You own a soup restaurant. As such, you earn most of your money selling soup. However, watching your customers one day, you figure out a way to earn a little extra. The next day, you institute a spoon-rental fee.
The spoon-rental fee falls under the category of “ancillary revenue,” which covers any source of revenue outside the main revenue stream. In the soup example, it may end up driving customers to make their own bisque at home. (But then again, if the charge is low enough (a nickel a spoon, for example) you might get away with it).
The practice is relatively common. A good real-life example comes from airlines. These companies make most of their money by flying people around, but earn ancillary revenue with luggage charges and by selling Bloody Mary mix and tiny bottles of vodka. Or think about banks, with their late fees and overdraft charges.
Related or Semi-related Video
Finance: What is marginal revenue?54 Views
finance a la Shmoop what is marginal revenue well it's that last dollar the [money racing to the finish line]
last sale of a Sunday at baskin-robbins before the year closes at midnight on [ice cream sale]
New Year's Eve it's that last flying car sale
you made it at 11:58 p.m. as the ball was dropping in Manhattan sold it for a [ball floating in space]
hundred grand even felt different from the first car you sold this year why
well because from an accounting perspective it had already been built
shipped Frette painted with that new flying car smell smell yeah and the [flying with air freshener]
revenue had generated was likely meaningfully more profitable or at least
from an accounting perspective then the first car sold why well because so many
of its costs had already been accounted for or paid for or amortized on the [clip board check list]
books that factory that stamped out its last product for the year already had a
year's worth of high use behind it amer tizen the cost of the factory and
everything that went into winning that last marginal dollar of revenue so that
from an accounting perspective to make the first sale of that flying tesla for
a hundred grand well that cost a lawn and company like a billion dollars to
make the millionth test and sell it for a hundred grand well as it was
completely made by the robots a you know cost Elon in company only about 20 grand
like way higher profit margins the key concept to worry about when you think
about marginal revenues is the marginal contribution to profits which that last
dollar brings to the bottom line party anyway we hope you got something out of [dollars meeting together]
this video it's probably one of the last ones not to be made by robots least
around here
Up Next
What are revenues? Revenue is the amount of money a company brings in after they’ve accounted for returns and discounts and such. It’s just wha...
What are revenue multiples? Revenue multiples are a metric used to evaluate a company’s maximum worth at the moment relative to its industry. A c...