For a perfectly competitive firm, marginal revenue is the net revenue from the sale of a product at a price that is below marginal cost. Marginal cost is the revenue that the firm could have had at the price it sold the product for.
Most of the world’s companies don’t have that “perfect” competitive ratio. They’re really just doing the best they can, and it’s more about the company not being able to compete at a price it doesn’t think is high enough.
One of the most common questions I get when I talk to businesses is, “How do I know how much money I am making?” In the UK, this is called the Marginal Cost of Revenue (MCR), which is an important metric for understanding how competitive a company is. The MCR is the amount by which marginal cost exceeds marginal revenue, so if there is no margin, then the company will make a loss on its sales.
The MCR is a very simple and fair metric, and has only one source of error – the company’s own decision to calculate it.
Companies are very good at making decisions that give them more profit than they actually have. So it is very easy for a business to get that number wrong, and so the marginal cost of revenue metric is a very simple and fair way of measuring how competitive a company is, but to get good at it they need to keep making decisions that result in a loss, and it is not always a good idea to do this.
In a perfect world most of these decisions would be based on what would be the most profitable for the company, but this is not a perfect world. For example, if there were a small number of products that would be the ones which would be on sale that were worth less than another product, this could be an excellent way to measure companies with different products against each other. But it is not always the way to do this.
For example the case studies that we’ve done for DMA do this. There are products which are so incredibly valuable that they are worth more than other products at very low margins, and it is not always the case that the products that are on sale that are worth less than the ones that are not.
You have to be at least a bit careful in your research because there are a lot of people out there who have no idea what you’re talking about, and we have a bunch of other people who have no idea.
This is a very common problem in the private markets for high-value products. This is because, at any given moment, the price of a high-value product (or the margin of a product) is very volatile. You are constantly selling at different prices for different periods of time.
