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What is a Unit Price?

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  • Written By: Dale Marshall
  • Edited By: Kristen Osborne
  • Last Modified Date: 26 September 2016
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    Conjecture Corporation
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Unit pricing is a valuation method by which purchasers can determine the true costs of products. A unit price is the price per unit of the product, which can be calculated for any product, regardless of how packaged. Unit pricing has significant applications both in the industrial world and in consumer economics.

Purchasing managers in industrial facilities must consider many product-related issues when determining their purchases. Although cost isn’t always the determining factor, it’s one that applies to every purchasing decision, no matter what the product. Not all competing products are packaged alike, though, and it’s up to the purchasing manager to determine the actual cost of each. For example, the purchasing manager may have to buy powdered soap for a laundry, and must choose between two competing products, one of which is packaged in 2-kilogram boxes and the other in 5-pound boxes. To determine the actual cost of the soap powder, the purchasing manager must know the unit cost of each powder — that is, convert both either to grams or to ounces, and then calculate the cost per gram or per ounce.

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The same principle holds true in the supermarket for the average consumer. Most states in the United States require unit pricing in supermarkets to assist consumers in their unit pricing comparison. For example, if a dozen eggs cost $1.20 US Dollars (USD), the unit price — in this case, the price per egg — is 10 cents. If a package of 18 eggs costs $1.50 USD, it offers the better unit price of 8.67 cents per egg. Thus, the package that’s more costly because it’s bigger might offer a better bargain for the consumer.

The traditional rule in marketing was that the larger the volume, the lower the unit price. This was so because it moved larger quantities and reduced the cost of maintaining an inventory. Marketing expressions like “Large Economy Size” validated that truth. Since the late 20th century, though, this assumption hasn’t always held true, especially in grocery stores. It’s a far more common occurrence that larger packages actually have an identical or higher unit price than smaller packages, even of the same brand. Another more common practice in the grocery industry is the downsizing of products, where the price and packaging remains the same but the amount of product contained is reduced by a small amount.

Prudent consumers, then, are well-advised always to check the unit price of every item they select for purchase in the grocery store. Their counterparts in industry, the purchasing managers, likewise must always determine the unit price of every item selected for their companies’ operations. It’s not always going to be the case that the item with the lowest unit price will be purchased, but unit pricing is a crucial element in the purchase decision.

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