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Average Deal Size (ADS) refers to the average revenue expected from each closed deal.
This metric is great for predicting revenue streams, informing pricing strategies, and assessing sales effectiveness – especially in up-selling and cross-selling. It informs whether to pursue higher volume with smaller deals or lower volume with larger deals. Successful companies leverage ADS to tailor their sales approach, improve Average Lifetime Value, and refine target market strategies. It's particularly useful when evaluating customer segments or assessing the impact of pricing changes.
Total Revenue in a Period / Number of Deals Closed in the Same Period
To calculate Average Deal Size, divide your total revenue within a specific period by the number of deals closed in the same period. It's a straightforward formula: Total Revenue / Number of Deals Closed.
When analysing ADS, segment data by customer type, sales channel, or product to prioritise the most lucrative deals. Employ it alongside Customer Acquisition Cost (CAC) for a holistic view of sales health. Focusing on cross-selling and up-selling can be effective in increasing ADS.
A common mistake is equating higher ADS with better performance. This ignores deal complexity, sales cycle length, market limits, and Average Lifetime Value. ADS must be considered in a broader context to accurately gauge long-term business health and scalability.
