What is Average Selling Price?
The Average Selling Price (ASP) is a financial metric that measures the approximate amount paid by a customer to purchase a specific product.
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How to Calculate Average Selling Price (ASP)
The average selling price, often abbreviated as “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 (ASP) 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.
If a company offers a diverse range of products – where there is substantial variance in pricing per product – 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.
By segmenting the company’s product line into individual groups, as part of performing “cohort analysis”, the insights derived should be far more practical because the data is not distorted by the differences in product prices.
While the average selling price (ASP) can certainly be tracked for service-oriented companies, the ASP metric is generally more applicable for industries that sell physical products.
- Consumer Retail
- Food and Beverage
- eCommerce
- Manufacturing
- Industrials
In contrast, SaaS companies would opt for using the average order value (AOV) instead, while companies operating in technology sectors such as social media companies are more likely to use the average revenue per user (ARPU) metric.
Average Selling Price Formula (ASP)
The formula for calculating the average selling price (ASP) is as follows.
Where:
- Product Revenue → The net sales generated from selling a product in a specified period.
- Total Number of Product Units Sold → The quantity of products sold to customers in the coinciding period.
The calculation of the ASP metric is relatively straightforward, as the equation is simply the product revenue divided by the number of product units sold.
