Sales metrics are the compass that guides business owners and sales managers in assessing the effectiveness of their B2B vs B2C sales strategies. They offer a window into the performance of your sales team and the health of your sales pipeline.
Key Takeaway: While metrics like sales win rate and average sales cycle length provide valuable information, one metric that demands attention is the average deal size. Understanding and calculating your average deal size is essential for gaining insights into your business's performance and making informed decisions.
Let's say you own a vibrant restaurant business that caters to food enthusiasts with a diverse array of mouthwatering dishes. To keep your shelves stocked with the finest ingredients, you rely on a trusted wholesale food distributor.
Recently, you've noticed a surge in your monthly expenses tied to wholesale purchases, but you're uncertain about the precise impact on your profitability. This is where calculating your average deal size becomes a beacon of clarity in a sea of uncertainty.
Evaluating your average deal size enables you to assess the value of each transaction with your wholesale restaurant supplies distributor. With this knowledge, you can make better decisions regarding your online ordering patterns, negotiate favorable terms, and identify potential areas for cost-saving and driving restaurant sales.
Let’s see how to calculate average deal size.
What is the Average Deal Size?
Average deal size refers to the average monetary value or size of each individual transaction or deal within a specific business. It is a crucial sales metric used to measure the financial impact and value of each transaction in terms of revenue generated or resources allocated.
Think of it as the average amount of money you're exchanging with a wholesale distribution business or customer each time you seal a deal. It's like a snapshot that gives you an idea of the monetary value associated with your business transactions.
Imagine you run a delightful bakery business that has captured the hearts and taste buds of your loyal customers. To sweeten the deal even further, you introduce the best baking subscription box service.
This subscription box allows your customers to receive a delightful assortment of freshly baked goods online every week or month, straight to their doorstep. Sounds delicious, right?
Now, as a savvy business owner, you want to keep track of how well your bakery subscriptions are performing financially. This is where the average deal size steps in. The average deal size refers to the average value or amount of money each customer spends when signing up for your bakery subscription.
Let's say you have 50 customers who have subscribed to your bakery service, and each subscription costs $20 per month. By calculating the average deal size, you can determine the average amount of money each customer contributes to your bakery website.
Why is this important, you ask? Well, knowing your average deal size provides valuable insights into the financial health of your bakery subscription service. It helps you gauge the average revenue you can expect from each customer and how it contributes to your overall business performance.
For instance, if you notice a higher average deal size among customers who prefer gluten-free options, you might consider expanding your gluten-free bakery menu design or creating specialized subscription packages to cater to their demands.
Why Measure Average Deal Size?
Now, you might be wondering, why bother measuring the average deal size?
Measuring the average deal size is like having a secret ingredient that adds flavor and depth to your sales management strategy.
Here's why it's worth paying attention to:
- Financial Insights: Knowing your average deal size provides valuable financial insights. It allows you to understand how much money is flowing into your business from each customer or transaction. This information helps you gauge your revenue, identify profitable opportunities, and make smart financial decisions.
- Pricing Strategy: Your average deal size helps you fine-tune your wholesale vs retail prices and pricing strategy. If you find that your average deal size is lower than expected, it might be a sign that you need to adjust your prices. On the flip side, if it's higher than anticipated, you can consider increasing prices or adding premium offerings.
- Resource Allocation: Measuring the average deal size will help you gain a clearer picture of where your resources are best allocated. You can identify which customers or segments bring in the most significant revenue and focus your efforts accordingly. It's like directing your baking skills towards the recipes that bring in the most dough (pun intended).
- Customer Insights: The average deal size also helps you understand your customers better. You can identify patterns and preferences among different customer segments. For example, if your average deal size is higher for customers who prefer organic or specialty items, you can tailor your eCommerce marketing efforts and product offerings to attract more of those customers.
- Growth Opportunities: Measuring your average deal size uncovers growth opportunities. If you notice that your average deal size is increasing over time, it indicates that customers are spending more with you. This might be an opportunity to upsell or cross-sell additional products or services, further boosting your revenue.
What is an Example of Average Deal Size?
Imagine you own a thriving wholesale cheese distribution company that supplies various types of specialty cheeses to restaurants and specialty food stores. Your customers rely on you to provide them with top-notch cheeses that elevate their culinary creations.
Now, let's say you have a customer, a popular restaurant chain, that regularly purchases cheese from you. Over the course of a month, this restaurant chain places multiple orders, each varying in quantity and type of cheese. Some orders may include a few kilograms of artisanal cheddar, while others might consist of a larger quantity of imported brie.
To calculate the average deal size, you would add up the total value of all the transactions made by this restaurant chain during the month and divide it by the number of orders placed. Let's say the total value of the cheese transactions for the month amounts to $5,000, and the restaurant chain placed a total of 10 orders.
Using these numbers, the average deal size for this customer would be $5,000 divided by 10, which equals $500 per order. This means that, on average, the restaurant chain spends $500 whenever they place an order with your wholesale cheese distribution business.
How to Calculate Average Deal Size
Calculating the average deal size is a straightforward process that allows you to measure the value of each transaction. Let's break it down into simple steps:
- Step 1: Gather Data
Collect the necessary data related to your deals or transactions. This typically includes the total value of each deal or transaction.
- Step 2: Determine the Time Period
Decide on the time period for which you want to calculate the average deal size. It could be a month, quarter, or year, depending on your business needs.
- Step 3: Add up the Deal Values
Sum up the total value of all the deals or transactions that occurred within the chosen time period. This will give you the total value of all deals combined.
- Step 4: Count the Number of Deals
Count the total number of deals or transactions that occurred during the chosen time period. This will give you the total count of deals.
- Step 5: Calculate the Average Deal Size
Divide the total value of deals (from Step 3) by the total count of deals (from Step 4). The result will be the average deal size.
- Step 6: Interpret and Utilize the Average Deal Size
Once you have calculated the average deal size, you can interpret the metric and leverage it to make informed decisions. Analyze how the average deal size aligns with your business goals, pricing strategies, and customer segments. Compare the average deal size over different time periods to identify trends and patterns.
For instance, if you notice an increasing average deal size over time, it indicates that customers are spending more, which could be a positive sign for your business. On the other hand, a decreasing average deal size might prompt you to investigate reasons behind the decline and consider adjustments to your sales or pricing strategies.
Average Deal Size Formula
Average Deal Size = Total Value of Deals / Total Count of Deals
How to Increase Average Deal Size
Want to supercharge your business and boost that average deal size?
Here are a few casual and practical tips to help you increase your average deal size:
- Bundle It Up: Offer irresistible bundled packages that combine multiple products or services. Customers love getting more bang for their buck, so create enticing bundles that provide added value and encourage them to spend more.
- Upsell like a Pro: Train your sales team to become masters of upselling. When a customer is making a purchase, suggest additional items or upgrades that complement their selection. Showcase the benefits and advantages of these add-ons to increase the overall deal size.
- Cross-Sell with Finesse: Don't stop at upselling—cross-selling is another valuable technique. Recommend related or complementary products or services that go hand-in-hand with what the customer is already purchasing. For example, if they're buying snack food, suggest a cup of matcha vs coffee.
- Create Irresistible Add-Ons: Develop enticing add-ons or extras that customers can't resist. Whether it's a limited-time discount, exclusive access, or a bonus product, these extras can tip the scales and encourage customers to increase their purchase size.
- Personalize and Upgrade: eCommerce personalization is important. Tailor your offerings to cater to individual customer needs and preferences. Provide personalized recommendations and suggest upgrades that align with their goals. This personalized approach can demonstrate the value of higher-priced options and encourage customers to opt for a more substantial deal.
- Offer Volume Discounts: Consider offering discounts or incentives for larger order quantities. Customers may be enticed to increase their purchase size to take advantage of the savings. It's a win-win situation - they get a better deal, and you increase your average deal size.
- Highlight Value and Benefits: Clearly communicate the value and benefits customers will receive from choosing a larger deal or package. Show them how it meets their needs, solves their problems, or enhances their experience.
Frequently Asked Questions About Average Deal Size
From sales forecasting to using sales automation and sales management software, eCommerce sales requires putting extra effort. This is why understanding the average deal size can be a game-changer for businesses of all shapes and sizes.
Whether you're a restaurant owner looking to drive sales or an eCommerce entrepreneur aiming for higher revenues, grasping the concept of average deal size holds the key to unlocking sales success.
Let’s answer some more of your burning questions about average deal size.
What is the average deal size in sales?
The average deal size in sales refers to the typical value or monetary amount of a sales transaction. It represents the average dollar amount or revenue generated per deal.
What is the size of the deal?
The size of the deal refers to the value or monetary amount associated with a particular sales transaction. It represents the amount of money exchanged or the total revenue generated from the sale of a product or service.
How do you calculate average deal size?
Average Deal Size = Total Value of Deals / Total Count of Deals
What is the rule of 20 in sales?
The rule of 20 in sales is a guideline used to evaluate and assess the overall health and B2B sales efficiency of a sales team or organization. According to this rule, the sum of a company's annual revenue growth rate and its annual profit margin should equal or exceed 20%.