The average deal size is one important indicator that businesses use to assess the average worth of a company’s deals or sales transactions. This indicator is used to assess and project a company’s revenue and to measure the effectiveness of its sales team. It might change from business to business and from one sector to another.
How do Companies Use Average Deal Size as a KPI?
Companies look at average deal size as an important metric to measure how well their sales are doing and to predict future revenue. When there’s an increase, it shows that the sales team is landing bigger deals, and that’s great for boosting the company’s revenue.
This KPI is very useful for companies when it comes to making smart choices about their sales strategies and how to allocate their budgets.
How To Calculate The Average Deal Size?
To calculate the average deal size, you need accurate and trustworthy info on your sales income and completed transactions. You can track and analyze your sales data using a spreadsheet, a CRM system, or even a calculator.
To calculate the average deal size, just divide the total revenue by the number of deals closed in a specific time frame.
Average Deal Size = Total Revenue / Number of Closed Deals
For example, your average deal size for a quarter would be $5,000 if you closed 20 sales and earned $100,000 in revenue.
Factors Affecting the Average Deal Size
The average deal size of a company might vary depending on several types of factors:
- Product Mix: When a company offers a diverse range of products, the average deal size can change based on what customers choose to buy. On the flip side, a company that offers fewer products might see a steadier average deal size. If the product range is pricier, this KPI tends to go up.
- Sales Cycle: A longer sales cycle could mean that the sales team is focused on bigger deals, which naturally take a bit more time to close. This might lead to a bigger average deal size. It’s common for SaaS businesses to do this.
- Target Market: Businesses that focus on selling to large companies may have bigger deals than businesses that focus on selling to small and medium-sized businesses.
How to Increase Average Deal Size
There are a few different ways businesses can increase their average deal size. Here are a few of them:
1. Think About Cross-Selling And Upselling
Seek opportunities to provide your current customers with more goods or services. This can be done by recommending similar or complimentary goods or by providing improvements to currently available services.
2. Make Use of Value-Based Pricing
Concentrate on the value provided by the product or service rather than the price. To support a higher price, emphasize the advantages and unique value proposition of your item.
3. Price in Bundles
Present packaged deals that offer greater value at a premium cost. This strategy is especially beneficial if you can provide packages that are more affordable than buying each item separately.
4. Put Strategic Positioning into Practice
Present your goods and services as exclusive or premium, emphasizing their special qualities and advantages. This can help you to charge more for your goods.
5. Aim for Higher-Value Customers
Concentrate on attracting high-value customers who are more prepared to pay for your goods or services. Account-based selling, customized marketing efforts, and other techniques can help achieve this.
6. Increase Customer Loyalty
Invest in your sales representatives’ training so that they can establish enduring bonds with current customers. Recurring revenue and referrals can come from this, increasing the average deal size in the end.
7. Track Discounts
Make sure you track the discounts your team uses to close deals. Establish a procedure for approval so that you can monitor how much your teams are discounting things, as this decreases the average deal size for your business.