Definition
Average Deal Value (or Average Deal Size) is a sales metric that measures the average monetary value of a company’s closed deals (won opportunities) over a specific period. It is a Key Performance Indicator (KPI) used to understand the typical size of a new customer or sale. It is calculated with the following formula:
$$\text{Average Deal Value} = \frac{\text{Total Revenue from New Deals}}{\text{Number of New Deals Won}}$$
Examples
- Quarterly Performance: A sales team closes 20 new deals in Q1, generating a total of $400,000 in new revenue. Their average deal value is ($400,000 / 20) = $20,000.
- Comparing Reps: Sales Rep A has an average deal value of $5,000, while Rep B has an average deal value of $15,000. This suggests Rep B is more successful at upselling or landing larger accounts.
- SaaS Company: A company’s average deal value might be expressed in terms of Annual Recurring Revenue (ARR), e.g., « Our average new customer signs a $30,000 ARR contract. »
Advantages/Benefits
- Sales Strategy: Helps determine if the sales team should focus on closing a high volume of small deals or a low volume of large, strategic deals.
- Performance Insight: A rising average deal value indicates the team is successfully upselling, cross-selling, or moving upmarket to larger customers.
- Accurate Forecasting: Knowing this value is a key component of sales forecasting and calculating sales velocity.
- Marketing ROI: Helps marketing understand the value of a new customer, which is crucial for calculating the ROI of campaigns.
Related terms
- Sales Velocity
- Closing Rate
- Revenue
- KPI (Key Performance Indicator)
- Upselling
- Sales Performance
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