Chapter 2 – Financial Control – Rule your money
This is part of the ‘How to’ coaching series. An ongoing series of activities to make your business successful. Follow it step by step and see positive results as you develop a robust business model, set on a solid foundation.
36 – I know my average sale value
All you need to do to calculate the average sale price is to divide the total value by the number of products/services sold in a given time.
Sounds simple enough.
A question for you…
Do you want to know the average sale price before costs? Net of costs? Or the value overall?
Before we look at other factors, let’s take the usual measure of Number of sales over Net income for a given time. For example: if you sell 10000 items, and get a return of £50 each (after costs of production & overheads have been taken off) over 1 year, that would give a figure of £500000.
This would usually be calculated prior to EBIT (Earnings Before Interest & Tax).
There are other factors that impact ’value’. Such as the LTV (long term value) a customer may bring over time. Factors may include: You usually get a better take up of your offer when you market to your existing customers. We will pick this up in a future blog on value verses price.
For this exercise, we’re focusing on understanding the return we get for a product or service. When we know the average sale value, we can measure the effects of changes to price rises/reductions (both in terms of costs of production, or to us raising/discounting the price to the customers), changes in purchase quantities per order and other costs to the business.
The ‘How to’ bit:
The key is to choose what measure you are going to use and stick with it so that you have a level playing field on which to base your measures.
Typically, companies choose ‘total sales income per annum divided by sales invoices = average sales price’. Depending on what you sell, you may want to go to a more granular level to understand the average sale price for each offering.
If you would like help to set up your process, Contact Us…