Average deal size is an important sales metric that can help you gauge the effectiveness of your sales strategy and unlock your true revenue potential.

But how do you measure it?

And more importantly, how do you boost your average deal size to raise your bottom line? 

In this article, we’ll answer those questions and more, diving deep into the significance of measuring average deal size and uncovering strategies to maximize it. 

So, without further ado, let’s dive right in.

What Is Average Deal Size?

An important key performance indicator (KPI), the average deal size (or average contract value) reflects the average value of every closed deal or contract. Average deal size is a reliable indicator of your financial and sales pipeline health and can help you make accurate revenue projections for the future.

How to Calculate Average Deal Size?

Calculating your average deal size is pretty straightforward. 

You can do it by dividing the total value of all closed-won opportunities (within a given period) by the total number of deals closed (in that period).

The formula is:

Average Deal Size = (Total value of closed - won opportunities) / Total number of closed deals

It might be easier for you to understand the average deal size calculation with the help of an example:

Let’s say a company closes deals worth $100,000, $150,000, and $200,000 in a month. The total value of these deals would be $450,000 (100,000 + 150,000 + 200,000). 

Then, the average deal size would be $450,000 / 3 = $150,000.

So, how do you leverage average deal size to make better business decisions?

Read on to find out.

Why Should I Measure Average Deal Size?

Measuring average deal size can help you uncover valuable insight for your business, such as:

1. Effective Forecasting

Understanding your average contract value helps you forecast revenue more accurately. It can help you better understand what to expect from the current quarter and plan for future quarters accordingly.

For instance, the combined analysis of the average deal size and opportunity win rate can help you estimate the number of opportunities you must convert to hit your current quota. 

Additionally, you can multiply the average deal size by the number of expected deals to get the estimated future revenue. 

2. Reviewing Sales and Marketing Strategies 

Average deal size is a crucial metric for crafting more effective sales and marketing strategies. By understanding the typical value of transactions, you can tailor your efforts towards high-value prospects and allocate resources more efficiently.

For instance, if you notice a lower-than-desired average deal size, you might explore ways to attract higher-value clients or introduce upselling techniques to increase the value of each transaction. Analysis of average deal size also guides product positioning, helping to prioritize offerings that contribute most significantly to revenue. 

3. Improved Goal-Setting & Evaluations

Creating and monitoring quantifiable KPIs can help a sales manager accurately gauge the sales performance of a sales person and make improvements wherever necessary. It gives you a clear picture of your typical transaction value, helping you set realistic targets for the future and allocate resources effectively. 

By measuring sales metrics like win rate and average deal size, you can fine-tune your sales strategy to focus on higher-value opportunities and track progress more accurately.

A sales manager can also leverage it as a performance metric (key performance indicator) for an individual sales rep. Salespeople who consistently close deals above the average may be recognized and rewarded, while those consistently smaller deals may require additional training or support.

Now that you know why deal size matters, let's explore six simple steps to amp up your numbers and make your deals bigger and better.

6 Proven Ways to Increase Average Deal Size

Here’s how you can boost your average deal size and drive greater revenue using these six smart strategies:

1. Bundle Up Your Products/Services

Offering bundled packages that combine multiple products or services is an effective way to boost your average revenue while giving your customers great value for their money. Bundling helps increase the total price point of your every sale and boost your average deal size.

For instance, bundling is a top strategy for hitting revenue goals in the Software-as-a-Service (SaaS) industry, where companies offer complementary product offerings to cater to diverse customer needs.

2. Focus on Offering Value

Too many companies sell themselves short by merely listing features of their products or services. What matters is showing customers how your product or service will help them achieve their goals and objectives. 

Whether it's making more money, saving time, or boosting efficiency, focus on your value proposition. This can help you increase your average deal size, reduce the number of lost deals, shorten your average sales cycle length, improve sales velocity, and ensure customer success.

How?

By demonstrating your offering's unique value proposition, you can ensure that your customer will not hesitate to pay a premium for a solution that meets their needs.

This is especially important for businesses with complex sales environments or relationship-oriented environments. Businesses with high-stakes or knowledge-driven purchases can increase their average deal size through value-based selling.

Gap selling is another technique that can help boost your average selling price and reduce your average sales cycle length. It revolves around discovering and bridging the ‘gap’ between a customer's current situation and their goals. Since the customer gets the exact resolution to their pain point, they don’t mind shelling out the extra bucks. 

In addition to value-based and gap selling, solution selling can help you boost your average deal size and guarantee customer success. Offering tailored solutions instead of off-the-shelf products or services to your customers makes it easier to charge premium prices. This leads to a higher average amount per order and a bigger average deal size.

3. Provide Volume Discounts

Sometimes, giving your customers a little extra nudge can help lock in a larger deal size from them. Offering discounts or incentives for large orders or spends that exceed a certain amount can be a real game-changer for your revenue growth and minimize the occurrence of smaller deals. While your customer enjoys their cash savings, you can boost your average deal size and increase average revenue.

4. Upsell and Cross Sell

When a customer completes a purchase, it presents an opportunity to enhance their experience by recommending additional items or upgrades that complement their selection. 

Cross-selling involves suggesting related or complementary products or services that seamlessly align with the customer's initial purchase. By adopting this strategy, you can help augment their total purchase amount. 

On the other hand, upselling involves proposing a more sophisticated version of the customer's current use case or offering additional quantities of their chosen product or service at a higher price point.

You’re helping them get the most out of their purchase by suggesting complementary items. As for you, these strategies can help elevate your average deal size and optimize total revenue generation.

These techniques aren’t just about making a sale but enhancing the experience of your existing customers, improving customer lifetime value, and boosting your customer retention rate. An increase in your customer retention rate can also help minimize your customer acquisition cost.

5. Increase the Deal Duration

When it comes to increasing your average deal size, the length of the contract can make a big difference. While monthly contracts might seem appealing with their steady stream of monthly recurring revenue (MRR), they also come with a bit of risk—your existing customers can bail out anytime.

That's where annual or multi-year contracts can be significant game changers. By locking in customers for a whole year or several years, you secure a larger upfront payment, boost your customer retention rate, and pave the way for bigger deals. Plus, each annual or multi-year contract beefs up your average deal size for a whole year or several years instead of just one month.

While you might have to offer discounts to lure your customers into an annual or multi-year contract, the long-term benefits—such as a higher average deal size, stable revenue stream, and sustained growth—are worth it.

6. Deploy the Right CRM Tool with Plugins

Having all your critical sales data and insights properly organized in a single source of truth, such as a CRM system, can be an effective strategy for staying on top of your average deal size.

However, there are some inadequacies associated with traditional CRM software.

A sales rep often gathers data across various tools, such as separate spreadsheets, according to their convenience. This fragmented approach complicates consolidating data into a unified source of truth, like a CRM.

Moreover, a conventional CRM solution might only partially meet your requirements for tracking customer data, monitoring interactions, observing deal progress, and identifying upsell and cross-sell opportunities.

The solution?

Amplifying your CRM software, such as Salesforce, with the right add-on, Scratchpad.

So, how does it work?

Discover how Scratchpad can help optimize your order values and make those sales soar!

Streamline Sales and Maximize Average Deal Size with Scratchpad

Sometimes, traditional CRMs make tracking data complex. In such instances, a CRM add-on that ties everything together for your team can simplify the sales process and maximize sales effectiveness.

Scratchpad is a comprehensive Chrome extension that leverages sales AI to elevate your Salesforce experience and maximize sales. 

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With Scratchpad, you can streamline your tech setup and create a single, rock-solid source of truth for tracking your average deal size and boosting the conversion rate of big-ticket deals. 

This means no more scattered data across disparate platforms causing errors or discrepancies in your sales analysis. Scratchpad keeps things simple and lets you stay laser-focused on maximizing your average deal size.

How?

By enabling you to:

1. Capture sales conversations and get valuable insights with Scratchpad’s AI Sales Assistant to identify cross-sell and upsell opportunities.
2. Instantly see why a close date was pushed, which deals increased or decreased in value, and which opportunities changed with change highlights.
3. View a complete audit trail of the activities, updates, and changes made to any opportunity in just one click with the change history.
4. Get visibility into non-compliant deals with zero boards and provide a sales person with daily views of opportunities missing next steps or with expired dates or leads and contacts with no activity.
5. Spot pipeline gaps with deal spotlights so you can focus on high-priority deals in the late stages or are more likely to convert faster. 
6. Create deal Rooms for every new opportunity and set filters for large deals, accounts at risk, or expansions and renewals.
7. Integrate Salesforce workflows with your notes and easily edit, share, and templatize them for future use.
8. Simplify manual tasks with no-code Slack automations to enhance workflow productivity, streamline your sales process, and enable your sales team to focus on closing a larger deal size.
9. Generate visual forecasts based on historical data from trends analytics to monitor deal progression and assist reps in meeting quotas.
10. Boost efficiency for your sales team and create workflow tiles for quick access to essential data.

Having covered the basics, we’ll now dig deeper into a few additional questions that you might have about the average deal size.

FAQs about Average Deal Size

Here are the answers to some common queries about the metric:

1. What Is the Difference Between Deal Size and Deal Value?

Deal size and deal value are two commonly misunderstood terms that are often confused with one another. Deal size refers to the monetary or quantitative measure of a business transaction. In other words, it measures the financial impact of a deal.

On the other hand, deal value goes beyond the scope of numbers to gauge the overall value a transaction offers to both the client and the seller.

It considers additional factors such as long-term value creation, market impact, and strategic significance of the deal. The deal value helps assess the potential risks and benefits of any transaction.

2. What Are the Limitations of Average Deal Size?

While the Average Deal Size is one of your business's most valuable sales metrics, it has certain drawbacks. One limitation is its failure to adjust for fluctuations in deal sizes. 

For instance, if a company seals a bunch of unusually large deals, the resulting average deal size may be significantly skewed, offering a misleading portrayal of typical deal values.

Secondly, it fails to give you in-depth visibility into your sales pipeline. For instance, it does not indicate the number of ongoing deals, their potential worth, or the probability of their closure.

3. What Is Pipeline Value?

Pipeline value is another sales metric that equates to the potential revenue your sales cycle could yield if your sales reps successfully close all current deals. This metric is crucial for a sales leader to evaluate the return on investment (ROI) of the team’s sales endeavors.

Additionally, it enables you to quantify the value of the dead (inactive) leads, indicating your pipeline's health. You can calculate the pipeline value by multiplying the total number of deals in your current sales cycle with your average deal size.

Unlock Your Sales Potential with Enhanced Average Deal Size

Tracking your average deal size serves as a valuable benchmark for assessing how your organization stacks up against your competitors.

By closely monitoring trends in average deal size over time, you gain insights into evolving customer demand. You can spot patterns, anticipate shifts, and make informed strategic decisions.

That said, streamlining your sales data in a centralized location is key to monitoring and maximizing your average deal size. And that’s where Scratchpad comes into the picture.

Scratchpad makes centralizing and streamlining your sales intel a breeze. It enables you to analyze trends, identify opportunities, and implement strategies to secure a higher average deal size and drive total revenue.

Ready to witness the power of Scratchpad in action?

Try it for free today.