# How to Calculate the Selling Price Per Unit: A Step-by-Step Guide

To calculate the break-even point in units use the formula: Break-Even point (units) = Fixed Costs ÷ (Sales price per unit – Variable costs per unit) or in sales dollars using the formula: Break-Even point (sales dollars) = Fixed Costs ÷ Contribution Margin.

Determining the optimal selling price per unit is one of the most critical elements of running a profitable business However, pricing decisions involve complex factors like production costs, competitor prices, and perceived product value Mastering how to accurately calculate the selling price per unit can lead to pricing strategies that enhance revenue while cultivating long-term customer relationships.

In this comprehensive guide, we will demystify the process of calculating the selling price per unit using step-by-step instructions and practical examples. Whether you run a small business or multinational corporation, these tips will equip you to make strategic pricing decisions that drive growth and sustainability.

## What is the Selling Price Per Unit?

The selling price per unit refers to the price at which a single unit of a product or service is sold to customers This metric serves as the basis for a company’s pricing strategy and significantly impacts sales volumes, revenue generation, and profit margins.

Setting an optimal selling price per unit requires balancing production costs and profit goals while remaining competitive within your industry It also means understanding customer perspectives – how much value do they place on your offering? An effective price aligns with perceived value while ensuring financial viability

## Why Calculate Selling Price Per Unit?

Here are some key reasons to meticulously calculate your selling price per unit:

• Maximize profits – An accurate per unit price allows you to generate desired profit margins. Setting the price too low leaves money on the table, while too high can deter buyers.

• Align with production costs – The selling price must cover per unit manufacturing/operations expenses. Knowing your costs is crucial for pricing appropriately.

• Remain competitive – Analyze competitor prices and industry benchmarks to price competitively. Understanding your market positioning is key.

• Deliver value to customers – Balance production costs with the maximum price customers are willing to pay. Pricing based on perceived value sustains sales.

• Inform business decisions – Price per unit impacts everything from budgets to sales strategies. Accurate pricing empowers smart business planning.

## How to Calculate Selling Price Per Unit in 5 Steps

Follow these five steps to determine an optimal per unit selling price:

### Step 1: Calculate Variable Cost Per Unit

Variable costs vary directly with production output. To determine per unit variable cost:

• Identify all variable costs – These include raw materials, direct labor, and variable manufacturing overhead.

• Calculate total variable costs – Add up the total variable expenses within a period.

• Determine the number of units produced – How many units were manufactured during the same period?

• Divide total variable costs by production volume – This gives you the variable cost per unit.

### Step 2: Define Desired Profit Margin

Decide your desired profit margin for the product based on factors like:

• Revenue goals
• Benchmark profit margins in your industry
• Business expansion plans

A 20-30% margin is typical for many industries. Strategically balance your growth plans with competitive realities.

### Step 3: Research Competitor & Industry Pricing

Conduct competitor analysis to determine:

• Pricing strategies of direct competitors
• Price points for similar products/services
• Industry standards and benchmarks

This market research will inform your pricing decisions and competitive positioning.

### Step 4: Assess Customer Perspectives

Gauge how much value customers ascribe to your product. Techniques include:

• Surveys – Directly ask about perceived value and price sensitivities.

• Focus groups – Get feedback on pricing considerations from a sample of target customers.

• Willingness-to-pay analysis – Determine the highest price customers will pay for your product.

Align pricing with maximum value as perceived by your target audience.

### Step 5: Set Selling Price

With costs, profit goals, competitive data, and customer perspectives in mind:

• Establish a base price – This at minimum covers the variable cost per unit.

• Add desired profit margin – Apply suitable markup to build in your profit goals.

• Adjust based on market factors – Refine based on competitor pricing, industry benchmarks, and value perceptions.

The resulting price is your optimal per unit selling price!

## Selling Price Per Unit Examples

Let’s walk through some examples to illustrate calculating selling price per unit:

### Example 1: Manufacturing widgets

• Total variable costs for 50,000 widgets produced annually: \$100,000

• Variable costs per unit = Total Variable Costs ÷ Volume
= \$100,000 ÷ 50,000
= \$2 per widget

• Desired profit margin: 25%

• Competitor widget prices range from \$5 – \$8

• Customers perceive high value from premium quality widgets

Selling price per unit

• Base price (to cover variable cost): \$2
• Add 25% profit margin: \$0.50 (25% of \$2 base price)
• Adjust for market: Set at \$7 given competitor pricing and high perceived value

Final selling price per widget: \$7

### Example 2: Monthly software subscription

• Monthly variable SaaS costs: \$5,000

• Volume: 250 subscriptions sold

• Variable cost per subscription: \$5,000/250 = \$20

• Target profit margin: 30%

• Competitors priced at \$10 – \$75 per month

• Customers willing to pay more for added features

Selling price per subscription

• Base price (variable cost): \$20
• Add 30% margin: \$6 (30% of \$20 base)
• Adjust for market: Set at \$50 given competitor pricing and feature value

Final selling price per subscription: \$50/month

## Key Takeaways

• Calculate variable costs per unit to establish a baseline price
• Add desired profit margin and adjust based on market factors
• Research competitor pricing and industry benchmarks
• Assess customer willingess-to-pay and perceived value
• Cost, profitability, competition, and perceived value all inform optimal selling price per unit

Accurately determining your selling price per unit is crucial for maximizing profits while remaining competitive and delivering value to your customers. Following the step-by-step approach above will position you to make pricing decisions that support the success and sustainability of your business.

## Calculating the Break-Even Point in Sales Dollars

Fixed Costs ÷ Contribution Margin

Contribution Margin is the difference between the price of a product and what it costs to make that product.

The calculation is as follows:

(Sale price per unit – Variable costs per unit)/Sale price per unit

Let’s show a couple of examples of how to calculate the break-even point.

Sam’s Sodas is a soft drink manufacturer in the Seattle area. He is considering introducing a new soft drink, called Sam’s Silly Soda. He wants to know what kind of impact this new drink will have on the company’s finances. So, he decides to calculate the break-even point, so that he and his management team can determine whether this new product will be worth the investment.

His accounting costs are as follows, for the first month the product will be in production:

Fixed Costs = \$2,000 (total, for the month)

Variable Costs = .40 (per can produced)

Sales Price = \$1.50 (a can)

### Calculating the Break-Even Point in Units

Fixed Costs ÷ (Sales price per unit – Variable costs per unit) \$2000/(\$1.50 – \$.40) Or \$2000/1.10 =1818 units

This means Sam needs to sell just over 1800 cans of the new soda in a month, to reach the break-even point.

## How to Calculate Selling Price Per Unit – Easy Way

How do you calculate a selling price?

Determine the total cost of all units purchased. Divide the total cost by the number of units purchased to get the cost price. Use the selling price formula to calculate the final price: Selling Price = Cost Price + Profit Margin. To determine the selling price per unit of a product, you will need to know a few details about it.

How do you calculate a unit price?

How to Calculate Unit Price. If the quantity and total cost are known, a straightforward formula can be used to determine the unit price. To calculate the unit price, simply divide the total cost by the number of units. Consequently, the unit price is determined by dividing the total price by the quantity.

What is selling price per unit?

The sum of money a buyer will spend on one unit of a product is known as the selling price per unit. For instance, the selling price per unit for a company that produces books would be the amount that a customer would pay for one book.