Marginal Revenue Formula: How to Calculate It With Examples

When a business sells more products or services, its total revenue changes. But the more useful question for many business decisions is: How much additional revenue does that increase in sales actually produce?

That is what marginal revenue measures.

The marginal revenue formula calculates the change in total revenue divided by the change in quantity sold:

Marginal Revenue = Change in Total Revenue ÷ Change in Quantity Sold

For example, if total revenue increases from $20,000 to $22,000 while sales increase by 50 units:

($22,000 − $20,000) ÷ 50 = $40

The marginal revenue is $40 per additional unit.

This is a revenue measure, not a profit measure. To understand whether those additional sales are worthwhile, the business also needs to consider the costs associated with generating them.

What Is Marginal Revenue?

Marginal revenue is the additional revenue generated when a business increases the quantity of products or services it sells.

Unlike total revenue, which tells you how much the business generated overall, marginal revenue focuses on the change caused by additional sales.

For example, suppose a retailer sells 500 units and generates $25,000 in revenue. It then increases sales to 550 units and generates $26,750.

The changes are:

• Revenue increase: $1,750
• Quantity increase: 50 units

Therefore:

$1,750 ÷ 50 = $35

The marginal revenue is $35 per additional unit across that increase in sales.

The Marginal Revenue Formula

The standard formula is:

MR = ΔTR ÷ ΔQ

Where:

• MR = marginal revenue
• ΔTR = change in total revenue
• ΔQ = change in quantity sold

Another way to write the same calculation is:

MR = (New Total Revenue − Old Total Revenue) ÷ (New Quantity − Old Quantity)

The second version is often easier when you’re working with actual business data.

How to Calculate Marginal Revenue

Calculating marginal revenue usually requires four steps.

1. Identify the Original Revenue

Start with the revenue before the sales change.

For example:

Original revenue = $30,000

2. Identify the New Revenue

Next, find the revenue after the change.

New revenue = $33,600

3. Calculate the Change in Quantity

Suppose sales increased from 600 units to 680 units.

680 − 600 = 80 units

4. Apply the Formula

Revenue increased by:

$33,600 − $30,000 = $3,600

Then:

$3,600 ÷ 80 = $45

The marginal revenue is $45 per additional unit.

The important point is to compare matching periods and quantities. Using unrelated revenue and sales figures can produce a misleading result.

Marginal Revenue Example for a Service Business

Marginal revenue isn’t limited to physical products.

Suppose a consulting company serves 20 clients and generates $50,000 in revenue.

After adding five clients, its revenue increases to $61,000.

The calculation is:

Change in revenue = $61,000 − $50,000 = $11,000

Change in clients = 25 − 20 = 5

Marginal revenue = $11,000 ÷ 5 = $2,200

The additional clients generated $2,200 in revenue per client across this change.

That does not mean each client produced $2,200 of profit. The company would still need to account for consultant time, software, marketing, support, and other incremental costs.

Marginal Revenue vs. Total Revenue

Marginal revenue and total revenue answer different questions.

Metric	What it tells you
Total revenue	How much revenue the business generated overall
Average revenue	Revenue generated per unit on average
Marginal revenue	How much total revenue changed as quantity changed

For example, a business might generate $100,000 from 5,000 units.

Its average revenue is:

$100,000 ÷ 5,000 = $20 per unit

If the business sells another 100 units and total revenue increases by $1,500, marginal revenue is:

$1,500 ÷ 100 = $15

So the average revenue is $20 per unit while the marginal revenue across the additional sales is $15 per unit.

These measures should not be treated as interchangeable.

Why Marginal Revenue Can Differ From Price

The selling price of an additional unit and marginal revenue are not always the same.

In a simplified competitive-market model where a firm takes the market price as given, marginal revenue equals the market price.

But a business with pricing power may need to reduce its price to sell additional units. If that lower price applies across the quantity sold, the change in total revenue can be smaller than the selling price of the additional unit.

For example, imagine a company sells 100 units at $20 each:

100 × $20 = $2,000

Suppose it must reduce the price to $19 to sell 101 units, with the new price applying to all 101 units:

101 × $19 = $1,919

Although the company sold one more unit, total revenue decreased.

The actual marginal revenue therefore has to be calculated from the change in total revenue rather than assumed from the listed price.

Marginal Revenue and Marginal Cost

Marginal revenue becomes particularly useful when compared with marginal cost.

Marginal revenue asks:

How much additional revenue comes from producing or selling more?

Marginal cost asks:

How much additional cost comes from producing or selling more?

Consider a simplified example:

Additional sales	Marginal revenue	Marginal cost
10 units	$500	$300
10 units	$420	$350
10 units	$300	$350

In the first two cases, the additional revenue is greater than the additional cost.

In the third, additional cost is higher than additional revenue.

In economic models, comparing marginal revenue with marginal cost helps identify an output level associated with profit maximization under the model’s assumptions. Khan Academy illustrates this relationship using an orange-juice production example.

Recommended YouTube Resource

For readers who want to see the relationship between marginal revenue and marginal cost visually, this Khan Academy lesson uses a practical production example:

Why Marginal Revenue Matters to a Business

Marginal revenue can help answer questions such as:

• Is increasing sales generating meaningful additional revenue?
• Should production be increased?
• Is a pricing change affecting incremental revenue?
• Are additional customers worth pursuing?
• How does a discount affect revenue?
• Is sales growth keeping pace with additional costs?

It is particularly useful when a business is making decisions about the next sale, next customer, or next unit, rather than reviewing only its historical revenue.

What Marginal Revenue Does Not Tell You

Marginal revenue does not measure profitability by itself.

Suppose an additional customer generates $500 in revenue.

The business might also incur:

• $200 in additional labor
• $100 in fulfillment costs
• $80 in advertising
• $70 in software and support

The additional revenue is positive, but only part of it remains after those incremental costs.

That is why marginal revenue should be considered alongside cost and profitability measures.

For a broader look at profitability, see our guide to gross profit and operating profit.

Common Marginal Revenue Mistakes

Confusing Revenue With Profit

Revenue measures sales generated. Profit accounts for applicable costs and expenses.

Using Average Revenue Instead

Average revenue and marginal revenue use different calculations and answer different questions.

Mixing Different Periods

The revenue and quantity figures should represent comparable periods.

Ignoring Discounts and Returns

Refunds, credits, discounts, and returns can change actual revenue.

Assuming More Sales Are Always Better

Additional sales can increase revenue while producing little or no additional profit if incremental costs rise too quickly.

How to Interpret a Marginal Revenue Result

Suppose your calculation produces:

Marginal revenue = $50

The next question should be:

What does it cost to generate that additional $50?

If the relevant incremental cost is $25, the additional sale may be attractive.

If the incremental cost is $60, increasing sales at that level may not make economic sense.

The right interpretation depends on the company’s pricing, costs, capacity, competition, and business model.

Frequently Asked Questions

What is the marginal revenue formula?

The formula is:

Marginal Revenue = Change in Total Revenue ÷ Change in Quantity Sold

Is marginal revenue the same as profit?

No. Marginal revenue measures additional revenue. Profit requires costs and expenses to be considered.

Can marginal revenue be negative?

Yes. If total revenue decreases as quantity increases, marginal revenue can be negative.

Is marginal revenue the same as price?

Not always. Under a perfect-competition model, marginal revenue equals price. In markets where a seller must lower price to increase quantity, marginal revenue can be lower than price.

Why is marginal revenue important?

It helps businesses understand how revenue changes when sales volume changes and can support decisions involving pricing, production, and growth.

Final Takeaway

The marginal revenue formula is straightforward:

MR = Change in Total Revenue ÷ Change in Quantity Sold

Its value comes from showing what happens to revenue when sales volume changes.

But revenue alone does not tell you whether additional sales are financially worthwhile. A stronger business decision considers marginal revenue alongside marginal cost, pricing, capacity, and overall profitability.