What is Unit cost?

Unit cost is the number behind every other inventory decision. You need it to set retail prices, calculate gross margin, and know whether a sale is actually profitable once you account for what you paid.

Use it when deciding reorder quantities too. A low unit cost item can justify ordering more at once since the cash tied up is small, while a high unit cost item deserves more caution and smaller, more frequent orders.

Formula

Example

A candle store orders 200 candles from a supplier for 600 dollars total, plus 40 dollars shipping. Total cost is 640 dollars. Unit cost is 640 / 200 = 3.20 dollars per candle. If the candle sells for 12 dollars, gross margin per unit is 12 - 3.20 = 8.80 dollars.

Common mistakes

• Using only the supplier's quoted price and forgetting to add freight, duties, or fees.
• Mixing unit costs from different purchase batches without recalculating an average, which skews margin numbers.
• Confusing unit cost with retail price when setting reorder budgets.

Unit cost and SteadyShelf

SteadyShelf uses unit cost and case pack sizing when drafting purchase orders so you can see total order value before you approve and send it to a supplier.

SteadyShelf is launching on the Shopify App Store. Join early access to get the install link first.

Related terms

Landed cost · Gross margin · Case pack · Weighted average cost · Cost of goods sold

Full inventory glossary

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