total product revenue generated is divided by the number of product units sold.
Tracking the average selling price metric can be for internal purposes, such as setting prices appropriately based on an analysis of customer demand in the market and recent spending patterns.
In addition, pricing data can be compared across close competitors to ensure price competitiveness in the market vis-a-vis competitors.
While ASP can be tracked for service-oriented companies, the metric is generally more applicable for industries that sell physical products.
- Consumer Retail
- Food and Beverage
For example, SaaS companies would opt for using the average order value (AOV) instead, while companies operating in technology sectors such as social media companies might use average revenue per user (ARPU).
Average Selling Price Formula (ASP)
The formula for calculating the average selling price is as follows.
The calculation is relatively straightforward, as the equation is simply the product revenue divided by the number of product units sold.
If a company offers a diverse range of products, it is recommended to separate the sales by product and then calculate the ASP on a per-product basis, rather than grouping all products into a single calculation.
How to Interpret Average Selling Price (Industry Benchmarks)
In general, companies that offer products with higher average selling prices possess more pricing power over their customer base.
Most often, pricing power stems from an economic moat, i.e. a differentiating factor that protects the long-term profits of a company.
For instance, if only one company can develop and sell a highly-technical product, the limited competition and options for customers enable the seller to raise prices, which reflects the concept of pricing power.
While pricing power can be a useful lever for increasing revenue, a product priced too high can directly decrease the number of potential buyers in the market, i.e. the product is not affordable to potential customers.
That said, companies must strike the right balance between setting higher pricing to maximize their revenue while still reaching enough of the market, where opportunities for expansion and new customer acquisition opportunities exist.
Typically, the average selling price of a product tends to decline due to reduced demand for a product and/or more providers offering the same (or a similar) product, i.e. for competitive markets.
Average Selling Price Calculator
We’ll now move to a modeling exercise, which you can access by filling out the form below.
Average Selling Price Calculation Example (ASP)
Suppose a manufacturer is attempting to determine the average selling price on its past equipment sales from 2019 to 2021.
The manufacturer sells two products, which we’ll separate and refer to as “Product A” and “Product B”.
The financial and product sales data we’ll be working with are as follows. For each year, we’ll divide the product revenue by the corresponding number of units sold to arrive at the ASP in each period.
Product A, Average Selling Price (ASP)
- 2019A = $10 million ÷ 100,000 = $100.00
- 2020A = $13 million ÷ 125,000 = $104.00
- 2021A = $18 million ÷ 150,000 = $120.00
Product B, Average Selling Price (ASP)
- 2019A = $5 million ÷ 100,000 = $50.00
- 2020A = $6 million ÷ 150,000 = $40.00
- 2021A = $8 million ÷ 250,000 = $32.00
While the average selling price of Product A has increased from $100.00 to $120.00, the ASP of Product B has declined from $50.00 to $32.00.