Unsurprisingly, the average deal size may not always be at the front of your mind when presenting your monthly/quarterly/annual sales numbers. However, it should be one of the key variables that you pay close attention to. It’s vital when it comes to negotiating comp plans with salespeople. It also keeps you on top of the time and skills required to close a sale and your ability to hit top-line sales growth.
With this in mind, we’ve taken a deep-dive to highlight how you can grow sales and have a clearer overview of your average deal size data.
What Is Average Deal Size (ADS)?
First, it’s important to have a firm idea of what Average Deal Size (also known as ADS) is. ADS determines the average deal value across all the sales opportunities you’ve closed in that period. You can then use this to make comparisons across periods, between salespeople, between departments, etc. It is also a variable in calculating sales velocity.
How To Calculate Average Deal Size
To calculate average deal size, you add together the total revenue that you’ve booked for a specific period of time (e.g. month, quarter, year) and divide by the total number of closed/won sales opportunities for that same time period.
For example, a revenue total of $160,000 from 38 sales during the month of March, would mean that the average deal size for March is $4,210.
Average Deal Size Versus Total Sales
Hitting your total sales target is one thing, but are you also building a high-value sales function? For example, a salesperson could sell 100 deals at $1,000, whereas a colleague could sell 50 deals at $2,000. Which is better?
Whether sales volume or average deal value is more important depends on several factors including:
- Business and sales strategy, i.e. are you a high-volume low-value or low-volume high-value business?
- Customer segmentation and average sales cycle length
- Your product/service mix
However, if you can increase your average deal size, and keep the volume of sales constant, it will have a positive effect on your total sales.
The Impact of Price Discounts on Average Opportunity Size
When you look at what’s driving your ADS, one variable to investigate in detail is the impact of price discounts.
For example, if you see that one team member has a low average deals size but is making quota, it could be that they’re giving pricing/promotional discounts too soon in order to close quicker. Providing negotiation skills and value-based sales training will enable them to close sales without big discounts. This will then help them to increase deal sizes for the same number of deals and therefore increase their average closed deal size. So, price discounting and lack of understanding around the ROI can often be resolved with investment in training and coaching.
4 Best Tips for Increasing Your Average Deal Size
1. Demonstrate Value
Every successful salesperson will have done their due diligence and background research on a company before engaging in a sales process with them (see this LinkedIn State of Sales report). Using this knowledge, they’ll be able to articulate how they can address the client’s major challenges and issues. By having a clear understanding of the problems, salespeople will be in a much stronger position to develop solutions, costs and ROI. You can then start developing the ROI for your proposed solution. For more information on this, look at the principles of SPIN selling.
2. Articulate Your Competitive Advantage
Thanks to ever-increasing technological advances, the world has never been smaller when it comes to being able to find information. The opportunity for potential clients to find fixes for their current business problems is broadening, due to having access to solutions globally. So, it’s vital to showcase the differentiated strengths that your business has. What can your business offer that others can’t? Work with your marketing teams to develop “battle cards” and ROI calculators.
3. Qualify Your Leads the Right Way and Run a Strict Sales Process
Lead qualification and sales process management is essential to increasing ADS and sales growth. A simple way of doing this is by using the MEDDIC acronym to establish which customer is likely to follow through with their initial interest:
- Metrics: Are you able to provide genuine, quantifiable measurements of how the business will benefit from the solution you’ll provide?
- Economic Buyer: Are you speaking with the Individual within the organisation who will have authority to sign off on a deal?
- Decision Criteria: How will the client decide what to buy? Developing clear, objective criteria with the client is a great way of getting deals over the line.
- Decision Process: What steps will the client go through to sign-off the deal? Spend time getting into the detail of who does what and when to close the deal?
- Identify Pain: This is about understanding pain-points and turning them into explicit needs. Have a look at SPIN selling to understand this in more detail.
- Champions: Is there a person with decision-making influence in the business who is an advocate of your product/solution?
Once you’ve nailed these, you should also ask yourself:
- Why does the client need/have to change?
- Why now?
- Why should they pick you?
4. Develop A Value-Based Negotiation Strategy
Lean on the already established value you can bring to a customer’s problems. Refer back to their issues and how you can solve them. Focus on the value (benefit – cost) you can deliver. And critically, you have to explain how you can reduce the risk to the client of this going wrong. Nobody likes to get blamed for choosing the wrong supplier.
Put It Into Practice To Increase Your Average Deal Size
Using these tips and gaining a firm understanding of how to apply them to potential sales situations will be the push in the right direction when it comes to increasing your average deal size and increasing your sales velocity.