How To Calculate Average Revenue

Revenue refers to all of the money that a business brings in during a specific time period. People who study businesses can find valuable information by calculating a business or industry's average revenue, which is similar to calculating any average.

Revenue

Businesses commonly report revenue on a quarterly basis. There are four quarters in a year, so revenue is usually reported four times per year. A business that reports revenue for a quarter may still have lost money that quarter if its expenses were larger than its revenue. Net income is the amount of money left once expenses are subtracted from revenue. A negative net income means a business has lost money. Some businesses might lose money one quarter but make a profit in other quarters.

If expenses remain stable, a business's revenue can be a good indicator of its health. Rather than base investment decisions on a single quarter's revenue statement, investors might find the average revenue of several quarters to make a stronger decision.

Average Revenue

Calculate the average of any data set by adding all the data points and dividing the sum by the number of data points. The term data point refers to a single number in a data set, which is a set of numbers. Suppose business A has reported two years of quarterly revenue, yielding a data set as follows:

{$10,000, $15,000, $8,000, $12,000, $15,000, $14,000, $18,000, $20,000}

To calculate business A's average revenue, add the data points, for example:

Total Revenue = $10,000 + $15,000 + $8,000 + $12,000 + $15,000 + $14,000 + $18,000 + $20,000 = $112,000

Divide the total revenue by the number of data points, as follows:

Average Revenue = $112,000 ÷ 8 = $14,000

You now know that business A's average quarterly revenue is $14,000.