Some cannabis concentrates or infused products are much better than others
Every cannabis extractor or marijuana-infused product manufacturer knows that some products perform much better than others. For operational and branding reasons, manufacturers also need to maintain a diversity of products. Depending on the size of your operations and number of people on your team, you may make a handful or hundreds of different products!
So what’s the right number of products to make and how do you pick the winners to focus on? Some teams focus on manufacturing yields (the most product with the least amount of time or ingredients) while others focus on product assortment (a number of products in every category) and others still narrow in on the most profitable products. Each of these considerations is valuable and interrelated, so it’s important to think through each component diligently.
As long as your product strategy isn’t “because Zayna said these chocolates are the most delicious on the market”, your manufacturing data can help answer a lot of important questions with extreme precision to align your team and your operation.
Data-driven product strategies increase yields and profits
Every licensed manufacturer in the United States (and many other countries) has to report their batch data via a seed-to-sale or track-and-trace software such as METRC. Since you already have this data, it’s a great place to start comparing your products in a meaningful way.
One of the easiest places to start is understanding what raw materials go into your batch, how long it takes to complete, and how much sellable product comes out the process for each manufacturing batch you’ve ever completed. If some batches are intermediary steps that then get split among multiple different product SKUs, you can incorporate that into the analysis. Ultimately, you’ll want to be able to “normalize”, or create a standard of comparison, so you can compare the amount of raw cannabis and time to create a single unit of any product. This can be done by dividing the total weight of raw material at the beginning of your process by the number of sellable units at the end of your manufacturing batch. Some businesses may also want to normalize by time (i.e. products per hour or per day), by machine, or by square footage.
For example, you may find that concentrate product A requires 5 grams per retail unit, while concentrate product B requires 7 grams per unit. Immediately, we might think that it’s better to create more of product A than B because we can make more A will less material. Then we learn that the process to make B is less manual and we can make 50 units per day as opposed to only 25 units of A. Suddenly, we may realize that it’s more efficient to focus on B because the extra time and labor cost more than an extra couple of grams of raw material. Of course, another consideration is how much each product has from your wholesale accounts and end consumers. All of these considerations interplay to create a deep understanding of what products to make, and when, to earn the most money for the business.
If you have different physical locations or different operators, it can be very informative to look at the same product SKU across locations. Often times, one location has vastly better yields than another location, so you can take those lessons and best practices and apply it across your organization. You may also consider creating bonuses or other incentive structures for your cannabis manufacturers based on beating the “average yield” for the products that they make.
Starting with normalized yields by product can be hugely valuable to drive your concentrate or infused product strategy, and you already have all the data you need!
Moving beyond yields for sharper operational clarity
Just because you can quickly and cheaply make a lot of product doesn’t always mean it’s the best product to make. It’s often helpful to layer in your laboratory testing data (typically in your seed-to-sale) as well as your financial data to truly distill the best SKUs for your manufacturing business.
With regards to lab data, the first key point is how often a given product fails a laboratory test. Consider our example of the two concentrate products above – it seems like Product B with 7 grams/unit and 50 units/day was better than Product A. But if Product B fails lab tests 60% of the time, but Product A only fails 20% of the time, the effective yield of Product B falls to 20 units/day (because you have to throw away more than half every time) which is equivalent to Product A’s 20 units/day. So product A is actually cheaper to make and has more consistent quality! You can quickly see that factoring in the failure rates can make a big change in what products you choose to make.
Many times, the most important consideration for a manufacturer is how much money you make from any given product batch. This is often called your “profit margin” and, simply put, is how much money you made selling that product minus how much money it cost you to make that product. This is often written out as Profit = Revenue – Cost. We’ll write about the difference of Gross Profit vs. Net Profit later, and for now, it’s enough to know that more profit is almost always better.
The amount of revenue you earn from any given product can be a factor of many different considerations including your buyer (medical or retail), ingredients, lab results, category, market price, and much more. The costs can be a factor of your ingredients, raw materials, labor, energy bill, capital investments, and much more.
If calculating your profit sounds complicated, that’s because it can be! There are many moving parts in every manufacturing facility, and it can be difficult to tease out each component cost and assign it to a specific production batch. That’s why we created our Product Margin module to help extractors and manufacturers that don’t have the time or resources to calculate everything on their own.
Understanding your “Profit / Unit” is arguably the single most important metric for your entire business – the higher your Profit / Unit, the more money you’ll make on every product you sell.
Start focused and add more manufacturing data as you achieve success
There is A LOT of data in your manufacturing facility, and it can sometimes feel overwhelming to know where to start to optimize your business. Data can be confusing and daunting, and that’s why we’re here to help!
For cannabis extractors and manufacturers just getting started, we often suggest the identifying these 3 elements in order:
- Effective yields by SKU
- Cost per unit
- Revenue per unit
Once you are tracking each of these 3 core components, you can begin to understand what is driving each of those elements and watch your progress as you make changes over time.
The most important thing is to start with a very narrow focus, say just your yields, so you are fully confident in that area before moving on to the next. You can think of these data pieces as Lego blocks that come with instructions – there is a clear path to achieving business success, and know that we are here to help you every step of the way.
If you have any questions or need help getting started, we offer a free data consultation or are always happy to hear from you via our contact form.