What it means
Revenue is unit sales multiplied by the average selling price, so any change in revenue has to come from one of those two levers or from a combination of both. Pulling the two apart is one of the most useful things a management team can do with its sales data.
The distinction matters because the two kinds of growth behave very differently. Selling more units usually means winning customers or market share, while charging more can reflect genuine pricing power or simply inflation passing through, and only one of those tends to keep working indefinitely.
Unit sales also drives most of the operational planning in a business. Factories, warehouses, delivery routes and support teams are all sized by volume rather than by revenue, so a forecast expressed only in dollars is of limited use to the people running operations.
Defining a unit takes more care than people expect. A drinks company might count bottles, cases or litres, a software firm might count seats, sites or subscriptions, and comparing figures across periods only works if the definition has not quietly changed.
The most common analytical use is a bridge that explains a revenue movement. Take the change attributable to volume, the change attributable to price and the change attributable to product mix, and together those three explain why the revenue line moved as it did.
In practice
Real-world examples.
Example
A consumer electronics brand sells 180,000 headphones in a year against 165,000 the year before, unit growth of 15,000 / 165,000 = 9.1%. Because the price was unchanged, revenue grew by exactly the same percentage.
Example
A soft drinks company runs a deep discount promotion, cutting the price from $3.00 to $2.60 and lifting unit sales from 500,000 to 600,000. Revenue rises from $1,500,000 to $1,560,000, growth of only 4% in exchange for a 20% increase in volume and a great deal more work in the warehouse.
Example
A car dealership sells 42 vehicles in March against a target of 55. The general manager reports the shortfall in units rather than in dollars because bonus schemes, stock ordering and staffing all run off vehicle counts.
Formula
Calculation
Revenue = unit sales x average selling price
Unit sales = revenue / average selling price
A tool manufacturer sold 24,000 units in the first quarter at an average selling price of $45.00, giving revenue of 24,000 x $45.00 = $1,080,000. In the second quarter revenue rose to $1,150,000 and the average selling price was $50.00, so implied unit sales were $1,150,000 / $50.00 = 23,000 units.
Revenue therefore grew by $1,150,000 - $1,080,000 = $70,000, an increase of $70,000 / $1,080,000 = 6.5%. Unit sales fell by 24,000 - 23,000 = 1,000, a decline of 1,000 / 24,000 = 4.2%.
All of the revenue growth, and rather more besides, came from the $5.00 rise in average selling price. That is a very different story from the one the revenue line tells on its own, and it is the reason unit sales belongs on the same page as revenue in every board pack.Case study
Seen in the real world.
Meadowvale Tools is an illustrative, fictional supplier of garden equipment. It announced record annual revenue of $9,200,000, up from $8,000,000 the year before, a rise of $1,200,000 / $8,000,000 = 15%.
The unit numbers told a rather different story. Sales fell from 200,000 units to 184,000, a decline of 16,000 / 200,000 = 8%, while the average selling price rose from $8,000,000 / 200,000 = $40.00 to $9,200,000 / 184,000 = $50.00 after a deliberate move towards a premium range.
In this fictional example the board split on how to read the result. One view was that the premium strategy was working exactly as intended; the other was that the company was steadily shrinking its customer base and had perhaps two more price rises before falling volume overwhelmed the benefit.
Watch out
Common mistakes.
- Celebrating revenue growth without checking whether unit sales actually rose, which can mask a steadily shrinking customer base.
- Changing the definition of a unit partway through the year and then comparing the new figure against the old one.
- Forecasting operations from a revenue budget rather than a volume budget, which leaves warehouses and support teams sized wrongly.
Questions
People also ask.
Are unit sales the same as sales volume?
In everyday use yes, although some industries reserve volume for a measure such as litres or tonnes and use units only for discrete items.
Why would unit sales fall while revenue rises?
Because the average selling price has increased, through a price rise, a shift towards more expensive products or a reduction in discounting.
How do returns affect unit sales?
Most businesses report net unit sales after returns, and mixing gross and net figures across periods is a common source of confusion in board reporting.
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