Growth is the name of the game for your dispensary in 2022. The best way to get started on revenue growth this year is by looking at your numbers.
We don’t mean vanity metrics such as users or even orders. You guessed it; we’re talking revenue. Read our latest guide on which metrics your dispensary should watch this year and how to optimize them today.
We know generating revenue is likely top-of-mind at your dispensary this year. Hey, when is it not? Fortunately, we narrowed down a selection of 4 key metrics your dispensary should track to sustain revenue.
Calculating and monitoring these metrics will help you identify growth opportunities and gaps to generate more revenue for your business.
Customer Acquisition Cost (CAC)
Customer acquisition cost (CAC) refers to the total cost of acquiring one customer. It includes costs of Weedmaps, billboards, cannabis content writing, website design, social media ads, and more.
CAC helps determine how much money is spent on advertising and promotion to acquire one new customer.
You can calculate your customer acquisition cost with the following formula:
(Total cost of sales and marketing) / (# of customers acquired)
You’ll want to use your CAC calculation alongside your dispensary’s Customer Lifetime Value, which we’ll discuss how to find in the next section.
Customer Lifetime Value (CLV)
Customer lifetime value (CLV) measures how much money each customer brings in over the timespan of being a customer at your dispensary.
While there are many formulas for calculating CLV, we recommend starting with the basic one below:
(Average transactional value) X (average number of purchases year) X (average customer lifespan)
For example, suppose your dispensary customers have an average transactional value (ATV) of $100, purchase 12x a year for one year. In that case, that means they have a CLV of $1200.
Now you're ready to calculate your CLV-CAC ratio, which is one of the most critical metrics to your dispensary’s financial success.
Your Dispensary CLV-CAC Ratio
You can use the CLV-CAC ratio to determine your dispensary’s financial viability. CLV-CAC represents your business's profitability, marketing effectiveness, customer valuation.
It’s essentially a high-level metric that tells you whether you need to reduce overhead for acquiring customers or invest more in creating loyal clientele.
You can calculate your dispensary’s CLV-CAC ratio with the following formula:
(Customer Lifetime Value / Customer Acquisition Cost)
Generally, a good rule of thumb ratio is three or greater. That means the cost per every acquired customer will generate 3x in revenue.
For example, if your customer acquisition cost (CAC) is $300 and CLV is $1200, your CLV-CAC ratio equals 4. Let’s say your CLV-CAC ratio falls below 3. You should start evaluating where to optimize.
If you find that lowering your CAC is the best decision, consider marketing improvements, such as dispensary ad ROAS, billboard placements, and Weedmaps pins.
If your LTV seems suboptimal, you might need to target existing customers better with personalized loyalty deals or communications with our Polaris tool.
You should consider two profit margins: gross and net profit margin. Gross profit margin is the amount of cost of goods subtracted from revenue.
After subtracting these expenses from sales revenue, the net profit margin is leftover. Gross profit margin tells you how much money you make from products or services.
Net profit margin tells you how profitable your dispensary is. If you have a higher net profit margin, you’re doing better financially.
You'll need to understand both to assess dispensary financial health and profitability.
You can find your dispensary’s gross profit margin with the following formula:
(revenue $ - $ cost of goods sold)
You can also include this number in your net profit margin calculation:
((gross profit margin - $ of operating expenses – $ of interest - $ of taxes) / revenue $)) x 100
If there's one area with the most extensive breadth of metrics to track, it's marketing.
Traditional marketing channels aren't entirely available in the cannabis industry, which means you must evaluate marketing metrics that make sense based on your business model.
Here are three categories worth looking over in 2022.
Website metrics provide insight into how visitors interact with your site and what content works well. There are many different types of these available, so choose one that's right for your dispensary goals.
Here are three key website metrics to consider:
- Pageviews - How many people visited your page
- Bounce Rate - How many people left your site after viewing just one page
- Session Duration – How long people spend on your site
- Acquisition Channel – What channel refers to a volume of customers
Digital conversion rates are the percentage of people who visit a website or app and then convert into customers. Knowing this rate is very important if you run an online dispensary menu or website.
Website conversion rates offer predictive value in telling you how much traffic you’d need to generate online to convert a certain number of customers.
For example, suppose you have a 5% conversion rate. In that case, one person would convert into a customer for every 20 visitors to your site or app.
Digital conversion rates are great KPIs for setting customer acquisition goals at a top-level.
Suppose you have a conversion rate of 3% and need to convert 300 cannabis delivery customers via an online menu in the next month. In that case, that means you need to get 10,000 users to your website.
Delivery zones are areas where dispensaries can place billboards or advertisements. If you use physical advertisements, calculating zone ROI will matter to your business model.
One method is measuring the number of acquired customers and sales by zip code.
For example, if you deploy a billboard campaign, compare the MoM number of acquired customers and sales.
Suppose your billboard costs $10,000 and acquires $15,000 worth of new revenue from customers in that area. In that case, you see an immediate return of 1.5x.
Now, let's say you don't gain an immediate ROI from customers acquired in that zip code. Your best bet would be to focus on retention marketing to deliver the return.
Customer behavior represents another class of metrics that your dispensary can optimize. Here’s what you should monitor in 2022.
Purchase frequency shows you how often customers order from your dispensary. You can calculate it with the following formula:
(total # of orders / total # of unique customers)
You can apply this metric best on the customer and product level.
For example, suppose you find customers outside your average purchase frequency. In that case, you can deploy follow-up communications based on their preferences to entice them into buying again.
Average Transactional Value (ATV)
Average transactional value (ATV) is the total dollar amount spent per transaction. You can calculate ATV with the following formula:
(total $ of all transactions / total # of transactions)
For example, if your dispensary generates $1 million in annual sales, and there were 10,000 transactions last year, then the ATV would be $100.
Customer retention rates are essential for your dispensary because they can impact overall revenue. If your dispensary's retention rate is low, then it means that many customers leave after visiting once.
One possible reason is that you aren’t providing enough value to customers, or there’s no targeted follow-up marketing.
On average, retaining current customers costs 70% less than acquiring a new customer. That's why re-engagement is critical.
Monitoring your CRR allows you to assess your cannabis customer retention strategy's impact.
You can calculate your dispensary customer retention rate using the following formula:
[(E-N)/S] x 100 = CRR
Let’s break down each variable:
- E is the number of existing customers you have at the start of the period.
- N is the number of new customers you gain during the period.
- S is the number of customers you have at the end of the period.
Let's take a look at a few sales KPIs your dispensary should monitor in 2022.
Average Daily & Monthly Orders
Average daily orders are essential because they give you a good idea of how many people visit your dispensary each day. It's worth looking at your average daily order by day of the week to understand better when customers shop.
Suppose you see your average monthly order count has decreased. In that case, you need to start assessing whether to improve your dispensary acquisition or retention marketing.
Remember, an increase in average daily or monthly orders only holds so much validity to your overall dispensary financials. It doesn't account for whether orders include promotions or discounts, reducing its relevance to revenue.
It does however lead to whether your acquisition and retention marketing efforts produce substantial sales outcomes at your storefront.
Sell-through rate measures how much your cannabis dispensary sells compared to its total inventory. It's important because you need to know whether your dispensary sells enough products.
You can calculate your sell-through rate with the following formula:
(total # of units sold at the start of the period / total # of inventory) x 100
The higher the percentage you have, the less product is wasted on your shelf.
One tactic is to segment the sell-through rate by product type. This allows you to see how much of each product is getting sold by your customers and where you can optimize sales in improving inventory flow.
If you want to get more detailed, try measuring the sell-through rate by cannabis brands and products. You can use brand-based sell-through rates internally for strategy when deciding how to stock your shelves.
7 Key Tips for Optimizing Key Dispensary Metrics
Let's round off this piece with a few final thoughts on optimizing dispensary growth metrics.
- If your LTV is low, focus on retention-based marketing such as targeted text communications and RFM analysis.
- If your CAC is too high, evaluate your dispensary customer acquisition strategy and which channels are not contributing to the predominant acquisition loop. This could mean optimizing ad spend, content marketing, or billboards.
- Low online conversion rates? Evaluate where you're losing buyers in the online customer journey. Consider exit pop-ups, instant order options, and UX redesigns.
- Use zip codes and sales to measure the ROI of physical advertisements from billboards.
- Segment sell-through rates by products and brands to improve your inventory and marketing strategy and reduce waste.
- Use average monthly orders as a means of vetting your sales and acquisition channels. Segmenting orders by the digital and physical facility will show where you can optimize.
- Use your retention rate to determine whether you have enough recurring customers or need to optimize marketing to your existing customer base.
Like this post? Chat with us to learn more about tools Polaris and Sirius, which help you retain more customers and sustain dispensary revenue growth.