How to Calculate Average Revenue Per Deal: A Step-by-Step Guide

Calculating average revenue per deal (ARPD) is an important metric for any business owner or salesperson looking to gauge the effectiveness of their sales efforts. It is essential to measure ARPD if you want to make informed business decisions that can positively impact your bottom line. In this article, we’ll take you step-by-step through the process of calculating ARPD, including what it is, why it matters, and how to use the formula for different industries. We’ll also discuss limitations, tips for improving your ARPD, and common mistakes to avoid. Let’s get started.

What is Average Revenue Per Deal and Why is it Important?

ARPD is a metric that measures the average amount of revenue generated by a single sales deal. This metric can be applied to any industry and is a key performance indicator for measuring sales effectiveness. By understanding your ARPD, you can better evaluate your sales and marketing strategies, set performance goals, and make data-driven decisions. It is a valuable tool that can provide insights into how your business is performing and identify areas for improvement.

One of the benefits of tracking ARPD is that it can help you identify your most profitable products or services. By analyzing the ARPD for each offering, you can determine which ones are generating the most revenue and focus your efforts on promoting and selling those products or services. Additionally, tracking ARPD over time can help you identify trends and changes in customer behavior, allowing you to adjust your sales and marketing strategies accordingly.

Gathering the Necessary Data to Calculate Average Revenue Per Deal

Before you can calculate your ARPD, you need to collect data on the total revenue generated and the number of deals closed. Start by identifying a specific time period, such as a month or quarter, and gather all the sales data for that period. This data should include the total revenue generated and the number of deals closed during that period. You can then use this data to calculate the ARPD.

Understanding the Formula for Calculating Average Revenue Per Deal

The formula for calculating ARPD is simple and straightforward. You divide the total revenue generated by the number of deals closed during the time period you selected. The formula looks like this:

ARPD = Total Revenue / Number of Deals Closed

For example, if your company generated a total revenue of $100,000 and closed 50 deals during the month of January, your ARPD would be:

ARPD = $100,000 / 50 = $2,000

Examples of Calculating Average Revenue Per Deal for Different Industries

Calculating ARPD can vary from industry to industry. For example, a B2B software company may have a higher ARPD compared to a B2C retail business. It’s important to consider the industry and business model when calculating ARPD. Here are a few different examples:

Example 1: A law firm has generated $500,000 in revenue from 50 clients in a month. The ARPD would be:

ARPD = $500,000 / 50 = $10,000

Example 2: An e-commerce store generated $100,000 in revenue from 1000 sales in a month. The ARPD would be:

ARPD = $100,000 / 1000 = $100

Example 3: A SaaS company generated $250,000 in revenue from 20 clients in a month. The ARPD would be:

ARPD = $250,000 / 20 = $12,500

How to Use Average Revenue Per Deal to Make Informed Business Decisions

Once you have calculated your ARPD, you can use this metric to make informed business decisions. The following are a few examples:

• Identify high-performing sales teams: Compare the ARPD of different sales teams to identify the teams that are generating the most revenue per deal.
• Set performance goals: Use ARPD as a benchmark to set performance goals for your sales team.
• Determine sales strategy: Use ARPD to evaluate how different sales strategies are performing and optimize accordingly.

Limitations and Considerations When Using Average Revenue Per Deal

While ARPD is a helpful metric, there are some limitations and considerations to keep in mind:

• It doesn’t account for profitability: ARPD doesn’t take into account the profit margins of each deal. Some deals may generate more revenue but have lower profit margins, while others generate lower revenue but have higher profit margins.
• It may not work for all industries: ARPD may not be as effective for companies with long sales cycles or where the revenue is generated from other income streams, such as subscriptions or licensing.
• The formula may need to be adjusted: Depending on the business model, the formula for calculating ARPD may need to be adjusted to account for the specific revenue streams.

Tips for Improving Your Average Revenue Per Deal

Here are a few tips to help improve your ARPD:

• Upsell and cross-sell: Encourage customers to purchase additional products or services to increase the revenue per deal.
• Identify high-performing salespeople: Use ARPD to identify your high-performing salespeople and have them share their strategies and techniques with others on the team.
• Streamline sales processes: Reduce inefficiencies in the sales process to improve the number of deals closed and increase revenue per deal.

Common Mistakes to Avoid When Calculating Average Revenue Per Deal

Here are a few common mistakes to avoid when calculating ARPD:

• Not using a consistent time period: Use the same time period for all calculations to ensure consistency.
• Not accounting for discounts: Discounts can impact both revenue and the number of deals closed, so be sure to account for them when calculating ARPD.
• Not considering ancillary revenue streams: ARPD may not capture all revenue streams, so consider how other income streams may impact the accuracy of the calculation.

Tools and Resources to Help You Calculate Average Revenue Per Deal

There are a few tools and resources available to help you calculate ARPD:

• CRM software: Many customer relationship management (CRM) software solutions have built-in reporting tools that can help you calculate ARPD.
• Spreadsheet software: Spreadsheet software, such as Microsoft Excel or Google Sheets, can also be used to calculate ARPD.
• Online calculators: There are several online calculators available for calculating ARPD, such as the one offered by HubSpot.

Conclusion

Calculating ARPD is a valuable metric that can provide insights into the effectiveness of your sales and marketing strategies. By following the step-by-step guide outlined in this article, you can calculate ARPD for your business. It’s important to keep in mind the limitations and considerations associated with this metric, but with the right tools and resources, you can use ARPD to make informed business decisions and improve your bottom line.