You might be wondering why you need to know your shop's average selling price. All that matters is that people are buying what you're offering, right? Actually, the average selling price or ASP in retail can be a major selling point. Large retailers like Aldi and Walmart use their ASP to pit themselves firmly against their competitors. Budget mobile carriers like Boost Mobile use their ASP to make Verizon and AT&T's plans look like a bad deal – in reality, they run on Sprint which has less 4G coverage.
The truth is that a low market price doesn't matter if potential customers don't actually feel like it’s a particularly good value. You can use your average selling price to sway them. A good example of this is how low-cost airlines tout their average selling price against their more expensive counterparts. Though this price is undoubtedly lower to get you from point A to point B, you get a whole lot less for your money. When you add on baggage fees, meals and seat selection, customers often pay the same price or more than they would have on a traditional airline. In other words, the average selling price makes it feel like a good deal for all customers, when it may only actually be a good deal for those who don't need the extras.
Figuring Out Your Net Sales
To calculate your average selling price, you're going to first have to figure out your net sales. To do this, choose a specific period for which you want the average selling price and find your product sales revenue. This should be the first line item listed on your income statement. Subtract the number of discounts, returns, sales and sales tax from your product sales revenue to get your net sales number. For example, if you sold $3,000 worth of goods but had $1,000 of returns, your net sales are $2,000.
How Much Inventory Was Sold?
To get the next figure, you're going to have to go into your inventory management system and look at the inventory activity for the same accounting period of your net sales figure. Calculate the number of units sold by adding the units purchased during the period to the original starting inventory number. Subtract the number of units left at the end of the period from this sum. For example, a company has 500 inventory units at the start of the period. They bought 100 additional units in the middle of the period and closed out the period with 250 units remaining. You would add 500 and 100 to get 600 total pieces of inventory. You would subtract the 250 remaining units to get a total number of 350 units sold during the period.
How to Calculate Average Selling Price
To calculate the average selling price, all you have to do is divide net sales with the number of products sold. For example, if you sold 100 units and had net sales of $20,000, the average selling price of your products is $200.