The Average Selling Price or ASP is the average price at which companies sell a product across markets. The ASP calculation also includes a specific period. The type of product, as well as its life cycle, typically affects its ASP.
The average selling price of a product can refer to the distribution channel or products among competitors. It may also refer to a product among a group.
The ASP can vary from product to product. Goods like jewelry and electronics usually have a high average selling price. Books, CDs, and DVDs, on the other hand, tend to have a low average selling price.
For companies, the ASP typically indicates which marketing strategy a company should pursue. In fact, it may even be the main factor in creating a marketing strategy.
In the hotel and lodging sector, people commonly use the terms Average Daily Rate or Average Room Rate.
ASP vs. selling price
The ASP is not the same as the ‘selling price.’ The selling price is how much a company sells something for or how much customers pay for it.
There is no gathering of prices over a specific period to calculate an average. The selling price does not specify a specific period.
Regarding the ASP, Cloud Four writes: “The average selling price is usually reported during quarterly financial results and thus can be considered as accurate as possible given regulation on fraudulent reporting.”
Average selling price – advantages
There are many benefits to calculating the ASP. The main advantage is that sellers can determine when demand best responds.
Another advantage is that it allows us to determine the margin. It may also help us determine how the margin can be affected.
In this context, margin refers to the difference between the cost of purchase or production of something and its selling price.
Calculating average selling price
To calculate the average selling price you need to gather a compilation of prices and add them all up. You then divide that total by the number of prices you gathered.
For example, let’s suppose you gather the prices of houses in the last 15 days. You add up the five different prices and then divide them by five, i.e., the number of prices. See the example below:
Let’s suppose there are five prices:
Add them up
$100,000 – $90,000 – $112,000 – $105,000 – $95,000 = $502,000
Divide the total by 5 (the total number of prices).
502,000 ÷ 5 = $100,400
The average selling price is $100,400
Some price ranges, however, may be too high or low when comparing. This can subsequently create an unreliable or distorted metric.
For example, if you add two prices, $10 and $100, the average is $55. However, $55 is nowhere near $10, neither is it close to $100.