Long Run Incremental Cost - LRIC

You just had a baby. Now, you’re paying for diapers and food and not much else. (Grandparents are buying more than enough toys and clothes.)

However, as the baby grows, new costs are going to come into play. School costs, fees for piano and tennis lessons, etc. And as the kid gets less cute, the grandparents will pick up fewer of the clothes and entertain bills. Plus, you eventually have to deal with college tuition and, uh...maybe some bail money along the way.

These costs are still off in the future. But you can predict them, if just in a general way.

Basically, that situation represents the same concept as long-run incremental cost. Businesses estimate the (mostly) predictable costs that a project will require as it moves forward in time.

Right now, your app design business just takes place in your basement, with you leaching off your parents’ WiFi. But as it grows, you’ll need office space, server capacity, new employees...all costs you can at least chart in a spreadsheet while your mom serves you a PBJ with the crusts cut off. You can lay out the long run incremental costs of your business.