Too many operators focus on a few bottom-line numbers and make big decisions without understanding the elements that make up a performance metric. “Our sales have been trending down, let’s look at either lowering the prices or cutting staffing hours to get back to the net income we had.” Limitation of vision and understanding can limit your options to improve your business.
Sometimes your revenue grows although you did nothing to cause the increase. Other times revenue drops, with no clear reason why. Our industry is evolutionary, and operations are always changing because of products, preferences, personnel, regulations, and competitors. External factors inevitably affect a store’s ability to sell, and you can’t control most of them. But internal factors play a greater role in success. Understanding them helps control outcomes.
UNDERSTAND THE SALES FLOOR
Who is performing, how much are we selling, and when are we selling it? Looking at top-line sales volume alone doesn’t tell the whole story. Instead, look at what produces the result.
Salesperson performance: Examine total sales by budtender, discounting, net margin, sales per hour, sales per shift, and average transaction amount by budtender. The top salesperson (by dollar volume) may be your least profitable, because they discount everything or sell low-margin products. Production by shift or hours worked can reveal who handles customers well and maximizes sales opportunities.
Sales flow: When do customers visit the store? What are the peak days and peak times per day? When are the slowest times? When you understand customer flow, you can staff your days more efficiently and also schedule necessary tasks during slow times. The fewer customers needing attention, the easier it is to perform tasks like inventory audits, stocking, ordering, and cleaning. Also consider stimulating sales during slow times with traffic-driving solutions like “happy hour” discounts.
Revenue shrinkage: The “something doesn’t seem right” feeling usually is correct. Begin following your hunch by studying your data.
Cash management: Whose drawers are consistently off?
Profitability: Who is discounting more than average? When and why? Are friends coming in late during some employees’ shifts for smoking-good deals? How are 90 percent of a budtender’s sales to veterans, when overall veteran discounts go to only 20 percent of your customers?
Adjustments: Who is weighing or counting, and why are they consistently adjusting more than an acceptable percentage?
PRODUCT MIX AND MERCHANDISING
Customers expect dispensaries to stock the products they want at reasonable prices. Do you satisfy their appetite with the right categories of ingestible cannabis and offer in-demand brands and popular products at the expected quality and price? Customers vote with their wallets, and you can see what’s selling and what’s not.
Inventory mix is vitally important. Is it better to sell 100 items and make 20-percent profit or fifty items that generate 40 percent? It depends on your desire for volume and revenue and whether people buy other things with the low-margin items. In Washington state, Cova sees a disproportionate volume of pre-rolls sold at a low price and low margin. It takes the same labor to sell an ounce and net $75 as it does to sell a joint and make $2.
Often, the customer base will dictate margins based on income, demographics, store concept, etc., but dispensaries can drive what they sell. Merchandising strategy, sales tactics, and customer experience have significant influence on customers’ buying behavior. Featuring low-cost items may bring more traffic, but consider Colorado, where pre-rolls seldom are featured and reside on back shelves. The result: higher basket sizes.
Strategic buying and routine reordering also determine sales performance. Does your buyer order the same products over and over? That may be the easy route, but it may not be the best practice to serve customers and grow the business. Likewise, knowing your inventory turnover is critical to optimizing supplier management and ensuring the most popular products always are on the shelves. Low-performing and slow-moving products should disappear from the floor over time or have a lower cost to justify occupying space.
All these metrics are captured by point-of-sale systems and can reveal inefficiencies, opportunities, and gaps in management. Pull the reports and consider what the metrics mean in the context of store operations. Consider how the metrics change over time. Most importantly, when you decide to make operational changes, measure the effect. Did the adjustment affect business positively? If so, do more of that. Did it result in unexpected repercussions for other parts of the business? Reconsider that approach.
No matter what, don’t ignore valuable insights the transactional data from your POS can provide. It’s there for you to use, and the best part is you don’t have pay more for it.
Gary Cohen is chief executive officer at Cova Sofware, a market leader in point-of-sale solutions. He drives the company’s overall strategy, vision, and strategic development. Cohen leads seminars and delivers addresses about topics including compliance, retail technology sophisticated business operations, cannabis banking laws, and building successful brands at some of the industry’s largest conferences and events.