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Unit sales refers to the total amount of goods or services sold during a specific reporting period, broken down to the price per each unit sold. Calculating this amount is important, since it allows companies to determine how much of an impact a price change has on overall sales, as well as the general profitability of the business. By closely monitoring unit sales from one period to the next, it is possible to identify the unit price that is most likely to yield the highest amount of sales, while also allowing the business to earn the most profit per unit without creating a huge inventory of finished goods.
The process for calculating unit sales is very straightforward. The first figure required is the total number of units sold within the period under consideration. That figure is divided into the total amount of sales that occurred during the same time frame. As a result, it is possible to determine the average product price that applies to each unit sold during the sales period.
As an example, a firm that sold one million units of a given product during one month of operation also generated $10 million in United States dollars (USD) during that same month. By dividing the revenue by the number of units sold, it is possible to determine that the average product price per unit for the month was $10 USD. This average price can then be compared to the averages of previous months, and determine if the average revenue generated by each unit is increasing, decreasing, or remaining constant.
There are several reasons why unit sales may vary from one period to another. One common reason is that the business loses a number of customers who purchased smaller lots of the product at a higher price per unit, while acquiring a customer who bought in larger volumes in exchange for a reduced per unit rate. As a result in the shift of the structure of the client base, the average product price decreases, and the business makes less money overall from each unit sold. However, the business may still post higher actual earnings, if more units were sold than in previous periods.
Whenever there is some sort of change in the average product price of the unit sales, it is important to determine the reasons behind the shift. In some cases, the change may be in the best interests of the company over the long run, even if the average price constituted a decrease. At the same time, a shift in unit sales could also indicate the early stages of some type of issue that ultimately affects the business in a negative manner. Only by analyzing the factors that led to the shift is it possible to decide what actions, if any, should be taken in upcoming periods to correct problems and achieve an agreeable range of unit sales.