How do most SaaS companies and sales leaders measure the success of their sales processes? The best indicators would be the size and number of deals closed. But looking at individual deals is probably not a good idea either since deal sizes can vary according to the sales rep’s skill and customers’ buying power. What you need is the average deal size (ADS), which provides you with better insights into your most successful sales over a period of time.
In the following sections, we’ll explain everything there is to know about this sales performance metric.
Average Deal Size is an important sales key performance indicator (KPI) that indicates the average amount of money made per closed deal. Commonly used in B2B sales cycles, this metric essentially explains the amount of money your customers invest in your product over a specific period.
Tracking average deal size is one of the easiest ways to understand the effectiveness of your sales processes and also the financial health of your business. For instance, larger deals indicate higher profits. ADS also gives you insights into your sales pipeline, allowing you to adjust any leaks if and when necessary.
Knowing average deal size allows for more accurate revenue projections and better sales management. Besides that, ADS can also provide valuable insights about your –
In addition to that, you can also use ADS to determine which sales opportunities come with the highest chances of converting. This will allow you to prioritize the right opportunities and take calculated risks in your sales efforts.
As long as you’re tracking the average deal size, it’s also a good idea to calculate the opportunity win rate. This will give you a better idea about the number of potential buyers you need to increase your conversion rate and hit your revenue target.
Average Deal Size can be easily calculated by dividing the total sum of closed-won opportunities (deals) by the total number of deals in a specific time period. Here is the formula for the same –
Average Deal Size = Total revenue from won deals / Number of Deals.
We’ve already explained what the average deal size is. It essentially shows the amount of money an average consumer spends on your product/service in a given period. The method of calculating ADS is also fairly simple. All you have to do is divide the total money gained from customers by the total number of deals in a specific time period.
Let’s understand this with the help of an example. Suppose your company closed 4 deals in a month, which were worth $3700, $4100, $3200, and $4000. The calculation for average deal size would look something like this –
Average deal size = (3700 + 4100 + 3200 + 4000) / 4 = 3750
So your average deal size comes to $3750.
It’s best to calculate the average deal size every month or every quarter to understand how well your business is performing. It can also give you an insight into the performance of your sales team.
There are no established benchmarks for average deal size since it varies according to the product, industry, target audience, and even the skills of sales professionals. In this HubSpot Sales Benchmarks report, you can find the ADS reported by respondents in their survey.
