Average Selling Price

By Markets Fool.com

Average selling price, often abbreviated as ASP, is the price at which a product or service is sold. Companies frequently track this important metric and provide updates to investors regarding its trends. Yet you can calculate the ASP yourself with just two pieces of data.

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How to calculate average selling price

To find the average selling price, you need the revenue for the product in question along with the number of units sold.

For example, according to a recent quarterly report, Apple sold 51 million iPhones and produced $32.9 billion of revenue from those sales. Thus, the average selling price for that product line was $32.9 billion / .051 billion = $642. In other words, Apple's take per iPhone was $642.

Why average selling price is important

Companies typically aim for rising average selling prices since that tends to boost both revenue and profits. Lower ASPs are sometimes a happy consequence of an expansion into a bigger addressable market, though.

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Declining ASPs could also point to lower pricing power, rising competition, or a more general failure on the product development front. That's why the metric is much more useful when compared to prior time periods.

Apple's iPhone ASP was $660 in the prior-year period, marking a 3% decline to the recent $642 figure. Management explained that this slip was due to an unfavorable shift in "the mix of iPhones," which means that customers have been favoring lower-priced entries in the iPhone lineup lately. The trend is only expected to accelerate with the introduction of its low-cost iPhone SE model. "We expect iPhone ASPs to decline sequentially as we get further from the launch of iPhone 6s and 6s Plus, and as iPhone SE enters the mix," Chief Financial Officer Luca Maestri explained to investors in a recent conference call.

iPhone SE. Image source: Apple.

Yet Apple is happy to expand the market with this lower-ASP device. The iPhone SE is "attracting people who aspire to own an iPhone, but couldn't quite stretch to the entry price of the iPhone," CEO Tim Cook said in the same call, "and we are really excited about where it can take us."

Ultimately, the ASP is a key metric for investors to watch, especially if you're investing in a company, like Apple, whose financial results are tied to the success of a handful of key products.

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Demitrios Kalogeropoulos owns shares of Apple. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2018 $90 calls on Apple and short January 2018 $95 calls on Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.