Revenue maximisation is a business strategy where a company focuses on generating the highest possible total revenue (TR) instead of focusing on profit. Total revenue is calculated by multiplying the price of a product by the quantity sold (TR = P × Q).

How the model works:

• Revenue is maximised at the point where marginal revenue (MR) equals zero.
• If a firm produces more than this amount, total revenue will decrease because the price must be lowered significantly to sell the extra units.
• This strategy ignores production costs, which is why it differs from profit maximisation (where marginal revenue equals marginal cost).

Revenue maximisation vs. profit maximisation:

• Profit is calculated as Total Revenue minus Total Cost.
• A firm focused on revenue may produce more than a profit-focused firm, even if it results in lower or no profit.
• Revenue maximisation is sales-oriented, while profit maximisation is value-oriented.

Why companies use this strategy:

• Building a brand: Attracting more customers and establishing a strong market presence.
• Attracting investors: High revenue growth can signal future potential to the stock market.
• Managerial goals: Sometimes managers are paid bonuses based on high sales figures.
• Network effects: For digital businesses, having a large user base is often more important than immediate profit.