Unit of pricing
What a company or industry treats as the unit it charges for — quantity of goods for a manufacturer, loan value for a bank, airtime for a broadcaster — one factor guiding an analyst's choice of KPIs.
In plain language
Two companies can both report "revenue," but what they are actually charging for can be completely different things.
Unit of pricing asks that question directly: what does this company treat as the thing it prices? For a factory, the answer is usually simple. It is the number of goods sold. For a service business, the answer can be far less obvious.
How it works
The workbook gives no formula or numeric threshold for unit of pricing itself. It teaches the concept by naming the unit each industry actually uses, so the substance here is the definition, industry by industry.
Manufacturing and consumer goods price by the quantity of goods sold. A bank or NBFC prices by the value of the loan, charged as an interest rate. Airlines and logistics price by passenger or cargo kilometres. Print media prices by the space occupied in the paper; television and radio price by airtime; online media prices by views or clicks per advertisement. IT services and BPO price by the number of full-time-equivalent staff billed per project per month. Telecommunication providers treat the subscriber as the unit, whether the underlying bill is usage-based or a fixed monthly rental.
The workbook pairs unit of pricing with a second factor, key constraining factors (demand-side, supply-side or regulatory), as the two things, beyond a company's own disclosures, that guide an analyst toward the right KPIs for an industry.
A worked example
An IT services company reports revenue growth of 18% for the year. That number alone tells an analyst little. Breaking it down by the sector's own unit of pricing does: the company billed an average of 4,200 full-time-equivalent staff during the year against 3,800 the year before, at an average revenue per FTE that itself rose from Rs 42 lakh to Rs 44 lakh per annum.
Both the FTEs billed and the realisation per FTE grew, meaning the 18% growth came from genuine hiring and pricing improvement, not merely from currency movement, which the workbook separately flags as a major swing factor for this export-oriented sector.
Why NISM asks about it
Chapter 6, section 6.7.1 (Unit of pricing), sets this out with section 6.7.3's sector-by-sector KPI list as the workbook's own worked-through detail. Expect a question matching an industry to its unit of pricing, especially the counter-intuitive ones: a bank's unit of pricing is the loan value, not the number of customers, and a telecom operator's is the subscriber, not the call.
Common exam traps
- A café or telecom's unit of pricing is not always the most obvious variable. The workbook's own example: a coffee chain's pricing looks driven by the quantity of beverage sold, but is, in substance, driven by how much the business expects to earn from one patron overall.
- Retail is the exception, where unit of pricing is "far less relevant." Because organised retailers switch products quickly to match demand, the workbook says tracking store count and same-store sales growth matters more than any single unit of pricing.
- Do not confuse unit of pricing with key constraining factors. The workbook treats them as two separate, complementary inputs to choosing KPIs, not as the same idea.
Check yourself
1.For a telecommunications service provider, what does the workbook treat as the unit of pricing, regardless of the billing model used?
- a)The number of calls and messages made
- b)The volume of data consumed
- c)The subscriber
- d)The number of towers operated
Show the answer
Answer: (c) The subscriber
The workbook notes that Indian operators once charged by calls, messages and data and now largely charge a fixed monthly rental — and then says that regardless of the billing model, from an analytical perspective a subscriber is considered as the unit of pricing. Companies grow their subscriber base and upsell to existing subscribers.
That is why the KPIs are subscriber-shaped: ARPU, subscriber churn rate, cost of subscriber acquisition and market share.
Options A and B describe historical billing models, not the analytical unit. Option D describes infrastructure, which is a cost item, not a pricing unit. The industry's stated constraint is the limited market size, since subscribers are capped by the population of the geography served — another reason the subscriber is the right unit.
2.A retailer's total revenue grew 26% during a year in which it opened 40 new stores, taking its network to 210. Why does the workbook pair "number of stores" with "same-store sales growth" as retail KPIs?
- a)Because same-store sales growth is a regulatory disclosure requirement for retailers
- b)Because number of stores measures expansion while same-store sales growth strips out new stores and shows whether existing stores are actually selling more
- c)Because same-store sales growth is the only metric that can be compared across industries
- d)Because retail has a clearly defined unit of pricing that both metrics measure
Show the answer
Answer: (b) Because number of stores measures expansion while same-store sales growth strips out new stores and shows whether existing stores are actually selling more
The workbook says retail growth heavily depends on expanding the store network into localities that can generate healthy sales — so number of stores tracks that expansion. But total revenue growth flatters any retailer that has just added 40 stores, and says nothing about the health of the business. Same-store sales growth looks only at stores open in both periods, so it isolates underlying performance.
Option D gets the reasoning backwards. The workbook explicitly says that in retail the unit of pricing is far less relevant, because the business is "trading" in nature — each product has a different pricing unit and the retailer can switch products quickly. That is precisely why analysts fall back on the constraint (store network) instead.
Options A and C are inventions — the workbook makes no disclosure claim, and a cross-industry comparison is exactly what these sector-specific KPIs are not for.
3.Which set of metrics does the workbook specifically identify for the IT services / BPO / KPO sector?
- a)ARPU, subscriber churn rate and cost of subscriber acquisition
- b)Average FTEs billed, revenue per FTE, bench strength and attrition, constant currency growth, and customer concentration ratio
- c)Net interest margin, CASA ratio and capital adequacy
- d)Passenger km, price per passenger km and occupancy rate
Show the answer
Answer: (b) Average FTEs billed, revenue per FTE, bench strength and attrition, constant currency growth, and customer concentration ratio
IT services price on head count per project per month — the full-time equivalent or FTE. The constraints are availability of workforce, foreign currency fluctuation (the sector is largely export-oriented), and customer concentration where a handful of clients supply much of the revenue.
So the metrics follow the unit and the constraints: average number of FTEs billed, average revenue per FTE, bench strength (spare capacity) and attrition rates, constant currency growth rates, and customer concentration ratio together with the number of million-dollar customers — those billed more than 1 million USD per annum.
Option A is telecom, option C is banks and NBFCs, and option D is airlines and transport. Each set is built from a different unit of pricing, which is the fastest way to place any KPI list in the right sector.