Your company's average ticket probably doesn't match any real customer

The average ticket is the period's revenue divided by the number of sales, and when a few large customers concentrate the revenue, it ends up far from what most customers pay. Whoever plans media, targets and commissions with that number is planning for a customer who doesn't exist.

The article on LTV, average ticket and revenue by channel (in Portuguese) showed why these metrics carry weight in conversations with the board. Here the focus is on what the average hides: how your customers are distributed.

Why the average ticket misleads when revenue is concentrated

The average splits revenue evenly across sales, so one large contract pulls everyone's number up. The more concentrated the revenue, the bigger the distortion.

Picture, in a hypothetical example, ten customers with one purchase each in the year: eight paid R$ 2,000, one paid R$ 10,000 and one paid R$ 50,000. Revenue adds up to R$ 76,000 and the average ticket lands at R$ 7,600. No customer paid that amount, and eight paid less than a third of it.

The median, which is the value of the customer in the middle of the line, is R$ 2,000. The largest customer alone accounts for about 66% of revenue. If they don't renew, the portfolio loses two thirds of its revenue without the average ticket giving any warning.

Depending on a few customers matters so much that it shows up in accounting standards. In Brazil, for publicly traded companies, Technical Pronouncement CPC 22 (in Portuguese), on segment reporting, requires the company to disclose when a single customer accounts for 10% or more of total revenue.

How to read the distribution of customers by value range

Before you trust the average ticket, split your customers by value range and see how much of the revenue comes from each one. A simple spreadsheet does the job:

1. Add up the revenue per customer over twelve months, combining each customer's purchases.
2. Sort customers from largest to smallest, with the cumulative percentage of revenue next to them.
3. Split them into groups using the ABC customer curve: A for the few who add up to most of the revenue, B for the ones in between and C for the tail. Keep the same cut from one period to the next.
4. Calculate the average ticket, the median and the number of customers in each group.

The table shows how much of the revenue each group sustains. If group A has only a few names, they are the ones pulling the average ticket up.

Resource · In PortuguesePrompt Guide for Marketing and Sales70 prompts with questions about marketing, sales and behavior to ask your data.Download the guide

Which channel brings the customers who pay the bills

The distribution turns into a decision when you cross each group with the customer's channel of origin. The channel that brings the most customers isn't always the one that brings the biggest.

In the same hypothetical example, if the R$ 50,000 customer came from a referral and the eight smallest came from paid media, the average ticket makes media look more profitable than it is. Three decisions inherit this mistake:

• Media: the CAC payback (in Portuguese) calculated with the overall average ticket promises a faster return than the channel delivers.
• Targets: the calculation of how many leads you need to hit your target (in Portuguese) divides revenue by the average ticket, and with an inflated average the number of sales you need comes out lower than it really is.
• Commissions: targets based on the average ticket tend to reward whoever closed the large, rare customer and leave below target those who serve the rest of the portfolio well.

The question the C-level should ask when they get the average ticket

When the average ticket shows up in a report, ask for three numbers along with it. They show whether the average represents the portfolio or comes from a handful of contracts.

• The median, to know how much the typical customer pays.
• How many customers add up to half of the period's revenue.
• The ticket by ABC curve group and by channel of origin.

If a few customers sustain the revenue, the next question is where they came from and how to bring in more of them. With that reference, the number in the report starts guiding a decision, which is what sets metrics and indicators (in Portuguese) apart.

Frequently asked questions

How do you calculate the average ticket without falling into the distortion of the average?

Divide the period's revenue by the number of sales and compare it with the median. If the two are far apart, revenue is concentrated and the average ticket alone doesn't represent the portfolio.

What's the difference between average ticket and revenue per customer?

The average ticket looks at each sale. Revenue per customer adds up every purchase from the same customer in the period and is the basis of the ABC curve.

What is the ABC customer curve?

It's the list of customers sorted by each one's revenue and split into three groups, from A, with the largest, to C, with the tail of smaller ones. It shows how much the company depends on a few customers.

To get the formula and a calculation example for each funnel indicator, download Laiki's Metrics Guide (in Portuguese).