Glossary > Marginal Profit
Marginal Profit
Marginal profit is the amount of additional profit a company generates by producing and selling one additional unit of its product or service. In SaaS, marginal profit can be used to evaluate the profitability of adding new customers or increasing usage of the software.
To calculate marginal profit, you need to know the change in revenue and the change in costs associated with producing and selling one additional unit. The formula for calculating marginal profit is:
Marginal Profit = Change in Revenue – Change in Costs
For example, if a SaaS company sells a subscription to a customer for $100 per month and it costs $50 per month to provide the service, the marginal profit for that customer is $50 per month. If the company adds 10 new customers, the marginal profit for the additional customers would be calculated by taking the total change in revenue and subtracting the total change in costs for those customers.
Marginal profit is important in the SaaS industry because it can help companies determine the optimal pricing strategy and evaluate the profitability of adding new customers or expanding the usage of their software. By calculating marginal profit, SaaS companies can determine how much to charge for their product or service and make informed decisions about investments in marketing, sales, and customer acquisition.
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