Enter the total revenue and the total amount of units sold into the calculator to determine the average revenue.
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Average Revenue Formula
The following equation is used to calculate the average revenue of a product.
AR = TR / Q
- Where AR is the average revenue per unit ($)
- TR is the total revenue ($)
- Q is the total number of units sold
If you look at this formula a little closer, you can say that the total revenue is equal to the price per unit times the number of units, or P*Q. After simplifying the expression we find that the average revenue per unit is equal to the price per unit. This is true, but only if the price never changes. this is why calculating an average revenue can be helpful for products with variable pricing over time.
Average Revenue Definition
Average revenue is defined as the ratio of total revenue to total units of sale.
Average Revenue Example
How to calculate average revenue?
- First, determine the total revenue.
Calculate the total revenue generated by all sales.
- Next, determine the total units sold.
Measure the total number of units sold.
- Finally, calculate the average revenue.
Calculate the average revenue using the formula above.
Average revenue is the total revenue earned per unit sold on average. That is over a time period with varying prices, the average revenue is the price of the good as if it didn’t change over that time period.
Revenue generated through the selling of a product is most often governed by the price elasticity of supply which analyzes how demand changes with change in prices. You can increase the revenue by increasing prices, but only up to a point.