Unit price

# Unit price

Discussion

Encyclopedia
Average prices represent, quite simply, total sales revenue
Revenue
In business, revenue is income that a company receives from its normal business activities, usually from the sale of goods and services to customers. In many countries, such as the United Kingdom, revenue is referred to as turnover....

divided by total units sold. Many products, however, are sold in multiple variants, such as bottle sizes. In these cases, managers face a challenge: they must determine “comparable” units. Average prices can be calculated by weighting different unit selling prices by the percentage of unit sales (mix) for each product variant. If we use a standard, rather than an actual mix of sizes and product varieties, the result is price per statistical unit. Statistical units are also known as equivalent units.

Average price per unit and prices per statistical unit are needed by marketers who sell the same product in different packages, sizes, forms or configurations at a variety of different prices. As in analyses of different channels, these product and price variations must be reflected accurately in overall average prices. If they are not, marketers may lose sight of what is happening to prices and why. If the price of each product variant remained unchanged, for example, but there was a shift in the mix of volume sold, then the average price per unit would change, but the price per statistical unit would not. Both of these metrics have value in identifying market movements. In a survey of nearly 200 senior marketing managers, 51 percent responded that they found the "average price per unit" metric very useful in managing and monitoring their businesses, while only 16% found "price per statistical unit" very useful.

In retail
Retail
Retail consists of the sale of physical goods or merchandise from a fixed location, such as a department store, boutique or kiosk, or by mail, in small or individual lots for direct consumption by the purchaser. Retailing may include subordinated services, such as delivery. Purchasers may be...

, unit price is the price for a single unit of measure
Unit of measure
Unit of measure may refer to:* Units of measurement for relevance to weights and measures* Unit of account for relevance in economics* Unit of Measure , a 2000 album by Tony Rice...

of a product sold in more or less than the single unit.
The "unit price" tells you the cost per pound, quart, or other unit of weight or volume of a food package. It is usually posted on the shelf below the food. The shelf tag shows the total price (item price) and price per unit (unit price) for the food item.

Unit price is also a valuation method for buyers who purchase in bulk. Buyer seeks to purchase 10000 widgets
Widget (economics)
The word widget is a placeholder name for an object or, more specifically, a mechanical or other manufactured device. It is an abstract unit of production. The Oxford English Dictionary defines it as "An indefinite name for a gadget or mechanical contrivance, esp. a small manufactured item" and...

. Seller One offers 1000 widgets packaged together for \$5000. Seller Two offers 5000 widgets packaged together for \$25000. Seller Three offers 500 widgets packaged together for \$2000. All three sellers can offer a total of 10000 widgets to Buyer. Seller One offers widgets at a unit price of \$5. Seller Two offers widgets at a unit price of \$5. Seller Three offers widgets at a unit price of \$4. Buyer uses unit price to value the packages offered by each of the three sellers and finds that Seller Three offers widgets at the best value, the best price
Price
-Definition:In ordinary usage, price is the quantity of payment or compensation given by one party to another in return for goods or services.In modern economies, prices are generally expressed in units of some form of currency...

.

Unit price is a common form of valuation in sales
Sales
A sale is the act of selling a product or service in return for money or other compensation. It is an act of completion of a commercial activity....

contract
Contract
A contract is an agreement entered into by two parties or more with the intention of creating a legal obligation, which may have elements in writing. Contracts can be made orally. The remedy for breach of contract can be "damages" or compensation of money. In equity, the remedy can be specific...

for goods sold in bulk purchasing
Bulk purchasing is buying products in large quantities at a lower price per item, or unit price, than is available for smaller quantities. Wholesale is selling or related to selling goods in large quantities for resale to the consumer. Retailing is buying products in bulk at wholesale, and selling...

.

The stock price of securities is a form of unit price because securities including stocks
Stocks
Stocks are devices used in the medieval and colonial American times as a form of physical punishment involving public humiliation. The stocks partially immobilized its victims and they were often exposed in a public place such as the site of a market to the scorn of those who passed by...

are often sold in bulks comprising many units.

Unit price also is often used in the commodities trade.

## Purpose

Many brands or product lines include multiple models, versions, flavors, colors, sizes, or — more generally – stock-keeping units (SKUs). Brita
Brita
Brita GmbH is a German company founded in 1966 by Heinz Hankammer with headquarters in Taunusstein, Germany, that specializes in water filtration products. The company has production facilities in Germany, Great Britain, India, and Switzerland...

water filters, for example, are sold in a number of SKUs. They are sold in single-filter packs, double-filter packs, and special banded packs that may be restricted to club stores. They are sold on a stand-alone basis and in combination with jugs. These various packages and product forms may be known as SKUs, models, items, and so on. Price per unit metrics allow marketers to calculate meaningful average selling prices within a product line that includeds items of different sizes.

The information gleaned from a price per statistical unit can be helpful in considering price movements within a market. Price per statistical unit, in combination with unit price averages, provides insight into the degree to which the average prices in a market are changing as a result of shifts in “mix” – proportions of sales generated by differently priced SKUs – versus price changes for individual items. Alterations in mix – such as a relative increase in the sale of larger versus smaller ice cream tubs at retail grocers, for example – will affect average unit price, but not price per statistical unit. Pricing changes in the SKUs that make up a statistical unit, however, will be reflected by a change in the price of that statistical unit.

## Construction

Average price per unit

As with other marketing averages, average price per unit can be calculated either from company totals or from the prices and shares of individual SKUs.
Average Price per Unit (\$) = Revenue (\$) / Units Sold
or
Average Price per Unit (\$) = [Price of SKU 1 (\$) * SKU 1 Percentage of Sales (%)] + [Price of SKU 2 (\$) * SKU 2 Percentage of Sales (%)] + . . .

The average price per unit depends on both unit prices and unit sales of individual SKUs. The average price per unit can be driven upward by a rise in unit prices, or by an increase in the unit shares of higher-priced SKUs, or by a combination of the two. An “average” price metric that is not sensitive to changes in SKU shares is the price per statistical unit.
Price per statistical unit
Price per Statistical Unit (\$) = Total Price of a Bundle of SKUs Comprising a Statistical Unit (\$)

Procter & Gamble and other companies face a challenge in monitoring prices for a wide variety of product sizes, package types and product formulations. There are as many as 25 to 30 different SKUs for some brands, and each SKU has its own
price. In these situations, how do marketers determine a brand’s overall price level in order to compare it to competitive offerings or to track whether prices are rising or falling? One solution is the “statistical unit”, also known as the “statistical case” or – in volumetric or weight measures – the statistical litre or statistical ton. A statistical case of 288 ounces of liquid detergent, for example, might be defined as comprising:

Four 4-oz bottles = 16 oz
Twelve 12-oz bottles = 144 oz
Two 32-oz bottles = 64 oz
One 64-oz bottle = 64 oz

Note that the contents of this statistical case were carefully chosen so that it contains the same number of ounces as a standard case of 24 12-ounce bottles. In this way, the statistical case is comparable in size to a standard case. The advantage of a statistical case is that its contents can approximate the mix of SKUs the company actually sells.

Whereas a statistical case of liquid detergent will be filled with whole bottles, in other instances a statistical unit might contain fractions of certain packaging sizes in order for its total contents to match a required volumetric or weight total.

Statistical units are composed of fixed proportions of different SKUs. These fixed proportions ensure that changes in the prices of the statistical unit reflect only changes in the prices of the SKUs that comprise it.

The price of a statistical unit can be expressed either as a total price for the bundle of SKUs comprising it, or in terms of that total price divided by the total volume of its contents. The former might be called the “price per statistical unit”; the latter, the “unit price per statistical unit.”