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Average Selling Price (ASP)

Step-by-Step Guide to Understanding Average Selling Price (ASP)

Last Updated February 20, 2024

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Average Selling Price (ASP)

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.

Average Selling Price (ASP) = Product Revenue ÷ Total Number of Product Units Sold

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.

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What is a Good Average Selling Price?

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

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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”.

For each year, we’ll divide the product revenue by the corresponding number of units sold to arrive at the ASP in each period.

Average Selling Price (ASP) – Product A 

  • 2019A = $10 million ÷ 100,000 = $100.00 ASP
  • 2020A = $13 million ÷ 125,000 = $104.00 ASP (+4.0% YoY)
  • 2021A = $18 million ÷ 150,000 = $120.00 ASP (+15.4% YoY)

Average Selling Price (ASP) – Product B

  • 2019A = $5 million ÷ 100,000 = $50.00 ASP
  • 2020A = $6 million ÷ 150,000 = $40.00 ASP (-20% YoY)
  • 2021A = $8 million ÷ 250,000 = $32.00 ASP (-20% YoY)

The average selling price (ASP) of Product A increased from $100.00 to $120.00 across the three-year time frame (+20.0%), whereas the average selling price (ASP) of Product B declined from $50.00 to $32.00 (-36.0%).

Average Selling Price Calculator (ASP)

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