Marginal Cost

The cost of producing one additional unit of a product or delivering one additional unit of service, excluding fixed costs that are already committed.

Understanding marginal cost is essential for pricing decisions, especially when scaling. If the marginal cost of serving one more customer is near zero, as with digital products, the business has extraordinary profit potential at scale.

A founder who has already built and hosted her online course platform calculates that each additional student costs her only £0.80 in payment processing and a negligible share of hosting. The marginal cost is nearly zero, so every additional £297 sale is almost entirely profit.