What are {term}? Unit Sales

Unit sales represent the total sales that a firm earns in a given reporting period expressed on a per-unit of output basis. Typically, the analysis of a unit sales figure is based on a physical good (such as the number of tons of coal sold) rather than on the amount of services rendered. Information regarding unit sales can be used in larger analyses, such as determining the price point that allows for the greatest profit per unit considering production costs and the unit sales price.

BREAKING DOWN Unit Sales

Unit sales relate the amount of revenue generated 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 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 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 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 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.

Break-even Units

One component of unit sales analysis is the break-even quantity. This 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 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 the fixed costs associated with material storage.