The Revenue to Average Market Sales Revenue Ratio is used by businesses to compare themselves with the average revenue of the market they currently activate in. This metric is important because it shows your standing in the market and helps you come with strategies that would help your business overcome the industry’s average.
This metric is very similar to the Unit Sales to Average Market Unit Sales one. However, this one is used to determine the average revenue of your company and not the total share of the market of it. Clearly, both metrics are helpful if you want your business to surpass the other businesses that provide the same product/ service. Understanding these is essential when it comes to differentiating yourself from the rest of the market.
The Basics of Revenue to Average Market Sales Revenue Ratio
This metric usually has a quarterly reporting frequency and it is important for the CEO of a certain company or business – naturally, he or she wants to know how the revenue of their business stands between the highest and the lowest revenue on the market.
In order to come up with this ratio, we’ll rely on a formula that’s based on two variables – namely, the total company revenue and the average achieved revenue in the market.
First, you’ll have to find out the total revenue of your company/ business.
Total Company Revenue
The total revenue of a certain company consists of every one of its income streams. Upon calculating this metric, the CEO will be shown approximately how much money is currently flowing into his or her company – for a certain period of time.
In order to calculate the total company revenue, you first have to set the time period for which you wish to report its total revenues. Remember that the time period must remain the same when calculating the Revenue to Average Market Sales Revenue Ratio.
Then, you’ll have to do some research and identify your company’s streams of revenue – these usually are in the form of services, product sales, and contract revenue, but not only.
After identifying each stream, you have to extract any payments that each one has received within the set period of time. The total revenue is then calculated by summing each revenue category and all of the revenues that were earned from the selling of capital equipment and any other assets.
The Final Steps
After identifying the total revenue of your company, you have to find the Average Achieved Revenue in Market. You will most likely have to estimate this, as most companies do not share their total revenue with the public.
The Average Achieved Revenue in Market is calculated by dividing the sum of all of the total revenues of the company’s in your market of choice by the number of companies.
Then, you will have to divide the total company revenue by the average achieved revenue in the market, after which you will multiply the result with 100. This will show you the Revenue to Average Market Sales Revenue Ratio.