|
| Image: Moneybestpal.com |
The phrase "average selling price" (ASP) refers to the average price at which a particular class of products or services is offered for sale.Â
It is computed by dividing the product's overall income by the total number of units sold. Analysts and investors who wish to assess a company's financial performance and market position might use ASP as a benchmark for determining pricing for their product or service.
How to Calculate ASP
The formula for calculating ASP is simple:ASP = Total Revenue / Total Units Sold
To illustrate, let's say a company sells 10,000 units of product A at $50 each, 15,000 units of product B at $40 each, and 20,000 units of product C at $30 each. The total revenue for the company is:
Total Revenue = 10,000 * $50 + 15,000 * $40 + 20,000 * $30
Total Revenue = $1,500,000
The total number of units sold for the company is:
Total Units Sold = $10,000 + $15,000 + $20,000
Total Units Sold = $45,000
Therefore, the ASP for the company is:
ASP = $1,500,000 / $45,000
ASP = $33.33
This means that on average, the company sells each unit of its products at $33.33.
Why ASP is Important
ASP is an important metric for finance professionals because it can provide insights into the profitability, growth potential, and competitive advantage of a company. Some of the reasons why ASP is important are:- Profitability: ASP reveals how much money it can make from each of its product units. Assuming the cost per unit is constant, a higher ASP translates to a bigger profit margin. Since ASP and profit margin are inversely correlated, a lower ASP could suggest that the company is under pressure to lower prices from both clients and competition.
- Growth potential: The demand and value proposition of a company's products can also be reflected in ASP. A growing ASP could be an indication that the business has a solid reputation, a committed clientele, or novel characteristics that enable it to command a high price. A dropping ASP could be a sign that the company's goods are becoming commoditized, outmoded, or less desirable to consumers.
- Competitive advantage: ASP can also be used to compare a company's performance and position to those of its rivals in the same market or industry. A higher average selling price (ASP) than the industry standard may indicate that a business has a competitive edge in terms of product quality, market differentiation, or customer service. A company may have a cost advantage or be targeting a specific market segment if its average selling price is lower than the industry average.
Examples of ASP
ASP can vary widely depending on the type of product and the market conditions. Here are some examples of ASP in different industries and markets:- Smartphone market: The global smartphone ASP increased from $348 in 2019 to $363 in 2020, according to Statista. The smartphone ASP reveals the average revenue a cellphone maker makes from each sold device. Factors including the product mix, innovation cycle, consumer preferences, and competition can all have an impact on the smartphone ASP.
- E-commerce market: Shopify reports that the global e-commerce ASP dropped from $72.21 in 2019 to $66.02 in 2020. The e-commerce ASP reveals the average revenue an online merchant receives for each order placed on its system. Product type, seasonality, discounts, and shipping costs are some examples of variables that may have an impact on the e-commerce ASP.
- Hotel market: The Statista estimates that the global hotel ASP dropped from $123.49 in 2019 to $96.65 in 2020. The hotel ASP reveals the typical nightly rate that a hotel operator charges at each of its establishments. Location, occupancy level, facilities, and demand are some examples of variables that may have an impact on the hotel ASP.
