What is Average Selling Price (ASP)?

Average Selling Price

What is Average Selling Price (ASP)?

Average Selling Price (ASP) is a measurement of the average price for which a particular class of good or service is typically sold. ASP is a commonly used SaaS marketing metric. In SaaS, ASP is usually defined as the average MRR added per customer gained in a given time period.

B2B SaaS companies can use the ASP metric in two different ways:

  1. Measuring Sales Performance – SaaS RevOps teams can measure the ASP for products and services the business offers. Understanding ASP is essential for forecasting revenue, determining the best sales model and go-to-market strategy for a product, and targeting sales process improvements that increase revenue.
  2. Competitor Analysis – When such information is publicly available, marketers may be able to track ASP for products and services offered by their competitors in the marketplace. Understanding the market-wide ASP for a product or service that you offer can help you customize your pricing strategy and product positioning to maximize revenue.

Other industries use metrics that are similar to ASP to measure average transaction value. In eCommerce and restaurants, the Average Order Value (AOV) metric is widely used. In hospitality, hoteliers use Average Daily Rate (ADR) to track how much revenue is earned for the average occupied room on a given day.

 

How to Calculate Average Selling Price

To calculate the average selling price (ASP) for a product over a given time period, you’ll need two pieces of information:

  1. Number of Sales – The total number of subscribers that were added during the time period.
  2. Total MMR Added – The sum of all MRR added from new sales during the time period.

The formula for calculating average selling price (ASP) for a given period is:

 

Average Selling Price (ASP) = Total MRR AddedNumber of Sales

 

Example 1: Calculating ASP to Measure B2B Sales Performance

You are the Sales Manager for a B2B SaaS Company. You implement a three-tier pricing strategy for your subscription-based product offering with the following packages:

  • Basic Package – $500/month or $5,000/year 
  • Pro Package – $1,000/month or $10,000/year 
  • Enterprise Package – $2,000/month or $20,000/year 

Annual subscribers pay the full subscription amount up-front, so we’ll need to amortize those amounts when adding them to our MRR. With these parameters in place, we can generate some monthly sales data that includes the total number of sales and total MRR added:

 

Subscription Option Number Sold Total MRR Added
Basic Monthly 12 $6,000
Basic Yearly 2 $833
Pro Monthly 9 $9,000
Pro Yearly 2 $1,667
Enterprise Monthly 3 $6,000
Enterprise Yearly 1 $1,667
Total 29 $25,165

 

Now we’re ready to calculate ASP:

 

Average Selling Price (ASP) = $25,16529 $868

 

The calculation tells you that your sales team is adding an average of $868 in MRR for each new subscriber they close.you gain.

 

Example 2: Using ASP for Competitor Analysis

In markets where transaction data is publicly available, marketers can learn the average selling price for their competitor’s products and use this information to inform their own pricing strategies. 

A great example is the real estate industry. Real estate brokers sell a high volume of homes and publicly report sales prices for homes in the areas where they do business. A real estate agent working to sell a home can determine the average selling price for other homes in the same area over the last 3 months, 6 months, or even a year. 

In this context, knowing the marketplace ASP helps real estate agents estimate what buyers might be willing to pay for the house and get the best possible deal for their clients.

 

Why is Average Selling Price Important?

For B2B SaaS companies, understanding your ASP can help you measure the performance of your sales team and determine the best demand generation strategy for bringing your products to market.  

If your ASP is less than $300-$500 MRR, it may not be profitable to scale your internal sales team. In such cases, it makes sense to adopt a self-service sales model and leverage marketing automation to drive down customer acquisition costs.

When ASP is $3,000-$5,000, you’re generating enough revenue per sale to adopt a transactional sales model and hire inside sales reps that can efficiently shepherd prospects through the bottom of your sales/marketing funnel.

And if your ASP is in the $30,000-$50,000 MRR range, the best option is probably an enterprise sales strategy that’s even more targeted and personalized for high-value customers with high standards and expectations.

Tracking your ASP opens you up to the possibility of implementing minor changes that can have a big impact on overall revenue generation. Increasing your ASP by 20% has the same impact on revenue as closing 20% more deals, and can sometimes be achieved with simple adjustments to your sales scripting, product positioning, or pricing strategy. 

ASP is also an invaluable tool for analyzing your competitors in the marketplace – but only when accurate information about past transactions is made available. 

 

Understanding ASP Drives Marketing Success and Revenue Growth

Average Selling Price (ASP) can be used to measure the performance of your sales team and inform your sales and pricing strategies to maximize revenue.

Directive tracks metrics like ASP as part of our Customer Generation methodology, helping our B2B SaaS clients hone in on the most profitable pricing strategy and sales model for their product and service offerings. 

Ready to learn more?

Book an intro call with Directive, the leading agency for SaaS marketing strategy.

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