The cannabis industry can make for a lucrative career choice for those interested in obtaining a license and opening a cannabis retail business. Unfortunately, high overhead costs are the reality, just like opening any business. However, with the right knowledge and understanding, cannabis business operators can work to reduce their operating costs in the long run.
Industry professionals with the right training are experts at running cannabis businesses, knowing how to efficiently organize their labor force, maximize their revenues, and adhere to government regulations. They also know how to work at reducing their operational expenses. Read on to find out more.
What Operating Costs Mean for Those Who Open a Cannabis Business
For cannabis retail business operators to reduce their operating costs, they must first understand what exactly operating costs mean. Variously referred to as operating expenses, operational expenditures, or simply OPEX, these are the costs associated with the daily maintenance and administration of a business. The central drain on a business’ resources is the cost of goods sold, or COGS. These are the direct costs necessary for producing the goods sold. In the case of those who want to open a cannabis business, their COGS would be cannabis products such as dried flowers, edibles, and tinctures.
Several other OPEX’s are necessary for a smoothly running business. These include:
- Labor costs
- Employee pension and benefits
- License fees
- Rent or mortgage payments
- Maintenance and repairs
All these necessary costs, in addition to anything else that business owners require to run their day-to-day business operations, amount to the OPEX. A smart, savvy business owner will take ahold of these expenses and work to reduce them.
Track Your Operating Costs to Trim the Unnecessary
The first step cannabis business owners can take to reduce their OPEX is simple: start keeping account of them. By making detailed accounts of their business’ expenses, weighed up against their revenues, professionals with a cannabis dispensary license can work to minimize their expenses.
There is a basic equation that retail store operators can use to better understand the finances of their business:
- Operating income is equal to total revenues minus operating expenses
- Operating income can be assessed to understand the total profits associated with operations
Using this equation will help business owners get a grasp of how their operating expenses are lining up with the holistic picture of their financial situation. There is another, similar equation they can use in addition:
- The operating expense ratio, or OER, allows the tracking of financial efficiency
- OER is equal to operating costs divided by total revenues
Expressing the business’ financial situation as a percentage can help cannabis business owners understand where they stand, and to play around with how prospective changes will potentially impact their business from a financial point of view.
Embrace Technology to Track and Reduce Operating Expenses
Technological progress has dramatically changed how business owners today engage with their operating expenses. Cannabis business owners can utilize technology to track, assess, and reduce their OPEX. The most effective way they can do this is by using programs that track their point of sale (POS) data. These programs can pull sales information to track how products are selling.
There are many ways using technology to track POS data can reduce operating expenses:
- Eliminate slow-moving inventory
- Invest in products that yield higher margins
- Anticipate inventory stockouts ahead of time
POS data can also be used to identify trends, such as when items are typically paired together. In this way, employees can make suggestions or organize product placements more intelligently and effectively.
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