When trying to optimize sales velocity, most sales leaders don't think about average deal size as a variable they have much control over. Instead, they think of it as a given, as something that can only be changed by the consensus of leadership and product teams. But there are other ways to increase your average deal size and improve your sales velocity.
What is Average Deal Size?
Your average deal size is the average size of your deals. It is the total revenue achieved in a set period (e.g., a month, a quarter, a year) divided by the number of closed-won opportunities for that segment. The segment can be new business, existing business, or total business -- whichever segment makes the most sense for your company to track).
Increasing your average deal size isn't terribly difficult, though it isn't that simple, either. It requires thinking more about the value your product/offering provides rather than the cost of the features and benefits of your product. Still, it's important that you don't get greedy and increase your price just because. In fact, one bottleneck for sales is often a price that's too high.
Deal sizes will differ based on several factors:
- Whether your offering is customized vs pre-packaged
- Whether you’re selling to SMB vs Enterprise
- Whether you focus on features and benefits vs value.
But how can you change your team's approach to your average deal size and try to increase it in a way that doesn’t prey on buyers?
Improving your average deal size
Here are 3 ways to improve your average deal size:
Sell value, not features
Before you start to calculate the cost of seats or how much each feature in your product is worth, consider the value the product will provide to clients. Focusing on the features and benefits makes it easier to engage in a fight over pricing, because the tangibility of the features and benefits can be debated.
Quantifying the value of peace of mind, however, will make the sales process more collaborative, and opportunities are more likely to see the value of the value. Value can be anything from time and cost savings to peace of mind. How can your product capitalize off its overall value?
Set up an approval structure for discounts
While discounts can help you bring a new deal over the line to closed-won, giving them out too loosely and without strategic consideration drives the average deal size (and sales velocity) down. According to one study, discounting can lower SaaS lifetime value (LTV) by 30%. What’s more, customers that closed using (aggressive) discounts were less willing to pay a higher costs over time, and are more likely to churn.
Still, if discounts are a strategic tactic for your sales teams to close more deals, it’s crucial that you structure your discount process based off accurate data and best practices. For example, you can implement an approval structure (Salesforce has a great sample approval process you can emulate). This ensures that salespeople aren’t discounting too heavily and gives sales leaders have insight into the process.
Upsell and Cross Sell
The chance to sell isn't limited to just opportunities. Once an opportunity becomes a customer, there are a host of opportunities to upsell to them. Upselling means selling customers on a comparably more sophisticated version of their current use case or more of what they already use, which costs more. Cross selling, on the other hand, means selling the same product to a different department or selling a related product. Offering additional products and/or selling to different customers within the same organization can help drive up the cost of the average deal size.
Increasing your average deal size is definitely a crucial step in increasing your sales velocity. To learn how to improve the other variables in the sales velocity equation, download our eBook: Sales Velocity: Identifying Bottlenecks and Improving Efficiency One Variable at a Time.