In this article, learn about:
What Average Unit Retail (AUR) is and how it affects sales
How to use AUR to increase sales
How to calculate AUR
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For suppliers, tracking inventory, demand, and revenue is just a part of daily business. In the modern supply chain world, suppliers can no longer just sell their products to retailers and forget about them. They need to track retailer-to-customer sales data to optimize their own retail business and pricing strategy.
There are many reasons a company like Walmart needs to track its suppliers’ net sales, but there are even more reasons for the suppliers to do the same. Walmart suppliers need to know exactly what’s going on with their stock to supply such a large retailer. Suppliers should regularly be asking themselves:
Who’s buying it?
How much is selling?
Is Walmart changing the price?
Has the customer demand gone up?
It’s crucial to have as much data as they can get to keep the demand planning and supply chain running smoothly. This is where Average Unit Retail (AUR) comes in.
Related Reading: What is Stock Control?
What is Average Unit Retail (AUR)?
Average Unit Retail (AUR) is the estimated or average retail value of an individual item from a specific supply during a set period. It is one of the most fundamental stock control and pricing strategy metrics.
For example, in a supply of 500 curtain rods, the AUR is the average selling price of one unit after all of the rollbacks, sales, regional pricing differences, and other pricing changes have been taken into account.
Suppliers for retailers like Walmart use AUR to determine the unit cost, units sold, and more. While a retailer may also look at AUR, suppliers need to track it as it can affect more than just stock control, demand planning, and pricing. It can also be a good insight into their product’s standing in a given retailer.
For example, let’s say that Supplier XYZ has a new home cleaning item that is performing very well in Major Retailer 1. This retailer has more of a one-stop-shop profile and a best-in-class brick-and-mortar storefront presence. However, Supplier 1 is struggling to match those same numbers in Major Retailer 3, which has more of an eComm presence in the market.
In this case, the AUR in Major Retailer 1 may be marginally higher than Major Retailer 3. Leaders at Supplier XYZ can use this data to strategically plan that item’s growth in Major Retailer 3, while also looking to maximize the good standing that the item has in Major Retailer 1.
Related Reading: What is Demand Planning?
How Does AUR Affect My Sales?
That is what AUR is and how it is calculated, but why is it important? How does it affect suppliers’ net sales?
Average unit retail is a vital metric for suppliers. They use it to gain insights into customer demand, customer interest, how much customers are willing to spend, and how their stock compares to other items and suppliers.
With this information, suppliers can adjust their stock control and optimize their output and income. If a supplier compares AUR on an item over six one-month periods and finds that while the net sales stay the same, the AUR has gone up, this indicates that with an increased price on items, consumers buy less. This helps the suppliers to know if they should raise or lower prices as part of their pricing strategy.
AUR is also a valuable way for suppliers to decide how much inventory to buy. It makes it easier to compare different items and their popularity. If one product has high demand and the other does not, it will inform the supplier what to ship.
Related Reading: How to Do a Walmart Cost Change Scenario
How Can I Use AUR to Increase My Net Sales?
There are many ways that suppliers can use AUR to boost their net sales. Most of the time, AUR is combined with other metrics for a more accurate analysis. When used correctly, it is a helpful tool for monitoring market conditions and customer demand, learning about average customer expenditures and habits, tracking competitors, and so much more.
Knowing AUR can even help in such areas as demand planning, segmentation analysis, and community demographics. The more a supplier knows about its consumers’ needs, the more quickly it can adjust its stock control, pricing strategy, inventory, and supply.
AUR is an essential metric for suppliers to track their margins and tailor their pricing strategy. Without knowing the AUR, suppliers would be unable to gauge any of their product prices. The vital distinction for AUR is that it is the price of an item on a sales floor, not in the warehouse.
What are Some Common Issues with AUR?
While AUR is a metric that is often used in combination with almost every other analysis metric, it is not without its limitations. Calculating AUR accurately can be very difficult when selling products in multiple retailers. Some retailers make accurate AUR reporting readily available to their suppliers, while others require AUR calculations to be done by the suppliers themselves, sometimes with limited visibility into the actual sales data.
Because AUR is best understood within the context of so many other data points and analyses, it is vital to get it right. If the supplier calculates AUR wrong, it can throw off a million other things and cause a headache for everyone involved.
Knowing when the retailer utilizes price reductions, sales, or markdowns is essential to clear AUR reporting. When calculating AUR, a supplier needs to know the discounted price at the point of sale.
How do I Calculate AUR?
To calculate AUR, divide the net sale amount by the number of units sold. The answer will be a single item’s AUR.
AUR = Net Sales ÷ Number of Units Sold
For example, if we return to the example of the 500 curtain rods, let’s say that Walmart sells 450 for a total net value of $5,400. In that case, our AUR calculation would look like this:
Example 1: 450 units sold at a total point-of-sale price of $5,400 yields an AUR of $12.
Now, if the total revenue stays the same, but the number of units sold decreases to 300, there would be a higher AUR:
Example 2: 300 units sold at a total point-of-sale price of $5,400 yields an AUR of $18.
Taking these two examples together, we can see a sharp uptick in AUR. From this, we could draw any number of conclusions. For instance, the item may perform better seasonally year over year during the time frame shown in Example 1. If that’s the case, it might be wise to reduce on hands during the period illustrated in Example 2. Perhaps we have an item that performs better seasonally YoY in the window from the first example, and we should take steps to reduce on hands for the time frame of Example 2.
Pulling AUR Data in Walmart’s Scintilla
For Walmart suppliers, calculating AUR is actually not quite as complicated as all that. AUR is a datapoint that Walmart provides for all of its suppliers in Scintilla. Go to:
Scintilla > Reports > Vendor Scorecard
The Vendor Scorecard contains a lot of very important data for understanding net sales performance in Walmart. One of these datapoints is AUR. It will populate in one of the rows of the report.
In Summary
Average unit retail (AUR) is an essential part of any supplier’s metric repertoire. Knowing how much a single unit of stock retails for and how that changes with time and customer demand is one of the most basic reports a supplier needs to pull.
Tracking unit prices not only tells suppliers how much they are making per unit, but it also helps to inform their decisions on inventory type and amount, pricing strategy, market trends, and almost everything else.
Retail suppliers need to keep track of not just their stock control but how much and how well that stock sells. The best way to do that is with AUR.
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