
Sales Capacity Planning
Sales capacity planning is the process of identifying and forecasting the number and type of sales representatives needed to achieve a given revenue goal.Continue Reading
What is Average Deal Size?
Average deal size, sometimes called average order size, is a key metric organizations use to measure the average value of a company’s deals or sales transactions. This metric is used to analyze and forecast the revenue of a company as well as to understand a sales team’s performance. Average deal size can vary from industry to industry and company to company.
Although incentive compensation is primarily seen used to compensate sales teams, it’s not uncommon for other roles to earn incentive pay. These include roles in sales operations, customer success, recruiting, and marketing.
Calculating average deal size is relatively straightforward– you just need to know how much revenue you’ve generated as an organization and the number of deals your team has closed during the given time period. The average deal size formula looks like this:
Average Deal Size = Total Revenue Generated / Total Number of Closed Won Deals
For example, if a company generates $500,000 in revenue by closing 50 deals, the average order size would be $10,000 ($500,000/50).
Companies use average deal size as a key performance indicator (KPI) to measure sales performance and forecast future revenue. An increase in average deal size indicates that the sales team is closing larger deals, which ultimately increases the company’s revenue. This KPI helps companies in making data-driven decisions about sales strategies and budget allocation.
Several factors can impact how big or how small a company’s average deal is.
Businesses can improve average order size in a few different ways. Here are just a few:
By implementing these strategies, you can increase the average deal size and ultimately drive more efficient revenue growth for your business.
Average deal size is an important metric used to analyze the performance of a sales team and to forecast future revenue. A higher average deal size indicates that the sales team is closing larger deals, resulting in increased revenue for the company. Additionally, analyzing the average deal size can help companies in identifying areas for improvement in their sales process– particularly if measured consistently over time.
To effectively use this KPI to make more data-driven decisions, companies must ensure the accuracy of their sales data including revenue targets, closed won opportunities, average amount of discounting that happens, and more. This also means ensuring that all sales data is recorded and that the calculations for the average order size are correct.
Companies should also consider analyzing the average deal size in conjunction with other sales metrics such as win rate, sales cycle length, and customer lifetime value. Analyzing these metrics together can provide a more comprehensive understanding of sales performance and help identify areas of improvement.
It is also important to keep in mind that the average deal size can vary depending on the industry and the type of product or service being sold. Therefore, companies should benchmark their average deal size against their competitors in the same industry to gain a better understanding of their performance.
A high average deal size can have a significant impact on a company’s revenue and profitability. When the sales team focuses on closing larger deals, the revenue generated from each deal increases, which in turn can increase the company’s overall revenue and profitability.
Furthermore, a higher average deal size can indicate that the sales team is targeting higher-value customers and closing deals with a higher profit margin. This can also result in increased profitability for the company.
On the other hand, a low average deal size can indicate that the sales team is not closing larger deals and may be focusing on lower-value customers. This can lead to lower revenue and profitability for the company.
Just as Olympic athletes train to reach peak performance, so do sales teams. In fact, research shows, it takes an average of three months for a new seller to be ready to interact with buyers, nine months for them to be competent to perform, and 15 months for them to become a top performer (source).
The B2B buyer’s journey is a slog. Lengthy sales cycles, expansive buying committees, and competing priorities can easily derail buyers and sellers alike, preventing both parties from achieving their goals. However, a well-constructed mutual action plan— supported by enablement and training— significantly reduces friction on both sides of the purchase decision.
Sales Development Reps– or SDRs– are a crucial part of any business. SDRs are often the first line of qualification and a major source of pipeline at most organizations. To put it bluntly, how you compensate your SDRs can make or break the success of your sales organization.