Knowing your average deal size helps you track your sales progress and ensures you are meeting your goals. But what is average deal size, and why is it so crucial for sales leaders to know? Let’s dive in and find out.
Key Takeaways:
- Average deal size is a key sales performance metric that measures the average amount of sales generated by your sales team over a given period.
- The metric helps forecast revenue, measure marketing ROI, analyze profitability, and assess overall sales strategy.
- Understanding average deal size can provide insight into how effectively sales reps are working and help identify trends in customer behavior & preferences.
- To calculate average deal size, divide the total dollar value of closed/won opportunities during a specified period by the total number of deals in the same period.
- Tips to increase average deal size are identifying notable trends, focusing on upselling, leveraging cross-selling, and highlighting value immediately in the sales process.
Definition of Average Deal Size
Average deal size is a key sales performance metric that measures the average amount of sales generated by your sales team over a given period. It is typically the sum of all purchases from a customer in one session or an individual order’s total.
Average deal size indicates the average dollar amount the company earns per sale across a particular timeframe.
You can accurately forecast revenue, measure marketing ROI, identify unnecessary cost increases, analyze profitability, and better assess your overall sales strategy overall strategy when you understand the metric.
Why Is Average Deal Size Important?
Tracking your average deal size can give you valuable insight into how effectively your sales reps are working and how successful they are at closing deals. It can also help you identify trends in customer behavior and preferences so that you can better tailor your products or services to meet their needs.
By accurately tracking average deal size across various periods, like a monthly or quarterly basis, you can assess buying patterns and compare these data points against predictions made in budgeting processes.
Additionally, knowing this metric enables you to set realistic goals for yourself and your team, as it provides an understanding of what constitutes success in terms of sales numbers and revenue generation.
You can also gain valuable insight into current trends, providing a roadmap to earning the business of new shoppers to remain competitive in the marketplace. The average deal size can assist in forecasting sales trends to make more informed decisions regarding sales goals and objectives.
Your business can improve its gross margin expectations to increase profits. For example, if your team spends less as the average deal size increases, each purchase is likely more profitable.
Average Deal Size Formula
You can calculate average deal size using a simple formula. Divide the total dollar value of closed/won opportunities during a specified period by the total number of deals in the same period.
Sum of closed deals ÷ total number of closed deals = average deal size
For example, if you had 10 deals closed for a total of $1,000, then the average deal size would be $100 per deal. Knowing this information can help you assess how well your team is performing — or not performing — to determine whether or not you need to make any changes.
You can also break down your customer base into segments before you calculate average deal size to make comparisons — like comparing one-time versus repeat buyers — to gain more insights into the customer lifetime value of each group. The results can help you identify valuable customers and make a strategy to increase the value overall.
Average Deal Size Insights
You can get many valuable insights from knowing your average deal size. In fact, you can use data like customer buying habits and seasonal-to-yearly spending changes to create compelling new offers for customers of different segments and levels.
Here’s a look at more insights you can get from knowing your average deal size:
- Identify trends by comparing recent performance to historical metrics.
- Measure sales analytics against your objectives to identify pricing trends, analyze your sales teams’ performance, and make a plan to reach your sales goals.
- Analyzing long-term trends can help forecast future sales and develop strategies that increase leads, conversions, upsells, cross-sells, and lifetime customer value.
- A granular approach to tracking allows you to assess individual parts of purchases against a series of transactions over the customer’s lifetime.
- Make better business decisions to hit your revenue target and improve growth.
Tips to Improve Your Average Deal Size
Here are some tips to increase your average deal size as your sales reps close deals.
Identify Notable Trends
Effective sales processes begin with a reliable method of tracking and analysis. Analyzing the average deal size throughout the sales pipeline can help you identify trends and upsell opportunities in your funnel. Knowing who, what, and when customers buy helps shape your product and service offerings and leverage them for incremental growth.
Focus on Upselling
Upselling customers can be an effective tactic to increase your average deal size. It means offering related products and services that add value to the customer’s purchase experience. Make sure you present upsell offers that emphasize the value of your product or service, so they understand why they need it.
Leverage Cross-Selling
Cross-selling involves complementing products and services with relevant add-ons to provide a complete solution to the customer. Offer options that match the customer’s interests, needs, or budget. Discuss the benefits of each product before presenting pricing information to ensure clarity when cross-selling offers or bundles.
Highlight Your Value Immediately
You can emphasize the value of your product or service upfront. Informing customers of all aspects of your product or service encourages them to buy. Tell a story to the customer that identifies a problem and how you have the complete solution for it. Your connection to the customer helps them feel more sure about their purchase.
Final Thoughts
Now that we’ve answered the question of what is average deal size, you can use it to gain insight into the effectiveness of your sales strategies and identify trends in pricing, profit, and buying. It can help you build a roadmap to generating more leads and increasing the lifetime value of customers.
You can use the insights to increase the average dollar amount per sale and refine your marketing funnel to convey value to customers. You can find opportunities to upsell products and services. Planning your strategy around average deal size with the help of our guide will ensure increased performance and future growth of your business.
Gabriel Ramirez is a seasoned sales professional whose dedication to developing effective messaging has set him apart in the industry. His unique background as a father of four has given him a deep understanding of what motivates people and how to connect with them on a personal level to get a deal done. Gabriel also enjoys reading books on personal development and spending time with his family.