Legal Definitions - marginal revenue

Marginal revenue refers to the additional income a business generates by selling one more unit of a product or service. It measures the change in total revenue that results from increasing the quantity sold by a single unit.

• Example 1: A Custom Bicycle Manufacturer

  Imagine a small company that hand-builds custom bicycles. If the company has already sold 10 bicycles and its total revenue is $25,000, and then it sells an 11th bicycle for $2,600, its new total revenue becomes $27,600. The marginal revenue from selling that 11th bicycle is $2,600. This figure helps the manufacturer understand the direct financial impact of producing and selling one additional unit.

• Example 2: A Software-as-a-Service (SaaS) Provider

  Consider a company offering a subscription-based project management software. If they currently have 500 subscribers, generating $50,000 in monthly revenue, and then they acquire one new subscriber who signs up for a premium plan costing $120 per month, their total monthly revenue increases to $50,120. The marginal revenue from gaining that 501st subscriber is $120. This metric is crucial for the SaaS provider to evaluate the profitability of marketing efforts aimed at attracting new users.

• Example 3: An Online Course Creator

  A university professor creates and sells an online course on advanced statistics. If they have already sold 200 copies of the course at $150 each, bringing in $30,000 in total revenue, and then one more student purchases the course, their total revenue increases to $30,150. The marginal revenue generated by that 201st sale is $150. For the course creator, understanding this helps in pricing strategies and assessing the value of each additional sale, especially since the cost to deliver an extra digital course is often very low.