What Are Unit Sales?
On a balance sheet, unit sales represent the total sales of a product in a given period. This sales information is used to determine the price point to achieve profit per unit given the actual cost of production.
- Unit sales help determine the best price point for a product given the cost to manufacture.
- Unit sales are examined over different accounting periods, such as monthly, quarterly, or yearly.
- A company can forecast future unit sales by multiplying the anticipated number of units to be sold by the unit selling price.
Understanding Unit Sales
Unit sales appear on a company's income statement and are examined over different accounting periods, such as monthly, quarterly, or yearly. Companies use this figure to help determine the right price point for a product.
Unit sales help determine whether a product is facing margin pressure. If XYZ Corp. has $250 million in revenue and has sold 5 million units, the average selling price (ASP) is $50 per unit ($250 million/5 million). If the next reporting period shows an average selling price of $48, this may be a red flag for the company.
Comparing unit sales every year may help industry analysts determine if a company is moving in a positive direction. In 2021, Tesla posted sales of 936,000 electric vehicles, up 87% from 2020. The company reported it sold 308,600 units in the final quarter of 2021 alone.
Supply chain breakdowns since the onset of the COVID-19 pandemic in 2020 were debilitating for automakers, however, Tesla founder and CEO Elon Musk has stated that he was able to get around the semiconductor shortage by using new chip designs and rewriting software.
Unit Sales and Production
The break-even point is the level of production at which the cost of production of one unit equals the revenue for that unit and there is no loss or gain.
Given the production costs per unit, the price of a unit is often adjusted to ensure at least a break-even point is achieved. Revenue generated per unit beyond the break-even point (BEP) is called profit.
Beyond the break-even point, companies analyze marginal cost, which is the change in the total cost when the quantity produced is incremented, or the cost of producing an additional quantity.
In the production of units, companies often factor in economies of scale, the cost advantages gleaned by companies when production becomes efficient. Economies of scale are reached by increasing production and lowering costs as costs are spread over a larger number of goods. Costs can be both fixed, like insurance and licenses, or variable, such as packaging supplies.
Unit Sales Forecasting
A company can and often forecasts future and projected sales by multiplying the anticipated number of units to be sold by the unit selling price.
Past financial results like profit and revenue will show patterns and a company can make reliable assumptions about future sales. Also, having already produced units for sale, a company will know its direct expenses to produce the units, also called the cost of goods sold (COGS).
Major corporations often predict future sales of their products using this data. With estimated first-quarter U.S. sales of 110,000 vehicles, Tesla is now leading the luxury segment and demand is easily outstripping its supply. Tesla's recent factory expansion, global annual production is expected to rise from about 1 million vehicles in 2021 to about 2 million in 2023, according to analysts.
While Tesla is transparent about future unit sales, Apple ceased reporting unit sales numbers in its earnings reports as of 2018. Apple executives decided that the number of units sold in any period is not necessarily representative of the underlying strength of its business. Apple saw that rather than providing clear insight into Apple's business, unit sales were a distraction from more important data and the nature of Apple's business.
What Is Sales Revenue?
Sales revenue equals the total units sold multiplied by the average price per unit.
What Is the Difference Between Unit Sales and Sales Volume?
Sales volume is defined as the number of units sold during a specific accounting period, such as per month, or per year.
What Are LIFO and FIFO?
LIFO, Last In First Out, and FIFO, First In First Out, are two distinct accounting methods to record the inventory of units produced and sold. FIFO is an accounting method in which units that were purchased or produced first are sold first. LIFO records the most recently produced units as sold first.
The Bottom Line
The unit sales data on a balance sheet indicates the actual numbers of a product sold in a given reporting period. A company can forecast future and projected sales by multiplying the anticipated number of units to be sold by the unit selling price. Comparing unit sales over periods helps industry analysts determine if a company is moving in a positive direction.