What is Incremental Revenue?
Incremental revenue is the additional income generated from selling new products or services or from expanding into new markets. It is the revenue that a company would not have otherwise earned if it had not taken these actions.
Examples of Incremental Revenue
Some common examples that demonstrate the concept of incremental revenue in action:
- New product or service launch
Releasing a new product or service that provides value to customers will directly drive incremental revenue by tapping into new opportunities for sales.
For example, a fashion retailer generating £200 million in annual revenue from existing lines might launch a new accessories range and upsell to shoppers online through product recommendations. After 6 months, total annual revenue including the new range could reach £215 million. That extra £15 million in incremental revenue can be attributed to expanding their product line.
- Entering a new market or sales channel
Expanding into new markets and sales channels exposes a business to fresh segments of potential customers. Done effectively, entering new markets directly translates to incremental revenue.
A DIY retailer with £500 million in annual revenue might expand into select European markets. After localising branding and marketing, those new markets could add £45 million in incremental sales in year one.
- Retention programs and marketing campaigns
Special retention incentives and marketing campaigns aimed at existing customers also frequently drive incremental revenue. These initiatives incite additional purchases above and beyond the natural baseline retention rate.
For example, a beauty retailer may send targeted discount codes on selected skincare products to customers who abandoned their carts. The incremental revenue from customers who complete their purchase with the code can be attributed to that retention campaign.
- Price Increases
Even in stable markets, incremental revenue can be generated by increasing pricing tiers or raising prices. As long as perceived value remains consistent, higher prices translate to direct revenue gains.
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