How to Calculate Average Revenue Per SKU (Stock Keeping Unit) Easily

As a business owner, tracking and analyzing your sales is crucial for making sound and informed decisions. One KPI (key performance indicator) that can help you understand the profitability of individual products is Average Revenue Per SKU (Stock Keeping Unit). In this article, we will discuss how to calculate Average Revenue Per SKU and how it can be used to make informed business decisions.

Understanding the Importance of Average Revenue Per SKU

Before delving into the calculation method, let us first understand what Average Revenue Per SKU means and why it is vital for businesses.

Basically, Average Revenue Per SKU refers to the average amount of revenue generated by a particular product over a specific period. This metric helps businesses understand the profitability of individual products and is critical for inventory planning and pricing strategies.

Moreover, Average Revenue Per SKU can also help businesses identify their top-performing products and allocate resources accordingly. By analyzing this metric, businesses can determine which products are driving the most revenue and focus on promoting and improving those products. Additionally, Average Revenue Per SKU can also aid in identifying underperforming products that may need to be discontinued or reevaluated.

Defining Key Terms: SKU and Average Revenue

It is important to define key terms before jumping into the calculation method. SKU stands for Stock Keeping Unit, which is a unique identifier for a product that helps businesses track inventory and sales. Whereas, Average Revenue is the total revenue generated by a particular product divided by the number of units sold.

Understanding these terms is crucial for businesses to make informed decisions about their products. By tracking SKUs, businesses can identify which products are selling well and which ones are not. This information can help them make decisions about inventory management and marketing strategies. Similarly, calculating average revenue can help businesses determine the profitability of a particular product and make decisions about pricing and promotions.

Step-by-Step Guide to Calculating Average Revenue Per SKU

The formula for calculating Average Revenue Per SKU is straightforward:

Average Revenue Per SKU = Total Revenue / Number of Units Sold

Let us break down this formula step by step:

1. Identify the period you want to calculate Average Revenue Per SKU for
2. Identify the product (SKU) for which you want to calculate Average Revenue
3. Calculate the total revenue generated by the SKU over the period you identified in step 1
4. Calculate the total number of units sold for the SKU over the period you identified in step 1
5. Divide the total revenue by the total number of units sold to get the Average Revenue Per SKU

It is important to note that when calculating Average Revenue Per SKU, you should only include revenue generated by the specific SKU you are analyzing. This means that any revenue generated by other products should not be included in the calculation. Additionally, it is recommended to use a consistent time period when calculating Average Revenue Per SKU, such as a month or a quarter, to ensure accurate and meaningful comparisons over time.

Tips for Accurate Calculation of Average Revenue Per SKU

To ensure accurate calculation of Average Revenue Per SKU, here are some tips:

• Ensure that you are calculating Average Revenue Per SKU for a specific period, such as a week, month, or quarter
• Ensure that the revenue you are considering is only for the specific SKU you are calculating Average Revenue for
• Ensure that the units sold are only for the specific SKU you are calculating Average Revenue for

It is also important to note that when calculating Average Revenue Per SKU, you should exclude any returns or refunds for the specific SKU during the period you are calculating for. This will ensure that your calculation is based on accurate revenue and unit sales data.

Factors That Affect Average Revenue Per SKU

Several factors can impact Average Revenue Per SKU, such as:

• Product pricing
• Marketing efforts
• Seasonal demand
• Product availability
• Competition

Another important factor that can affect Average Revenue Per SKU is the quality of the product. Customers are more likely to pay a higher price for a product that is of high quality and meets their needs. On the other hand, if the product is of poor quality, customers may be less willing to pay a premium price for it, which can lower the Average Revenue Per SKU. Therefore, it is important for businesses to focus on producing high-quality products that meet the needs and expectations of their customers.

How to Use Average Revenue Per SKU to Make Business Decisions

Average Revenue Per SKU can be used to make informed business decisions such as pricing strategies and inventory planning. For instance, if a particular SKU is generating low Average Revenue, it may be an indicator that there is a need to adjust pricing or marketing efforts. On the other hand, a high Average Revenue Per SKU can signal a need to increase inventory for the product or run promotional offers.

Real World Examples of Calculating and Using Average Revenue Per SKU

Here are some real-world examples of how businesses have used Average Revenue Per SKU:

• A clothing store calculated Average Revenue Per SKU to determine which products to restock and which ones to discontinue
• A restaurant calculated Average Revenue Per SKU to identify their most profitable dishes and adjust their pricing strategy accordingly
• An e-commerce store calculated Average Revenue Per SKU to determine which products to promote through social media ads and email marketing campaigns

Common Mistakes to Avoid When Calculating Average Revenue Per SKU

Some common mistakes to avoid when calculating Average Revenue Per SKU are:

• Confusing revenue with profit
• Not calculating for a specific period
• Calculating for a product category instead of a specific SKU

Tools and Software That Can Help You Calculate Average Revenue Per SKU Faster

Several tools and software are available to help businesses calculate Average Revenue Per SKU faster, such as Excel and online tools like Sisense and Domo. These tools can save time and minimize the risk of errors.

By now, you should have a comprehensive understanding of Average Revenue Per SKU, its importance, and the calculation method. Including this KPI in your business analysis can help you identify profitable products, make informed pricing strategies and inventory planning decisions, and ultimately increase your bottom line.