Finance and Business Success Tips to Keep More Money in Your Purse:
What is the importance of knowing your unit costs to set a profitable price for your product or service?
A Sales Unit is a typical or average sale for a business. Whatever kind of business that you have, you need to decide on a typical sale for the purposes of your business plan and to be able to make sales projections for the future. A unit can be a job, an hour of work, a contract, or a shopping basket full of items.It can be as small as a cup of coffee or as large as a house. It all depends on the type of business being discussed.
Remember that if you are planning to have a wholesale line of business, then your unit will generally be a case or minimum order amount since you would typically not sell individual items to a retail business.
It can be helpful to think of a unit as a “bread and butter” sale. It does not mean that you will not sell products or services that are less or greater than this unit. Defining your typical unit helps you to see what your unique place is within the market. Retail businesses often have a hard time defining a unit. It may be helpful to think of it as an average sale that is based on adding up all of the transactions you make and dividing it by the number of transactions made.
Let’s look at the case study to see how they have determined a unit or units for their business.
Based on Jessica’s five years working at the spa, she has found the 90-minute massage to be the most popular one that they offer. She thinks that she will start with this as her typical unit of sale.
Unit: One 90 Minute Massage
Oils/lotions/laundry used $1.25
Water/Tea for client $1
Credit Card fee $2.75
Total Variable Costs $5.00
Remember that Gross profit is the sales price minus the variable cost. In the case of Jessica, here is her gross profit:
$100 Sales Price - $5.00 Variable Costs = $95.00 in Gross Profit
She will then use this money to pay her monthly overhead, and whatever is left over after that point will determine her true (net) profit.
This success tip is from our online or live Birds Eye Business Planning Class.
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