What are 'Unit Sales'
Unit sales refers to the measure of the total sales that a firm earns in a given reporting period, as expressed on a per-unit of output basis. Typically, when using or analyzing a unit sales figure, it should be based on a physical good (such as the number of tons of coal sold) rather than on the number of services rendered. Information regarding unit sales can be used in larger analysis, such as determining the price point that allows for the greatest profit per unit with respect to the production costs and unit sales price.
BREAKING DOWN 'Unit Sales'Unit sales relates the amount of revenue generate to the total number of individual items sold. This can be examined over different accounting periods, such as monthly, quarterly or yearly. Unit sales analysis is more common in the manufacturing and retail industries than the service industry.
Unit Sales Analysis
Unit sales, which is a top-line item, is a useful figure for analysts because it enables them to determine average product prices and find possible margin pressure. For example, assume XYZ Corp. has $250 million in revenue, and it sold 5 million units. By taking the ratio of the two ($250 million/5 million), an analyst can see that the average selling price is $50 per unit. Suppose that in the next reporting period, that same firm had an average selling price of $48. The analyst could see this as a red flag, which could warrant more research into the firm.
Additionally, comparing unit sales on a yearly basis can help determine if the company is moving in a positive direction. For example, Apple was predicted to sell approximately 235 million units of its iPhone during the 2015 fiscal year. This was a dramatic increase over the 2014 fiscal year sales of approximately 170 million units worldwide, which suggested the company was moving in a positive direction.
One factor within unit sales analysis is the break-even quantity. This refers to the number of units that must be sold to result in no profit or loss from the associated production. As production costs can vary based on quantity, the price of an individual unit may need to be adjusted to ensure the company breaks even on its investment. Any revenue beyond the break-even point is considered profit, while totals that fall below that point result in losses.
Break-even analysis includes various assumptions regarding fixed and variable costs. These assumptions may lead to inaccuracy in estimates because the relationship between sales and fixed or variable costs is not always linear. For example, it may be possible to receive materials at lower costs when they are ordered at a higher volume, but storing a larger quantity may raise fixed costs associated with material storage.