For suppliers, tracking inventory, demand, and revenue is just a part of daily business. In the same way a teacher tracks a student’s grades or nurse marks down the patient's vitals, so too do suppliers need to track sales data.
There are many reasons a company like Walmart needs to track sales, but even more reasons that the suppliers do. Walmart suppliers need to know exactly what’s going on with their stock to supply such a large retailer:
All of these are questions that suppliers ask themselves every day. They need as much data as they can get to keep the supply chain running smoothly. This is where Average Unit Retail (AUR) comes in.
Average Unit Retail (AUR) is one of the most fundamental stock and pricing strategies metrics. AUR is the estimated or average retail value of an individual item from a specific supply during a set period. This estimation means that in a supply of 500 curtain rods, the AUR is the selling price of one unit.
Suppliers for stores such as 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.
That is what AUR is and how to calculate it, but why is it important? How does it affect suppliers’ 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 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 income stays the same, the AUR has gone up, this indicates that with an increased price on items, consumers buy less. It helps the suppliers to know if they should raise or lower prices.
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 of what to ship.
There are many ways that suppliers can use AUR to help boost their sales. Most of the time, AUR combines with other metrics for a more accurate analysis. When used correctly, it is a helpful tool for monitoring market conditions and customer preferences, learning about average customer expenditure 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, pricing, inventory, and supply.
AUR is an essential metric for suppliers for tracking their margins and tailoring their prices. 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.
While AUR is a simple metric used in combination with almost every other analysis metric, it is not without its faults. There are two main issues a supplier may run into when using AUR calculations.
The first is miscalculating. Because AUR often goes with so many other 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.
The second major issue with AUR is that suppliers don't always know when their customers use price reductions, sales, or markdowns. The problem with this is that it skews the data. When calculating AUR, a supplier needs to know the discounted price. If the supplier doesn’t use the discounted price in the formula, it makes the data incomparable.
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: Of those 500 curtain rods, if Walmart sells 450 for a total net value of $5,400, the calculation would look like this:
Example: $5,400 ÷ 450 = $12
That would mean the AUR is $12. So, the average retail price of one curtain rod during a specific period was $12. Now, what if the total revenue stays the same, but the number of units sold decreases to 300? The calculation would then look like this:
Example: $5,400 ÷ 300 = $18
What this means is that though the net revenue remained the same, the number of sales dropped. There is an extreme uptick in AUR, so fewer customers are likely to buy it at this new inflated price.
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 demand is the most basic chore a supplier needs to do.
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, prices, market trends, and almost everything else. AUR is the foundation metric for suppliers.
Retail suppliers need to keep track of not just their stock but how much and how well that stock sells. The best way to do that is with AUR. Just remember; net revenue divided by units sold equals average unit retail.
Using SupplyPike’s Retail Intelligence app, suppliers can track their AUR with ease. View your unit sales and download actionable data to grow your business.
Retail Intelligence – Unit Sales Metric
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