Although it may sound counterintuitive, the better deal isn’t always the one with a lower price. The common mistake many consumers make is focusing on the item’s total price instead of its price for a given quantity, known as its unit price.
Businesses, on the other hand, look at a different measure, the unit cost. This data can help them find inefficiencies, price their products competitively, and increase profitability. Learn more about how to calculate unit price and the difference between the cost per unit for a business and the price per unit for a customer.
What is unit price?
Unit price is the cost for one unit of an item. It standardizes the product’s price based on common units of measurement, for example, per pound, per fluid ounce, per kilogram, or per count. This unit-based measurement lets you make a true apples-to-apples comparison between packages containing different quantities of the same product.
For example, a 32-ounce carton of juice might have a total price of $4, while a 64-ounce carton costs $6.40. By looking at the shelf price, you might be tempted to grab the $4 container. However, the unit price tells a different story.
32-ounce carton: $4 / 32 ounces = 12.5¢ per ounce
64-ounce carton: $6.40 / 64 ounces = 10¢ per ounce
The unit calculation shows the larger carton has a lower cost per ounce, making it the best price and the smarter purchase. Many stores display the unit price on the shelf tag, but it’s often in small print, and the unit of measurement isn’t always consistent. For example, one item might be priced per ounce, while a similar one is priced per pound. Understanding it empowers you to determine the true value of the product.
Cost per unit vs. price per unit
Although sometimes used interchangeably, cost per unit and price per unit represent two different sides of the same coin.
Cost per unit
Also known as unit cost, this is the producer’s or seller’s expense to create, acquire, or sell a single unit of a particular product. The unit cost is the total expense a business incurs to make or procure a single item before factoring for any profit margin. It’s a critical figure for determining profitability and your pricing strategy. The calculation for cost per unit involves adding up all associated expenses and dividing by the total units produced. These expenses are divided into two main categories: fixed and variable costs.
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Fixed costs. Fixed costs are expenses that aren’t affected by production volume. Examples of fixed costs include rent for a factory, insurance, and property taxes. The total fixed cost remains the same whether the business produces 100 units or 10,000 units.
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Variable costs.Variable costs fluctuate with the level of production. Raw materials, labor used in production, and packaging are a few examples. The more you produce, the higher your business’s total variable costs. Other indirect costs and some overhead costs, such as electricity for machinery, can also vary. Sometimes, businesses also incur expenses known as step costs, which are fixed for a certain amount of production but increase once that level is exceeded—for example, hiring a second factory supervisor once production hits a certain threshold.
Price per unit
Price per unit is the amount that customers pay for a single product. The unit price is determined by taking the unit cost and building in a profit margin—the amount of profit the business wants to make on each unit it sells. The final price is also influenced by such factors as market demand, perceived value, and competition.
A business determines the cost per unit to calculate its expenses, and the customer uses the price per unit to obtain the best deal. A business tries to ensure its product’s unit price is higher than its unit cost to turn a profit.
How to calculate unit price
- Find the item’s total price
- Identify the total quantity and unit of measure
- Ensure you are using the same unit
- Divide the total price by the number of units
You don’t need a complicated unit price calculator—just the price, the quantity, and simple division. Here are the steps:
1. Find the item’s total price
This is the easiest part. It’s the price consumers pay at the cash register or at checkout.
2. Identify the total quantity and unit of measure
Look at the package to find the total quantity of the product. This is measured in weight, volume, or count.
3. Ensure you are using the same unit
This is the most critical step when you want to compare unit prices. You cannot compare ounces to pounds or liters to fluid ounces directly. You must convert one of the items to the same unit as the other. A conversion calculator can help you do that.
4. Divide the total price by the number of units
The formula for calculating the unit price is:
Unit price = Total price / Number of units
To determine the unit price, divide the item’s total price by the quantity. Let’s use an example of purchasing paper towels. In comparing two packages, you consider the following:
Package A: Six rolls for $9.99
Package B: Eight rolls for $12.49
To calculate the unit price, perform the following calculation:
Brand A: $9.99 / six rolls = $1.67 per roll
Brand B: $12.49 / eight rolls = $1.56 per roll
In this case, package B offers a lower cost per roll, making it the better deal.
How to calculate unit cost
- Identify total fixed costs
- Determine total variable costs
- Combine for total production costs
- Calculate cost per unit
To understand unit cost from a business’s perspective, imagine a company producing high-quality scented candles. To determine a profitable selling price, the owner needs to calculate the cost per unit for a single candle based on one month of production of 2,000 candles.
To find the cost per unit, first determine the company’s total costs, which are a combination of fixed costs and variable costs.
1. Identify total fixed costs
The candle company has the following fixed costs, which don’t change, no matter how many candles are produced.
Workshop rent: $1,500
Salaries (manager and admin): $4,000
Insurance: $200
Website and marketing subscription: $300
Total fixed costs: $6,000
2. Determine total variable costs
The candle maker identified the following variable costs, which are expenses that increase with each additional candle produced.
Wick, wax, and fragrance: $2.00
Glass jar and lid: $1.25
Label and packaging box: 75¢
Total variable cost per candle: $2.00 + $1.25 + 75¢ = $4
To get the total variable costs for the month, multiply this by the production volume:
Total variable costs: $4 per candle x 2,000 candles = $8,000
3. Combine for total production cost
This is the sum of all fixed and variable costs for the month.
Total cost = Total fixed costs + Total variable costs
Total cost = $6,000 + $8,000 = $14,000
4. Calculate cost per unit
Finally, divide the total production cost by the total number of units produced.
Unit cost = Total cost / Number of units produced
Cost per unit = $14,000 / 2,000 candles
Cost per unit = $7
This calculation shows that it costs $7 to produce each candle, so the business must sell each candle for more than this price to make a profit.
Unit cost calculator
To make unit cost calculations easier, you can copy this spreadsheet template that does the math for you. Input the item’s price and quantity, and the template will generate the unit cost.
How to calculate unit price FAQ
What’s the difference between unit price and retail price?
The retail price is the cost to purchase the item, regardless of its size or quantity. The unit price breaks down the retail price into the cost of a single unit, even if it’s sold in bulk quantity. For an item sold as a single unit, like one candy bar, the retail price and the unit price are the same.
How do I calculate unit price?
You can calculate unit price with a simple formula. First, find the total price of the item, and then find the total quantity by fluid ounces, pounds, or count. Finally, divide the total price by the quantity. For example, if a 16-ounce jar of pasta sauce costs $3.20, the unit price is $3.20 divided by 16, which equals 20¢ per ounce.
How do you calculate unit price in Excel?
Excel is a powerful calculator for finding the unit price. To do so, input the total price of a product (say, a carton of eggs) in one cell. Enter the number of units (in this case, 12 eggs) in the cell next to it. In a third cell, divide the first cell by the second cell—this will result in your unit price.
