Average Revenue Definition & Examples

Published Dec 23, 2022

Definition of Average Revenue

Average Revenue is defined as the total revenue divided by the number of units sold. That means describes the average amount of money a company receives for each unit of its product or service.

Example

To illustrate this, let’s look at an imaginary company called ABC Inc. ABC Inc. sells 100 widgets for USD 10.00 each. Thus, its total revenue is USD 1,000.00 (i.e., 100*10). In that case, its average revenue is USD 10.00 (i.e., 1000/100).

Why Average Revenue Matters

Average revenue is an important concept for understanding the profitability of a business. It helps to determine how much money a company can make from each unit of its product or service. This is especially important for businesses that produce a large number of units, as it helps them to identify areas where they can increase their profits.

In addition, average revenue is also used to calculate other important metrics, such as the price elasticity of demand. This metric measures how sensitive the demand for a product is to changes in its price. Thus, it helps companies to determine the optimal price for their products.

Important Disclaimer: This definition was written by Quickbot, our artificial intelligence model trained to answer basic questions about economics. While the bot provides adequate and factually correct explanations in most cases, additional fact-checking is required. Use at your own risk.