Why marginal revenue (MR) matters to a first-time founder
The next sale can add less revenue than its listed price if winning it requires lowering prices on other units. Comparing marginal revenue with marginal cost helps founders judge whether extra volume improves profit instead of celebrating sales that destroy value.
Examples of marginal revenue (MR)
A company sells 100 licences for $10,000 total. To sell the 101st, it gives every customer a discount and total revenue becomes $10,050. Marginal revenue for that additional licence is $50, not its discounted invoice price considered alone.
Common misunderstanding
It is not average revenue or profit. Average revenue divides total revenue by units sold, while marginal revenue measures the change from one more unit. Profit also includes costs, so positive marginal revenue can still accompany an unprofitable additional sale.
When to use it
Use it when evaluating discounts, capacity expansion or output levels where price changes with volume. Estimate the change in total revenue, not just the next unit’s price, and compare it with the additional cost. Ignore it for simple reporting of historical sales.