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4 Important KPIs for Cannabis Dispensaries

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February 12, 2020

These four key performance indicators are vital to keeping track of your operation's growth and success. 

  • Dispensaries that just look at sales will miss bigger picture indicators of their business's health. 
  • Other KPIs you should track are normalized sales, average gross margin, labor deployment, and time per transaction. 
  • These KPIs can help you identify problems in your dispensary's operations. 

Speak to one of our experts to learn more about any of these KPIs and how to track them.

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While it’s true that cannabis is still a developing market, that doesn’t mean best business practices should be thrown by the wayside in favor of rapid growth. It’s important to track key performance indicators to make sure your cannabis operation is running profitably. Hoping that things will “work themselves out” will likely result in cash flow issues and a swift exit from this competitive industry.

There are plenty of dispensaries where cannabis consumers can choose to shop. As a result, if you don’t optimize for success, you will lose business quickly to more sophisticated competitors. The first step in optimizing is to provide great customer service – and get the most from your talented frontline workers. These employees are the face of your company, and therefore their performance must be impeccable. 

Here are some key performance indicators (KPIs) to keep an eye on to make sure your cannabis dispensary is running smoothly. 

Normalized sales data

One core principle you need to understand is the difference between absolute and normalized sales data. 

An example of an absolute stat is gross sales expressed in dollars. A normalized statistic would be gross sales in dollars per hour worked.

Consider the difference for a moment. Looking at the absolute statistic can be quite deceiving. One worker might report a huge dollar amount in sales, but they may also have worked much longer hours than their colleagues. And, if they’re working on an hourly salary, it’s not likely that these higher sales are translating into higher profit. 

The normalized data allows you to compare the performance of different people in a more equitable way. Let’s look a bit deeper with this scenario. 

First, run employee sales averages per hour per budtender:

 

Budtender

Gross Weekly Sales

Hours Worked

Sales Per Hour

Sally

$870

12

$72.50

Jeremy

$1,125

16

$70.31

Jill

$1,800

35

$51.43

Jeff

$650

3

$216.67

 

In this example, it would be easy to assume that Jill is the best performing budtender if you looked at her Gross Weekly Sales (an absolute statistic). But in reality, she’s the worst. 

It’s always important to see who performs the best per hour (the normalized statistic). This allows you to offer the right bonuses and incentives to ensure that every budtender is performing at their highest ability every day. 

One other consideration is that you need to look at statistical significance. Maybe Jeff had three amazing hours during the late Friday evening rush after a typical payday.  Is he only getting the best shifts? What would happen to his stats if he worked at least 12 hours?  

What is the purpose of collecting data around this KPI? It can allow you to make decisions, such as:

  • Potentially cutting the lowest-performing budtender every quarter.
  • Collect best practices from the best performing budtender, teach these tips to their peers and roll it into your onboarding for new hires.
  • Integrating their method into your SOPs

Average Gross Margin

Many dispensary owners have a difficult time choosing what cannabis products to add to their inventory

How do you know what products will be bestsellers, and what will turn into deadstock? 

What was popular one week might become outdated the next week; inventory management is a delicate balance of having a lot of products, making sure they’re profitable, and constantly sourcing fresh items to sell to your customers. This is where average gross margin comes into play. 

Let’s review the profitability of products.

 

 

MSRP

Gross Margin

Units Sold Per Week

Gross Profit

Brand A

$90

$45

35

$1,575

Brand B

$75

$38

100

$3,750

Brand C

$105

$53

10

$525

Brand D

$50

$25

10

$250

 

In this example, it’s important to see the gross profit multiplied by the number of units sold. 

The cheapest brand and the most expensive brand net the smallest profit, while the brands in the middle sell for the best. The challenge is that your team has to move products at a lower price point off the shelves faster to see a profit, and customers are less willing to shell out for expensive items as frequently. 

What do you do with this information? 

At a minimum, on a monthly basis, you should calculate what is selling (and their respective margins) and drop the worst-performing brand or product. But also use this information to look for opportunities to upsell, cross-sell, and move products by grouping them together more effectively. The power of suggestion can make a big difference in your profit margin. 

Labor deployment

The biggest operating costs at a cannabis dispensary are CoGS and labor. Payroll is one aspect of your business you can control by scheduling your team properly at the right times. This means never schedule too many nor too few people at any given part of the day. Have too few employees in the shop, and you can’t serve customers quickly – leading to poor customer experience and destroying brand loyalty. Schedule too many employees at once, and you will burn through cash unnecessarily.

How can you tell how many people you need working at one time? Look at the number of transactions per hour for every hour that you are open for every day that you are open. Create the report and spend some time with it to see when you should have more or fewer employees on the clock. Here’s a quick example.

Weekdays

Time of Day

Number of Customers

11:00

25

12:00

50

1:00

19

2:00

18

3:00

18

4:00

19

5:00

25

6:00

35

7:00

50



Weekends

Time of Day

Number of Customers

11:00

15

12:00

18

1:00

25

2:00

50

3:00

60

4:00

65

5:00

60

6:00

35

7:00

20

 

Clearly, the peak hours are in the afternoon on weekends and midday/evening on weekdays. Maximize staff during this time and keep expenses down during lulls, especially since payroll is nondeductible under 280-E. 

Time per transaction

Finally, time per transaction can be a telling KPI that helps you support your team and set everyone up for success. Time per transaction tells you the number of minutes it takes for each transaction to be completed. “Long lines and agitated customers could cost thousands of dollars in sales every week,” warns IndicaOnline

You may have the best salespeople in the world, but if your POS software crashes often, or you aren’t providing enough training on how to use the checkout system, there’s not much they can do to improve the customer experience. 

Spend a day in the dispensary watching to see if products have proper labeling, if any employees are fumbling with customers and if your SOPs could be improved to optimize the flow of clients through the dispensary.

For more information and help with optimizing your cannabis dispensary, get in touch with our experts

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Post Tags: Finance, Operations, Accounting

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