It is best to have a relatively low cost per unit, as long as the quality and sustainability standards are maintained.
It’s important to keep a couple things in mind: Helps correctly price your SKUsĬalculating cost per unit is also important, because it gives ecommerce companies an idea of how much they should charge for each of their products to be profitable. Of course, quality plays a role, as higher quality or premium goods typically cost more to produce than less durable or cheaper materials. By breaking down the cost per unit, you can identify inefficiencies that are driving up costs, therefore reducing profit margins.Ī low per-unit cost is an indicator of efficient production and logistics, which ensures profit is being made per sale. Reflects efficiency of your businessĬost per unit offers insight into how much it costs to produce a single item, receive new inventory, store it, and fulfill and ship it. For ecommerce businesses especially, it is used to to set a pricing strategy after evaluating the cost of:Īdditionally, a lower cost per unit can also identify gaps in internal efficiencies. The importance of cost per unitĬost per unit identifies the relationship between production costs, logistics costs, and gross profits. Monitoring your cost of goods sold helps create context to set pricing and ensure profit is generated. What is cost per unit?Ĭost per unit refers to both the variable costs and fixed costs associated with producing and delivering a single unit of any product to an end consumer.
Variable cost per unit calculator online how to#
In this article, we will define cost per unit, explain why it is important, show how to calculate it, and offer actionable tips to reduce your cost per unit. This is why ecommerce companies that sell their own goods must calculate and monitor their cost per unit over time.īy keeping the cost per unit low, you can pass on the savings to the customer and entice more customers to buy (or take home more money if you’re able to sell it at a premium).
Only when you know how much it costs to produce or procure a single unit of any SKU can you make more informed decisions on how much to sell it for. While Greg can mark up the price of his candles (charging customers more than his competitor), he knows he should identify ways to reduce his costs to have a healthier margin.įor Greg and many other retail businesses, success is heavily reliant on having a profitable cost per unit - and half of that battle is keeping your costs low.
It costs Greg’s biggest competitor $8 on average to create a similar candle. Greg’s Apothecary produces scented candles for an average of $10 per unit.
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