Contribution per unit is a measurement used in business to determine how much each unit sold is contributing to the overall sales of the company. A company can use this to determine how many units they must sell in order to reach a break-even point, allowing them to make a profit.
Divide the amount of total sales by the amount of units sold to give you your revenues per unit. For example, if you have £260 in total sales, and have sold 100 units, that means your revenue per unit sold is £2. In other words, you're getting £2 for every unit that you sell.
Divide the amount of total costs of production by the amount of units sold to give you your costs per unit. For example, if it cost a total of £130 to produce and you have 100 units, that means your cost per unit is £1.30. In other words, every unit you produce costs you £1.30.
Subtract the revenue per unit by the cost per unit to get the contribution per unit. For example, if you subtract £2 (the revenue per unit from Step 1) by £1.30 (the cost per unit from Step 2) you get £1.30. In other words, you get £1.30 in profit per unit sold. This is your contribution per unit.
Things you need
- Amount of units sold
- Revenues of units sold
- Cost of production