What are incremental income?

incremental income is a financial term that can be used for different meanings. In its purest form, this simply means an increase in income from a specified increase in sales. It can also be used to refer to another return of one investment decision compared to another. In marketing and planning conditions, this can mean the process of making more money from the same customer or transaction. The marginal income is additional income that would bring another units above the current level of sales. Incremental incomes are simply an overall additional income from a given increase in sales. It must be divided by the number of other sales to create marginal income. This is because marginal income is developed on bassis that the basic demand does not change. Therefore, from an economic point of view, prices will have to fall to create further sale. From a practical point of view, further sales can mean more sales of the same customer, which then qualifies or negotiates a bulk discount.

The second importance of incremental income involves a comparison of various investment options. The term simply refers to the return from one option through the other. It may be a historical comparison or may be based on forecasts when deciding on investment. Someone analyzing more options often compare incremental revenues with an additional risk expected from one option over another.

In a business context, this type of income may mean obtaining additional income without increasing costs or without significant increases in costs. An example of this growing cost is with airlines that have variable prices depending on when customers reserve. The airline can have a basic price that is a minimum on which it will sell the seat. If the customer retains later and pays for the place a higher fee, additional income is incremental income.

This term may also apply incases where they increase costs and profits. For example, a film theater will always win at least the price of the customer's ticket. It can also obtain additional income by selling popcorn or drink. In this case, the cost of the cinema is higher, but it is also both income and profits. It may even be possible to get additional income from a particular transaction, such as the rise of drinks to pay extra for a big than regular service.