Understanding AUR is essential for planning pricing strategy, inventory maintenance, marketing campaigns, and more! For a free consultation about this and other supply chain questions, click to set up a call with 5G Consulting.
What Is AUR?
Average Unit Retail (AUR) is defined as the average selling price of a product over a set time period. You can find the AUR for one of your items by simply dividing total sales in dollars by the quantity of items sold. AUR is used by many suppliers to gauge item performance and sales strategies across multiple areas or categories.
Being able to calculate the AUR for your products is very important when planning your pricing strategy for Walmart, SAM’S Club, Amazon, and other retailers.
For more retail math terminology and necessary calculations for your analytics, check out our blog Retail Math Formulas, Acronyms, and Definitions.
How Do I Calculate AUR?
The following 4-step process can be used to determine the AUR for your items:
1. Choose specific dates to monitor
Suppliers can gauge the average unit retail for a product over a given time period. When reviewing AUR over a set time period, you will see more than item selling performance; you’ll also get a snapshot at buying trends. The AUR time frame will help with data on item performance during holiday weeks, holiday flips, while the item is on feature, item launch events, and other selling seasons.
2. Determine net sales
Net sales of an item for an accurate AUR is strictly revenue. Use the total revenue of your item over the selected time period. Remember, accurate total revenue does not include sales returns, allowances for missing and damaged product, or discounts.
3. Find the total units sold
The total units sold is most commonly found on your income statement for a set accounting time frame. If you need a more custom number set for a different number of weeks, look for total units sold in the retail management software used for your store selection.
4. Divide your net sales by your units sold
Now you have all the data to calculate your AUR! Just take the net sales (or total revenue) and divide by the number of units sold.
How to Use AUR
Calculating AUR is easy, but how is it used in retail? As a supplier, the average unit retail is essential for your planning strategy and then making adjustments after the fact.
By keeping track of your AUR, you’ll get valuable insight for:
Maintaining Good Inventory Levels
Constantly monitoring your AUR will help in maintaining good inventory levels, especially when you have multiple SKUs. This will also help you determine how to improve on pricing and a strategy that is succeeding versus where you need to make modifications.
The AUR provides a lens for your inventory levels to see what items (and how many) are selling and what items need adjustment.
Consumer Buying Trends
Growing sales requires understanding the shopping habits of your customer. By applying the AUR to your sales data, you’ll better understand how many units of your product the consumer is willing to purchase and also the price point they find reasonable. Your AUR data will show you if the price point on your item is too high.
Monitoring your average unit retail will also indicate if you need to raise your item’s price point. The margin on your item may be too low after reviewing your AUR along with other metrics like the item cost and profit margin.
Defining Product Demand Times
When you diligently gauge your AUR, you’ll be able to determine at what times your items are in demand versus the slow selling seasons. By defining the seasons of high sales, you can plan for more inventory to support the greater demand. Once you zero in on the slower selling weeks, you can plan a strategy to support sales (i.e., feature placement, sales, marketing tactics).
As you monitor AUR patterns, make sure you track any unusual events that can negatively or positively impact consumer buying habits. During the course of a year, those “unusual events” might include industry changes, unforeseen shortages, tragic weather, gaining or losing competitors, etc.
Aligning with Your Retailer
For a better relationship with retailers you support, it’s important to understand their pricing philosophy. Some retailers are “price matchers” or can play “high-low” with their pricing. Discussing their position with their AUR as compared to their competition will help you in aligning to their strategy for sales.
What if my AUR is Wrong?
As easy as it seems to calculate average unit retail, mistakes can happen. An incorrect AUR will seriously hurt your sales data and can lead to poor planning. In fact, miscalculating the AUR can falsely claim your sales are more than they actually are in the store.
Here’s a common calculation mistake: as you work to determine an item’s AUR, do not factor in on-hand inventory. Sales or markdowns can make this calculation wrong. For example, a pillow in your current inventory may be priced at $20. However, the actual price of the pillow on the salesfloor may be discounted because of a sale. This will affect the AUR.
In order to calculate the AUR correctly, only use net sales after markdowns divided by your total units sold.
Learn More From 5G!
If you’re new to AUR and calculating a sales strategy, we’re here to support you!
Our team at 5G Consulting helps suppliers each week with their supply chain, marketing strategies, lowering deductions, and more. We can show you how to use AUR in your Walmart buyer meetings when discussing feature placement, inventory adjustment, price strategies, and marketing.
A consultation is absolutely FREE! Click here to set up a call with our team to learn more.