Average Selling Price Formula (ASP)
The formula for calculating the average selling price is as follows.
Average Selling Price (ASP) = Product Revenue ÷ Number of Product Units Sold
The calculation is relatively straightforward, as the equation is simply the product revenue divided by the number of product units sold.
If a company offers a diverse range of products, it is recommended to separate the sales by product and then calculate the ASP on a per-product basis, rather than grouping all products into a single calculation.
How to Interpret Average Selling Price (Industry Benchmarks)
In general, companies that offer products with higher average selling prices possess more pricing power over their customer base.
Most often, pricing power stems from an economic moat, i.e. a differentiating factor that protects the long-term profits of a company.
For instance, if only one company can develop and sell a highly-technical product, the limited competition and options for customers enable the seller to raise prices, which reflects the concept of pricing power.
While pricing power can be a useful lever for increasing revenue, a product priced too high can directly decrease the number of potential buyers in the market, i.e. the product is not affordable to potential customers. That said, companies must strike the right balance between setting higher pricing to maximize their revenue while still reaching enough of the market, where opportunities for expansion and new customer acquisition opportunities exist.
Typically, the average selling price of a product tends to decline due to reduced demand for a product and/or more providers offering the same (or a similar) product, i.e. for competitive markets.
Average Selling Price Calculator — Excel Template
We’ll now move to a modeling exercise, which you can access by filling out the form below.
Average Selling Price Calculation Example (ASP)
Suppose a manufacturer is attempting to determine the average selling price on its past equipment sales from 2019 to 2021.
The manufacturer sells two products, which we’ll separate and refer to as “Product A” and “Product B”.
The financial and product sales data we’ll be working with are as follows. For each year, we’ll divide the product revenue by the corresponding number of units sold to arrive at the ASP in each period.
Product A — Average Selling Price (ASP)
- 2019A = $10 million ÷ 100,000 = $100.00
- 2020A = $13 million ÷ 125,000 = $104.00
- 2021A = $18 million ÷ 150,000 = $120.00
Product B — Average Selling Price (ASP)
- 2019A = $5 million ÷ 100,000 = $50.00
- 2020A = $6 million ÷ 150,000 = $40.00
- 2021A = $8 million ÷ 250,000 = $32.00
While the average selling price of Product A has increased from $100.00 to $120.00, the ASP of Product B has declined from $50.00 to $32.00.