Vetrina’s step-by-step guide to “Crushing Your 2025 Cannabis Retail Revenue: Step 2

Welcome. Year-end planning often starts in January, which means after strategy, planning and execution only leaves you 10 months to hit your targets. We usually see retailers get nervous in July because they are not on track to hit their year plan. 

And the kicker? They don’t know when they got off track. 

Step 2 of 13 asks you or your team to assemble a store performance document. 

How to Build a Store Performance Document

As a cannabis retailer, understanding consumer behavior is crucial. Analyzing historical sales data helps identify seasonal trends and optimize marketing strategies, boosting profitability.

You will want to use the last two years of data if you have it. 

Getting Started: Start by gathering your week-over-week sales results. It's helpful to include:

1. Gross Revenue: Total sales before deductions.
2. Net Revenue: Total sales after deductions (discounts, returns, etc.).
3. Discount %: Percentage of sales discounted.
4. UPT: Units Per Transaction (average number of items per purchase).
5. AVG Per Trans: Average dollar amount per transaction.
6. Number of New Customers: Total new customers acquired.
7. Number of Returning Customers: Total returning customers.
8. Seasonal Impact and Key Events

Then, overlay these metrics with significant holidays: 

• Super Bowl
• 420
• May 24
• 4th of July
• Labor Day
• Black Friday
• Christmas (highlighting those two weeks surrounding)

Remember to make notes when kids are on holiday or go back to school. Make sure to add notes on whatever else you think has had an impact on each location from a local point of view;

• Local events
• New marketing channels: Launched a new biweekly email. Or an SMS campaign?
• Change in operations: Starting delivery? Extended hours?
• Labor optimizations or shortfalls, etc

These are money for discovering some interesting patterns. And if you haven’t had a chance to check out our Season of Green Guidebook,  that team Vetrina put together with our friends at Surfside you should definitely check it out. It summarizes the average sales peaks and anticipated lift for Q4 of 2024. 

Now you have your data organized. What’s next? 

Analyzing Your Sales Data

Now that you have organized your data, it’s time to analyze it for trends. Focus your analysis on the following aspects of your sales data:

• Make the top 10 revenue weeks bolded and in a different colour font. 
• Make the top 10 weeks with the most transactions bolded and a different colour.
• Break up the weeks according to each quarter.
• Sum the quarter.

What do you notice? Stop and ask yourself these questions: 

1. What percentage of annual revenue was generated by each quarter 
2. Did the weeks with the highest revenue also have the most customers? 
3. Did you have any big swings in discounts?
4. Any time of the year you see more new customers than others?

In our next post, we will walk you through how to build your forecast for 2025. 

Remember, this document doesn’t have to be pretty, it just needs to be functional. Its role is to help you dig into your data and uncover valuable insights. 

Looking for extra credit? This would also be the perfect opportunity to review your cannabis retail pricing strategy. We’ve spoken about this before and know that you too can master the art of cannabis retail pricing.

A quick guide is below.

Mastering Cannabis Retail Pricing: Using a Customer-Centric Approach

Pricing is one of the most crucial decisions you'll make as a cannabis retailer. Get it right, and you'll attract customers, maximize profits, and stand out from the competition. Get it wrong, and you could leave money on the table or alienate potential buyers. 

The key to successful pricing? It’s not just about covering costs or matching competitors; it’s about understanding your customers and the value they perceive in your products.

Let’s quickly explore how to align your pricing with the true value your products offer, helping you connect with customers, differentiate from competitors, and drive your business forward.

The Limitations of Cost-Plus and Competitor-Based Pricing

Many cannabis retailers fall into the trap of setting prices based solely on costs or competitor prices. While these are logical starting points, they often fail to capture the full picture.

The Problem with Competitor-Based Pricing: When you look at a competitor’s price, you see a number, but not the context behind it. You don’t know if their price is backed by vendor promotions, if the product is a loss leader, or if it’s strategically priced to anchor other products. Assuming your price should match or slightly undercut a competitor’s could be like navigating by a single star—you’re missing the currents and hidden dangers beneath the surface.

The Issue with Cost-Plus Pricing: Setting prices based on a markup over the cost of goods sold (COGS) ensures that you cover your expenses and make a profit, but it ignores external factors. Customers don’t care about your production costs; they care about the value your product delivers relative to their needs and budget. Pricing this way means you could miss opportunities to capture more profit or, worse, alienate customers who don’t see the value in your price.

Understanding Customer Value

Before diving into pricing models, it's crucial to understand what we mean by value. In the context of cannabis retail, value is the measurable worth, expressed in dollars and cents, of all the benefits your product brings to the customer. 

This includes not just the tangible features of the product but also the emotional and experiential benefits.

Value Perception: Think of pricing as a dial that controls how customers perceive your product. Raise the price, and some customers might see it as a premium, exclusive product. Lower it, and you might attract bargain hunters who view it as a great deal. The key is to find a price that aligns with the value your customers see in your product.

Customer-Centric Pricing: A customer-centric approach to pricing starts by understanding how your customers perceive value and what factors influence their purchasing decisions. It’s about looking beyond costs and competition to focus on what matters most to your customers.

Decoding the Value Equation: What Shapes Your Customer's Perception?

Several key elements influence how customers perceive the value of your products. Understanding these elements is the first step toward creating a pricing strategy that resonates with your audience.

1. The Shadow of Substitutes: Customers often compare your product to alternatives, which can include any item that meets a similar need. In cannabis, for example, a vape pen might be compared to an edible. If customers find a cheaper option that seems to offer similar benefits, the perceived value of your product decreases. To justify a higher price, it's essential to clearly communicate why your product is superior.
2. The Competitive Landscape: How does your product stack up against others in the market? Competitive products are those that customers perceive as offering the same features and benefits. If a competitor’s 3.5g package is priced lower, but your brand has a stronger reputation or offers better quality, you can justify a higher price—but only if customers recognize that added value.
3. Customer Pricing Sensitivity: Customers don’t evaluate prices in a vacuum; they compare them to other items they buy regularly. In the cannabis industry, this might mean customers compare the price of your product to a similar purchase like a bottle of wine or a meal at a restaurant. Understanding these “anchor” prices can help you position your product within a familiar context that customers can easily relate to.
4. The Demand Dance: Demand for your product can vary due to trends and external events. For instance, if a study reveals the health benefits of a specific cannabis strain, demand for that strain's products may surge, enabling price increases. Conversely, entering competitors may force you to lower prices to remain competitive.
5. Shifting Market Trends: Trends, research, and events can change how customers value your product. By staying aware of these shifts, you can adjust your pricing strategy to stay relevant and competitive. For example, if eco-friendly packaging becomes trendy and your product leads in that area, you can charge a premium price.

How to Create a Customer-Centric Pricing Strategy

Now that we’ve covered the elements that shape customer perception, let’s dive into how to create a pricing strategy that reflects the true value of your products.

1. Start with Market Research: Begin by gathering data on customer preferences, spending habits, and perceptions of value. This might involve surveys, focus groups, or analyzing purchase data to identify patterns. Understanding what drives your customers’ decisions will provide a foundation for your pricing strategy.
2. Define Your Value Proposition: Clearly articulate what makes your product unique and why it’s worth the price you’re asking. Your value proposition should highlight not just the features of your product, but also the benefits and experiences it offers. This messaging will be crucial in justifying your price to customers.
3. Segment Your Market: Different customer segments may perceive value differently. For example, frequent users might prioritize potency and quality, while occasional users might be more price-sensitive. Segmenting your market allows you to tailor your pricing strategy to different customer groups, maximizing appeal across your target audience.
4. Set Your Price Anchors: Use anchor pricing to position your product in a way that makes it look like a better deal. For instance, if you offer a premium product, position it next to a higher-priced competitor to make it look like a bargain, or next to a lower-priced option to highlight its superior quality.
5. Test and Adjust: Pricing is not a set-it-and-forget-it strategy. Test different pricing levels to see how customers respond. Use A/B testing, where possible, to compare the performance of different prices. Based on the results, adjust your pricing to find the optimal balance between profitability and customer satisfaction.
6. Communicate Value Effectively: Make sure your marketing and sales teams are equipped to communicate the value of your products effectively. This might involve training on the benefits of your products, developing sales scripts, or creating marketing materials that highlight your value proposition.
7. Monitor Market Trends: Continuously monitor market conditions, customer feedback, and competitive actions. Stay agile and be ready to adjust your pricing strategy in response to changes in the market. This proactive approach will help you maintain your competitive edge and ensure that your pricing always reflects the true value of your products.

Conclusion

We've explored the crucial second step: building a robust store performance document. 

By analyzing your past two years of sales data, including key metrics like gross and net revenue, discounts, UPT, and customer acquisition, and overlaying this with significant holidays and local events, you'll uncover valuable insights into seasonal trends and the impact of various factors on your business.  

Identifying your top revenue and transaction weeks, analyzing quarterly performance, and asking critical questions about revenue distribution, customer behavior, and discount strategies will paint a clear picture of your past performance. 

This groundwork lays the foundation for creating accurate sales forecasts for 2025 (covered in our next post). Remember, while the document's appearance is secondary, its functionality in revealing data-driven insights is paramount.  

And if you’re looking for extra credit, we've touched upon the importance of a customer-centric approach to pricing, moving beyond cost-plus or competitor-based models to truly understand how customers value your products. If you’re still looking for more, we have a free downloadable resource for cannabis retail pricing, check it out here.

By understanding customer value, market trends, and competition, you can optimize your pricing strategy for maximum profitability and customer satisfaction. Stay tuned for Step 3!