How do you measure the success of your marijuana business? Aggregate numbers like sales and expenses are, of course, important but they don’t necessarily give a full picture of a company’s performance, and where it’s likely headed.
For a more nuanced understanding of a company’s health, analysts make use of key performance indicators (KPIs). By tracking certain metrics, setting targets, and analyzing progress through changes in ratios between two or more values, you can develop an accurate and detailed account of how well your business is doing and where it needs to improve.
But for budding entrepreneurs entering the cannabis space, which are the most important KPI metrics to track? Here’s our take.
1. Revenue per employee
Payroll is the biggest expense of most businesses, and this holds true for cannabusinesses. As such, maximizing revenue per employee, understood as net revenue divided by “full-time equivalent” payroll employees, will definitely improve your profit margin.
Including other KPIs in your analysis, like traffic flow and transaction times, will further help you understand when your staff are most and least necessary.
2. Sales per square foot
After payroll, real estate tends to be the biggest expense. With this in mind, you need to take your gross sales figures and divide them by the operating area you are paying for. This will give you an insight into how well you are using your real estate to generate sales.
3. Inventory
Closely related to sales per square foot, you should have an understanding of how efficiently you are managing your inventory. For instance, how much cash is tied up in your inventory at any given moment, how long different products remain in inventory, and whether extra processing time is required for certain products.
4. Gross margin per product
Not every product you sell is equally profitable. Applying the Pareto principle as a general rule, 80 percent of sales come from 20 percent of the products or services on offer.
To track your gross margin per product, take the unit cost from the sales price and divide that figure by the sales price. You then know which are the most lucrative and which have the tightest margins.
5. Opt-ins per visitor
Online transactions and online engagement with customers go hand-in-hand and are increasingly essential for cannabusinesses.
Tracking the conversion ratio of website traffic into sales will give you an understanding into how well you are managing your cannabusiness’ online presence.
6. How to track cannabusiness KPIs?
It’s one thing knowing which KPIs to track and another actually doing it. To do so, you need robust software systems. At a minimum, you need to consider using a Point of Sale (PoS) interface to track key sales metrics and a CRM system that can store and analyze this information.
Ideally though, this should just be a starting point. The more KPIs you track, the more information you have at your disposal to make better decisions for the health of your cannabusiness.
