An ASP, or average selling price, is the amount at which a particular item is sold.
What Is the Average Selling Price (ASP)?
As the name suggests, you may determine the ASP by dividing the entire amount generated by selling a given product by the total number of items sold. For businesses, the ASP often suggests the best marketing technique to use. It might even be the primary element in developing a marketing plan.
Calculation of Average Selling Price
We shall use the example below to demonstrate how a vendor or a seller can calculate the ASP for commodities.
A board marker manufacturer sold 15,000 items at $1.5 each, 20,000 items at $2 each, and 25,000 items at $3 each. The average selling price will be calculated by determining the company’s total revenue.
(15,000 * $1.5) = $22,500
(20,000 * $2) = $40,000
(25,000 * $3) = $75,000
The total revenue generated adds up to $137,500. In the next step, we add up the number of items sold, which equals 60,000. Lastly, divide the total (items sold) revenue by the number of items sold. The arithmetic results in an average selling price of $2.29
How Is the Average Selling Price Used?
ASPs can be used as a guideline for organizations that seek to determine the cost of their goods or services. In terms of entry strategy for businesses, the average selling price can be used to help them decide how to position themselves. For example, imagine a business wanting to start producing smart-home products. They observe from the market that portable electronics have an ASP of $15. The company might set its price at $30 to promote itself as a high-end retailer. On the other hand, a value retailer may set the price at $10 to enter the market with a competitive price. It relies on the route the company believes to be the finest and most lucrative.
The average selling price can be used by businesses currently in the market for a certain good or service to spot trends and make choices. For example, it can hint that the market for a particular service is dwindling if a company specializing in financial services notices that the average selling price of a particular service is declining over time. The corporation must leave the market because of the dwindling demand in such a case.