What is "Average (Arithmetic Mean)" meaning?

The arithmetic mean, often simply called the average, is a fundamental concept in statistics and finance. It is calculated by summing all values in a data set and dividing that total by the number of values. It provides a single representative number that reflects the overall level or performance across a group.

Example

“To find the average monthly revenue, just add up the sales from each month and divide by twelve.”

How is "Average (Arithmetic Mean)" used in business?

In business, the arithmetic mean is used to analyze data like sales figures, employee salaries, customer ratings, or returns on investment. It helps leaders benchmark performance and spot trends. However, it can be misleading if there are extreme outliers in the data set.

Pro Tip

Always check for outliers when using averages—one unusually high or low number can skew the result and give a false impression.

Related Terms

Median, Mode, Earnings, Key Performance Indicator (KPI)