What Are Unit Sales?
Unit sales represent the total sales that a firm earns in a given reporting period expressed as a per-unit of output basis. Typically, unit sales figures are the number of physical goods (such as the number of tons of coal sold) sold rather than the number of services rendered. Large analyses use unit sales information to determine the price point that allows for the greatest profit per unit considering production costs.
Unit Sales Analysis
Unit sales relate the amount of revenue generated to the total number of individual items sold. Unit sales are examined over different accounting periods such as monthly, quarterly, or yearly. Unit sales analysis is more common in manufacturing and retail industries than the service industry.
- Unit sales are useful for determining the best price point for a good factoring in production costs and the unit sales price.
- Using unit sales, analysts can determine the average selling price over time to monitor the company's sales performance.
- Service companies are less concerned with unit sales because their output might be benchmarked qualitatively rather than quantitatively.
Calculating Unit Sales
Unit sales, which is a top-line item, is a useful figure for analysts because it is required to determine average product prices and find possible margin pressure. For example, assume XYZ Corporation 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 (ASP) is $50 per unit. Suppose that in the next reporting period that same firm had an average selling price of $48. The analyst would consider this a red flag, which could warrant more research into the firm.
Additionally, comparing unit sales every year 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 when the iPhone market was growing. These predicted sales were 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.
Break-Even Point (BEP)
One component of unit sales analysis is the break-even quantity. Break-even quantity refers to the number of units that must be sold to create 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 (BEP) is 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 ordered at a higher volume, but storing a larger quantity may raise the fixed costs associated with material storage.
Real World Example
In November 2018, according to "DigitalInformationWorld.com," Apple announced that it would no longer provide unit sales numbers in its earnings reports. This news occurred after Apple had announced fourth-quarter earnings that exceeded expectations. In the case of Apple, unit sales are now dropping because the iPhone market is slowing down, but to counteract this dynamic, Apple is increasing its prices for its iPhones and other products. Thus, the company is focusing on how to increase revenues with slower growth.
Apple is concerned that divulging unit sales will cause investors to doubt Apple's ability to sell devices. Instead, the company intends to focus on services revenue, which represented 16% of Apple's quarterly revenue, and grew 17% year-over-year, according to Jason Sonenshine, a markets reporter for "TheStreet.com."