![]() Most common types of profits – total, average and marginal profit In a similar manner, it is also possible to calculate marginal revenue for new clients, employees, service lines,s, etc. If your potential client asks you to perform 2 new projects for 17.000 EUR then your marginal revenue is 8.500 EUR per project. In other words, it is the average selling price for additional product units only. Marginal revenue is calculated using the following formula:Īs it can be seen from this formula, marginal revenue is an increase of revenue per additional sold unit. In a similar manner, it is also possible to calculate average revenue per client, per hour, per service line, per employee, etc. You do not have only to calculate the average revenue per production unit (product unit, service unit, project, etc.). Average revenue formulaĪs you may understand from the previous formula, average revenue (average selling price) is calculated using the following formula: When analyzing your business, you do not have to look only at the absolute amount of total revenue, but also at the relative (%) changes of total revenue (year over year, quarter over quarter, month over month, planned vs. Q – Total quantity of goods/services soldĪn example from the first paragraph, if you do 60 projects in a year, and average selling price for project is 10.000 EUR, the total revenue is 600.000 EUR.Total revenue is calculated using the following formula: The first category you see in your income statement is total sales (total revenue or revenue in absolute amounts). In the following paragraphs, we will present formulas for each type of revenue. Total revenue (revenue in absolute amounts).There are three ways you can calculate revenue: In the following paragraphs, we will discuss different types of revenue and profit margins and explain how you can make decisions like the one mentioned in the previous paragraph. Should you reject or should you accept the offer? In order to answer this question, you need to calculate marginal revenue and marginal profit margin. One potential client calls you and asks you if it is possible to do a project for 8.000 EUR. Your average revenue per project is 10.000 EUR. You are running a firm providing professional services.
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