Inventory management is the heart of the operations at your dispensary. And if done wrong, it can surely harm your business in the short term. Even so, many operators and inventory managers in the cannabis industry have admitted to using very questionable tactics to make purchasing decisions.
As incredulous as it sounds, you might have done something similar—at least at the beginning. But we’re not here to shame anybody. The history of the cannabis industry is still short, and it has only ramped up in the last five years, so there’s not much information to work with.
In this article, we’ll go through three “tactics” you should avoid when evaluating SKUs for your dispensary.
Are you also making these SKU evaluation mistakes?
An Overview of Dispensary SKU Evaluation Errors
Forecasting is the first step to effectively managing your inventory, ensuring you’re able to cover expenses and generate profit. There’s a tendency in retail in which only 20% of your products, the best-selling minority, drive significant revenue.
With this in mind, picking SKUs for your cannabis dispensary is linked to your demand volatility and consumption value. These metrics are clues you can use to analyze how many products you should buy and if you can afford them.
Still, there’s much more to it than analyzing trends on these metrics, looking at what competitors are doing, and replicating something in the middle. Here are the three tactics you won’t be caught doing again.
#1. Relying on Gut Instinct & Haptics
If choosing the right mix of products feels like a series of unfortunate struggles, you’re not alone. Inventory management isn’t easy, especially at the beginning. There are tons of data you need to analyze before buying a product, let alone a dispensary’s inventory. In fact, the average buyer spends five hours per week in front of a spreadsheet.
When time isn’t on your side, it’s easy to resort to a gut feeling (or your brand rep's opinion) and buy what you believe is sellable, instead of keeping an eye on your data. And often these opinions and “gut feelings” come from haptics like:
- Customers asking for a product you don’t sell: “Put the customers first” is the oldest advice in the book. It’s true that customer-focused businesses are the ones that thrive nowadays. But focusing on each customer’s needs is impossible. They have different consuming behaviors. What’s more, if you were to order a product just because two or three customers asked for it, there’s a chance they’ll buy it. But then, who’s going to buy the rest of it? After all, when you buy a product, you buy in bulk, so it’s rentable for you and you can generate more revenue.
- “Hot” products based on regional sales: Benchmarking is a common tactic to know what’s popular and inform your decisions. But it can be misleading. You can be serving customers in a different area, in which the data isn’t focused. So the consuming behaviors of your customers might be different from what regional sales conclude.
Purchasing beliefs like those can be leading indicators if you observe commonalities with what your data suggests. But ultimately, you should resort to using your first-party data to make informed decisions.
#2. Only Using Broad Historical Sales Data in POS
Broad historical sales performance data like Total Sales, Total Units, MoM (month-over-month percent change in sales) and WoW (week-over-week) aren’t effective in making purchasing decisions. Reports on these metrics tell you how you’re performing financially. But just your business in general.
That’s why going to your POS (Point-Of-Sale) and looking at your data is a square one tactic. But have in mind that these systems are designed to process transactions. So your POS system influences you to repeat those fulfilling transactions.
That’s why POS systems include:
- Sell-through rate: This metric tells you what percentage of product from your stock you sold in a period. So it’s great to evaluate an SKU and how efficiently it moves through your inventory for re-stocking. The sell-through rate is a must for your data-driven decisions, but it still lacks insight into how profitable those sales are. A product might have a high turnover and still not meet your revenue goals.
- Re-stock notifications: Alert you of a significant change in the volume of a product in your inventory. Of course, these alerts reduce human error as the system follows constraints set by you. But it doesn’t give any insight into the performance of products.
- Par level adjusting: The volume of a product you should have at hand at all times. It helps you ensure you have the right amount of products without incurring additional costs due to excess inventory. When you reach your par level adjustment, it’s time to re-order products. Still, it doesn’t tell you whether or not a product is performing poorly.
These factors can aid your analysis and be leading indicators. But again, you should focus on first-party data like your consumer demand for each product to avoid mistakes.
If you have trouble putting together this data to generate insights, you could use a POS system that has inventory analysis features like Dawnstar. With this product, you can get insights according to historical sales data on SKUs like which ones are in-demand, when to re-stock, which ones should you substitute, and more.
#3. Using Market Data to Inform Purchase Decisions
Not all data comes from tracking your dispensary internally. Industry knowledge helps you understand how you should do compared to your actual performance. However, following a compilation of trends across your region isn’t the most reliable way to purchase your SKUs.
You can’t make choices based on industry reports showing a big number. To be able to use these studies to your best advantage is vital that you read the methodology and understand how this data was collected. What if the data in the study includes a bunch of states but not yours?
And even if that were the case, there’s a different demand according to the location of your dispensary. Sales regional metrics don’t reflect customer demand at your store. You have to collect and re-shape that data to get the most accurate results.
The actionable here is to use a POS system that’s scalable and data-driven. With this, you can create custom reports and be confident when purchasing SKUs for your dispensary. Plus, the more you analyze your data, the easier it gets for you to make decisions based on experience.
- Pay no mind to gut instincts or haptics. With a lot of experience, your gut feeling could be right. But there’s also a slight chance you can be wrong leading to a short-term loss of revenue. Make data-driven decisions.
- Use a POS system with analytic features. POS systems are all transactional and the majority only focus on re-stocking functionalities like alert notifications. You need a system that shows you the performance of your SKUs.
- Make decisions about the evaluation of your SKUs with first-party data (your own). External data can be a leading indicator, but it might not apply to you.