 # What Is Average Revenue and Marginal Revenue? #### April 14, 2022

As a business owner, you’re always looking for ways to increase revenue and profit. One way to do this is by understanding average revenue. What is average revenue?

Average revenue is the total amount of money that a company brings in divided by the number of units sold. This information can be used to make decisions about pricing, production, and more. Keep reading to learn what is average revenue and how it can benefit your business.

## What is Average Revenue Per User?

The ARPU is the amount of money you make from each active person using your app. This is very similar to ARPA, or Average Revenue Per Account, which is a metric typically used for SaaS companies.

The difference between SaaS and consumer apps is that with the former, you’re usually looking at an account-level model (which may have multiple tiers), while with the latter, you’re looking at monetizing each individual user.

## How to Calculate ARPU

To calculate ARPU, divide the total revenue generated during a specific period by the total number of active users during that same period.

The formula is as follows:

ARPU = Total \$ revenue generated during a period/number of active users during the same period

\$200 / 4000 = \$0.05 ARPU

The ARPU can vary greatly depending on the country in which the app is used, the category of the application, and the pricing plan. Subscription-based applications usually generate more income than non-subscription ones, with the average being \$0.04 per month.

## What is Average Revenue?

Average Revenue is defined as the revenue per unit of output. It is the same as the average price at which you sold your product.

It would be equal to the selling price if all the products have been sold at the same price.

But if they are sold at different price points, then average revenue should be calculated by dividing total revenue by the total number of products sold.

Average revenue is the return or the receipts you get by selling your product.

## Total Revenue vs Marginal Revenue vs Average Revenue

Ferguson’s definition of marginal revenue is the change in total revenue when one more or one less unit of the total output is sold.

McConnell’s definition, on the other hand, refers to marginal revenue as per-unit revenue.

## How to Calculate Average Revenue

Average revenue is measured based on a period, but the number of customers may not be the same for that period.

It changes depending on various factors such as the time of day, season, or year.

One must account for the total amount of users in the specified period and the revenue that was generated in that short amount of time. These figures should then be averaged together to get an accurate estimate of the total revenue.

The formula for calculating average revenue is:

AR = TR / Q

Where.

AR = Average Revenue

TR = Total revenue

Q = Output

Revenue refers to the income that an organization generates from its normal business activities. A company’s revenue is its sales receipts from the sale of a product.

The total revenue (TR) of a business is equal to the quantity of its output multiplied by the unit price.

TR = Price (P) x Total output (Q)

If a company sold 1000 units at 10 dollars each, their total revenue would equal 10,000.

Total revenue is based on output and is mathematically expressed as:

TR = f (Q)

From this equation, we can see that total revenue is determined by variable output. In economics, different revenue streams are taken into consideration.

#### Average Revenue (AR)

The average revenue is revenue per unit of output.

The formula for AR is as follows:

AR = TR / Q

From this equation, it can be said that AR is the price at which output is sold.

#### Marginal Revenue (MR)

Marginal revenue is additional revenue gained from selling an additional unit of output.

It can be calculated as follows:

MR = ∆TR/ ∆Output or MR = TRn – TRn-1

## Conclusion

What is average revenue? Average revenue is a helpful metric for businesses to understand and track. By understanding average revenue, businesses can make decisions about pricing, production, and more that will help increase their overall revenue. If you’re looking to better understand average revenue and how it can benefit your business, this blog post is for you!