In many ways, a new year offers a fresh slate. For a lot of cannabis dispensaries and delivery purchasing managers, this couldn’t be more true. If you cleaned out your inventory in December, you need to stock up for the year ahead. Before you do, pause for a moment and take a stab at an ABC analysis. All successful dispensaries do one when planning their inventory assortment — do you?
If you don’t already look to ABC analysis for help when planning your inventory, don’t worry. Now is a great time to learn more about how ABC inventory analysis can help you make more money by holding the best inventory this year. When planning cannabis merchandising through Confident Cannabis Wholesale, you’ll have thousands of inventory listings at your disposal. But before you stock up, run a quick ABC analysis so you know what to buy, what to avoid, and what to do with your slow moving stock.
What is ABC Analysis?
An ABC analysis is a data analysis technique that the best cannabis dispensaries and delivery services use to clearly identify their best performing inventory over a certain period of time. This analysis will also point out your worst performing inventory and what to do about it— which is just as important.
When undergoing an ABC analysis, you’ll use three categories to classify your inventory based on your total revenue.
- A grade. This category represents your best performing inventory. Within this category, you’ll define what inventory accounts for 80% of your total revenue, even if it is a small amount of your inventory that makes up that percentage. Because this is your most valuable inventory, you’ll want to prioritize it during cannabis purchasing. Once you know what’s really working for your business, you can take advantage of Confident Cannabis’ free and easy reordering features.
- B grade. While your B grade inventory isn’t your top inventory, it is still very valuable. This inventory will make up the next 15% of your revenue and you may find at times that it shoots up into the A grade category or drops into the C grade category. You’ll want to keep a close eye on this middle-of-the-road inventory and manage it actively.
- C grade. This is your worst performing inventory and only accounts for the remaining 5% of your revenue, but can often represent a lot of invested money. This is the type of inventory that you probably call “dead stock” or “slow moving”.
We’ll talk more about how to conduct an ABC analysis and what to do with the results in upcoming newsletters. Stay tuned!
The Benefits of ABC Analysis
An ABC analysis helps you optimize inventory, plain and simple. One of the greatest struggles of cannabis buying, and inventory management in general, is meeting future demand without over-ordering.
By undergoing an ABC analysis, a business can gain a better understanding of their inventory needs and can nail down what inventory makes them the most money and what inventory actually costs them money. You can unlock the right inventory formula to boost your profitability and you’ll save yourself a lot of time purchasing, restocking and pricing. When you have thousands of inventory listings at your disposal on Confident Cannabis, you want to know exactly what you’re looking for.
When you optimize your inventory, you need to strike the right balance between having enough available inventory to meet customer demand without going overboard and being stuck with slow moving inventory. Retail shelf space is extremely expensive and warehouse space can cost more than $6/square foot. You don’t want to spend money for inventory to sit on the shelves. The last thing you want is to have a customer ready to make a purchase, but you ordered too little inventory. They may turn to one of your competitors and stay there. Stockouts cause retailers to lose $1 trillion every year.
Doing an ABC analysis regularly can help you fine tune your inventory over time.
The Downsides of ABC Analysis
While an ABC analysis can help provide better inventory control, it isn’t a foolproof system. An ABC analysis doesn’t take seasonality, changing trends, or new product launches into account. It’s important to remember that this method is just one tool in your cannabis buying arsenal.
An ABC analysis can help you strike the right inventory balance and boost your profits. Once you’ve gained insight into what your key inventory needs are, Confident Cannabis Wholesale can help you meet those needs. With thousands of inventory listings viewable for free on Confident Cannabis Wholesale, you can find exactly what you need to get your inventory ready for the year ahead.
We’ll publish more on how to conduct an ABC analysis in future newsletters. In the meantime…