Measuring revenue is important for anyone who wants to understand how a business works. Revenue data can be used to make many calculations and decisions, including operational decisions within a business. Marginal revenue is a specific type of revenue with a very different meaning and purpose.
Revenue refers to money that a business makes through its ongoing activities. Revenue can come from selling goods and services, collecting royalties, earning interest on investments and selling assets. Revenue can be subdivided into different categories based on its source. Revenue is the same as gross revenue, which means a business has not yet subtracted the money it cost to earn that revenue. Income, and net income, generally refer to profit, or revenue minus costs.
Marginal revenue is a very different term for a specific type of income. Marginal revenue refers to the additional money a business will make by producing and selling one additional unit of a product. For example, a company that sells shoes may receive $30 for each pair of shoes it sells to a retailer. If demand is present, the marginal revenue for producing a pair of shoes is $30, while revenue from shoe sales for the quarter may be $300,000 to account for having sold a total of 10,000 pairs.
Revenue is a major financial measurement that appears on a company's income statement. Income statements are among the major financial reports that every company issues. They also list costs and net income, which are related to revenue in financial metrics and equations. Marginal revenue is more difficult to determine. It depends on the prices buyers are willing to pay for various quantities of a product, as well as the asking price and overall demand for the product in the market.
Revenue plays a major role in determining how much a company earns during a given period of time. This is among the most important pieces of information to business leaders and investors. Marginal revenue serves an internal purpose. Managers compare marginal revenue to the cost of producing additional goods. For example, if customer demand for shoes is high at a $30 price, it may be appealing to produce more pairs. However, if the cost of producing new pairs will be higher than the cost of producing earlier pairs due to labor overtime costs and a recent rise in the price of shoe leather, the profit margin will be lower. If the cost of producing new pairs exceeds the $30 marginal revenue, making more shoes will lose money for the company.
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