One of the main responsibilities that come with managing your dispensary inventory is evaluating the performance of your brands or products. In fact, this is one of those tasks that you should do as often as every month or quarter of the year.
Think about it: every time you make a strategic decision like adding a new brand or removing a product because you have too many SKUs, you first want to know how this will affect your budget and sales.
And if you don’t have the data to evaluate your options, your choices could lead to wrong (and costly) decisions.
The question is… from all the different metrics or data you could possibly measure, which ones should you track?
We got your back!
In this article, we’ll go through the five data points you should check to make informed decisions and ensure you have the strongest mix of products.
#1. Percentage of Sales
Percentage of sales is how much of your sales correspond to a certain brand or product. This is a straightforward metric you can calculate by dividing the sales of the product you want to evaluate by your total sales and then multiplying this result by one hundred.
Use this formula to calculate your percentage of sales:
% of sales = (sales of product X / total sales)*100
A good way to look into this metric is to go from a broad approach to a specific one. Meaning, start with your major product categories (flower, concentrates, and edibles). This is going to make it easy for you to identify which categories sell best in your dispensary.
Then you can go further to evaluate specific brands or products. For example, if you just invested in Wyld and want to see how your customers are responding, you can look at Wyld percentage of sales to see if it corresponds to a significant part of your total sales.
It’s also smart to compare the percentage of sales of a product over a period. This allows you to see if a product is rising or falling in popularity and provides insights to decide if the product is worth keeping on your shelf.
Percentage of sales is a great way to overview performance at the brand level before drilling down into specific SKUs.
#2. Sell-through Rate
Sell-through rate is the percentage of product or brand inventory sold over a period.
You can calculate this metric by dividing the number of product units sold over a period (usually 30 days) by the number of units you had of that product at the beginning of that period. Then, you multiply this result by one hundred.
You can use this formula to calculate your sell-through rate:
Sell-through rate = (units of product X sold / units of product X on stock)*100
This metric is about how high your inventory turnover for a specific product or brand is. You have limited space available on your shelves and if a product doesn’t sell, it’ll keep occupying space that could store a product with higher demand.
The sell-through rate will tell you how many units of a product you should purchase and how often. It also ties in directly with the percentage of sales. If you know a specific category doesn’t sell quickly, you can decide to bring in fewer products to test how many you should buy next month.
As a rule of thumb, you want your products to be out of stock within a 14 to 30-day period. This helps you and your team plan the inventory management, expiration dates, and free-flowing capital month-to-month, which ultimately optimizes your sales.
Of course, there are exceptions. This 14 to 30-day period can sometimes expand to 45 days because of the product availability and order fulfillment requirements. But the sell-through rate helps you understand performance at an SKU level before deciding what to do with an individual product.
#3. Share of Total Basket
The share of total basket helps you find out if your product is high in demand or not according to the number of products per transaction.
You can calculate this metric by dividing the price of your product by the price of your average transaction and multiplying this result by one hundred.
You can use this formula to calculate your share of total basket:
Share of total basket = ($ of product X / $ of average transaction)*100
Share of total basket can be used for three things:
- Determine if customers are visiting you to buy a certain product
- Identify primary products (the "essential" ones) from secondary products (add-ons)
- Evaluate if a product is worth keeping on your shelves when your sales are declining
To check any of those three, remember to have in mind if the result of calculating the share of total basket for a product is under or over 50%.
For example, if sales are declining and the share of total basket is below 50% for a certain product, that's a secondary item that could be removed from the menu.
But if sales are declining and this product maintains over 50% share of total basket, it's a primary item. In this case, you could re-analyze its pricing and experiment with a discount by cross-selling it with another product.
#4. Average Discount
Often, promotions are one of the data points that most managers overlook. In the cannabis industry, pricing is still a heavy factor that customers consider when buying. After all, it’s difficult to measure cannabis quality.
When you run a promotion or offer deals on your edibles, flower, or concentrates, your sales will increase in that specific category.
But if you overlook your promotions, the data you collect and analyze is going to be biased. You’ll start overvaluing the brands that were under promotion and undervaluing the ones that weren’t.
Avoid this by analyzing the break-even point for each product, including its promotions, to determine if it's profitable to continue carrying the product or promotion.
This will help you compare your average discount against your cost and profit margin for every product.
Otherwise, you could sell all your inventory of X gummies at a 30% discount, and think it's a product of high turnover. But in reality, this product by itself is generating loss.
#5. Understanding Your Audience
It’s true that price is the number one factor that customers check when buying at dispensaries. But it’s also important to factor in data about your customers, as it will help you understand what prompts them to buy and their preferences.
As an example: If you live in a lower-income area, your customer base might not afford “premium” brands and products at your dispensary.
While if you’re in a high-income area, is likely your customer base can afford brands and products of higher quality—and price.
A good approach to this is to use segmentation to understand the different customer personas that buy at your dispensary and offer them better deals.
Segmentation is also a great way to boost loyalty at your dispensary as it helps you create a more personalized experience.
If you consider these five data points, you can clearly see what’s performing, what’s not, and why. Of course, there are other factors to consider, like availability and employee education, to make sure your new product or brand is a success, but these data points are a solid start.
As a final thought: remember to have in mind your existing product mix when bringing a new brand to your dispensary. You could bring a brand’s competitor to your shelves, making customers reconsider their options.
And as a result, the new brand could cannibalize the sales you carry already.
This article is by Andrew Zaferis, a former Retail Director for Cresco and General Manager of Native Roots with additional writing from Jessica Jansasoy. Follow him on LinkedIn.
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