How to Master Margins, Discounts, and Vendor Negotiations

Margins look good on paper, until you realize how much of your projected profit is whittled away. Taxes, discounts, and low-performing SKUs eat into the number retailers rely on most: net profit. 

That is the cash left after costs, the real money you can reinvest to grow your business.

Getting a clear view of profitability is not easy. Most point-of-sale systems make it very difficult to see margin and profit at every level of the inventory, especially the brand level. It's important to have this information at every level on tap for menu decisions on which brands/products stay, which ones go, and who needs to be negotiated.

Here is how retailers can sharpen their profitability lens and take control of margins.

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1. The Discount Dilemma

Discounts drive traffic and clear shelves, but unchecked they become margin killers.

Take pre-rolls nearing expiration. Daily specials and escalating discounts up to 40 percent can help a retailer avoid total losses. Smart, until discounts become the norm and erode overall profitability. 

Therefore, you must track this stuff in more ways than just at the transaction level at the POS; you can benchmark your average discount rate against other retailers.

One retailer we spoke to was tracking an average discount rate of 11 percent. That looks strong compared to markets like Arizona, where the average runs 37 percent. This kind of benchmarking helps retailers understand where they stand and where there’s room for improvement.

Tracking your average discount rate over time at the brand, category and product level ensures you are not accidentally giving away margins.

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2. Cutting the Bottom 20 Percent

Every store has them: SKUs that sit, move slowly, and drag down performance. Many contribute less than $2 a day, barely worth the cost to unpack the case. They tie up valuable shelf space and working capital.

We provide retailers with a “cut list” of these products, the bottom percent of SKUs based on projected profit. Clearing this bottom 20 percent, even at cost, frees up cash and shelf space to invest in products that actually generate profit.

You have to finely curate and cull your inventory shelves to maximize your profits.

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3. Brand-Level Negotiation Power

Not all bestsellers have high profit margins. Sometimes the brands moving the most volume carry lower margins; but they may contribute the most amount of total profit dollars. A fast mover with lower than average margin is a great place to start a negotiation. Carving out a few additional points of margin can add up to a stack of cash.

Total profit dollars are your strongest tool for negotiation leverage. If “Grown Rogue” is a mid-seller delivering thinner margins, that is an opportunity to negotiate better terms with the vendor or rethink its placement.

On the flip side, high-margin, high-performing brands deserve more space and promotion because they contribute the most total profit dollars, a metric we show front and center in Happy Buyers.

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4. Margin Trends in Motion

Margins are not static. They shift with supplier price hikes, competitive pressures, and discounting strategies. Weekly and monthly reporting at the SKU and brand level helps retailers catch margin compression before it becomes a problem.

Spot a dip early and you can quickly investigate whether discounts, vendor costs, or something else are driving it. Happy Buyers shows weekly and monthly trends of both average discount and margin at the brand, category, and store level so you can stay on top of these signals without the need to build custom reports.

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5. Making Profitability Actionable

The best results come when profitability data connects directly to operations. Imagine building orders that prioritize top brands, or triggering discounts only when data shows inventory is at risk.

One of our customers described the value of aligning margin insights with ordering: “Top brands got steady reorders, while low performers got phased out with controlled discounts.”

Data is only information, you have to make it actionable to put it to good use.

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Practical Takeaways

• Automated reporting: Track margins weekly and monthly with alerts on changes.
  
  
• Escalating discounts: Use them intentionally, not habitually.
  
  
• Negotiation leverage: Arm yourself with brand-level data.
  
  
• SKU optimization: Cut the dead weight and reinvest in winners.
  
  

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Closing the Margin Gap

Margins are the lifeblood of cannabis retail, but only if you are measuring the right numbers. By focusing on true net profit and using brand, category and SKU level data to guide discounts, vendor negotiations, and ordering, retailers can transform profitability from a guessing game into a growth strategy.

Happy Cabbage helps retailers do exactly that by providing automated margin reports, “cut lists,” and actionable insights that tie directly into your inventory decisions.

Want to see which SKUs are costing you profit? Get your free inventory health audit today.

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