All about Cost Per unit

Cost per unit is something that people are looking at. 

That’s because, if you charge too much, you’re going to struggle with keeping the costs nice and low, and you have to calculate, along with monitor this. 

You can then offer the savings to customers, especially to buy this and then you’ll make a whole lot more money too. 

Cost per unit is something that’s fixed in some cases, while also being variable, and it can be good for a lot of customers. 

Monitoring this helps to ensure that the profit is correct and pricing works. 

The importance of This 

Cost per unit basically shows not only the costs for production, the costs of logistics, and the gross profits of a business.

This can help to look at the costs of the following: 

• Supplier and manufacturing 
• Warehousing along with storage 
• Sales and marketing 
• Shipping and fulfillment 

The lower the cost per unit, the easier it is to look at the internal efficiencies and also any other gaps and problems as well. 

It also shows the efficiency of a business as well, since it can show you how much it costs to make something, get the inventory, fulfill this, and then ship this. 

You can also look at where you can do better with profit margins, making this easier for you. 

Lower costs per unit is an indication of the logistics and production, which makes sure that you’re getting profit for everything. The quality does play a role too, as those that are premium or higher the quality, it tends to cost a whole lot more than what’s considered cheap. 

Pricing SKUs 

This is a big part of this, as the right price for SKUs can ensure that you’re making a profit in this. 

Remember these two things when you’re evaluating this: 

• Always evaluate this, since it does fluctuate, as the packaging, shipping and the raw materials may increase 
• The larger the volume of this, the bigger the discount, which can reduce how much cost per unit you’re throwing into there 

You want to go into a lower cost per unit, as it’s more sustainable and quality, and you’ll be able to properly and competitively create the right price, and you’ll be able to create sales margins that are secure and decent. 

Calculating the cost of this 

If you’re curious about calculating the cost per unit, it involves four major components that all play a part. 

The first is the total fixed costs, which is basically the cost that’s the same, and will never change with time.  it usually is what you can budget and forecast. This can be the rent of the building, the costs of labor, and other costs which are fixed. 

Then there are variable costs, which do change every now and then.  This can involve the costs of production, acquiring customers, packaging, shipping, and other various costs too. 

Now let’s say that you’re a small ecommerce business, where you create 100 units of dog food that’s 50 pounds.  You have fixed costs of $5000 monthly for this.  The variable costs may be for example 3000, since this includes how much labor, electricity, and raw materials are. 

Basically, you take the grand total of this, and then, you divide it by how much you’re making, and that will give you the total cost per unit. 

You will want to aim for 10% profit margins with this, and you want to make sure that you ensure that you’re minimally hitting 10%, but sometimes more when looking at costs too.