Maximizing Cannabis Brand Revenue through Product Mix Optimization and SKU Rationalization

Unlocking Higher Profits through Strategic Product Management in the Cannabis Industry

Cannabis brands are constantly seeking ways to boost revenue and enhance profitability. Two powerful strategies to achieve these goals are optimizing the product mix and implementing SKU rationalization. By carefully analyzing and refining the range of products offered, cannabis brands can better meet consumer demand, reduce costs, and ultimately increase their bottom line.

How Product Mix Optimization and SKU Rationalization Work Together

Product mix optimization involves evaluating the variety, quantity, and performance of products a brand offers. This process aims to ensure that the product portfolio is aligned with market demand, consumer preferences, and profitability targets. For cannabis brands, this can mean balancing a range of categories offered, like flower, edibles, concentrates, topicals, and other products to cater to different customer segments, and it also considers more granular attributes within a category, such as the right selection of strains, pack sizes, cannabinoid combinations, price tiers, and more.  

SKU Rationalization complements product mix optimization by zeroing in on the specific products within those categories you evaluated as part of the product mix exercise. It involves analyzing the individual SKUs you have available to determine which ones contribute most to sales and profitability, and which ones are redundant or underperforming.

Key Steps in Product Mix Optimization:

Market Research and Consumer Insights:

Conduct comprehensive market research to understand consumer preferences, trends, and unmet needs.
Utilize customer feedback, sales data, and consumer insights industry reports to gain insights into which products are most popular, how consumers prefer to consume and purchase, and unmet consumer need states.

Sales Data Analysis:

Analyze historical sales data to identify top-performing products and those with lower demand.
Assess the profitability of each product, considering factors such as production costs, pricing, and margins.

Competitive Benchmarking:

Study competitors’ product offerings and identify gaps or opportunities in the market.
Evaluate how your product mix compares in terms of variety, quality, innovation, and price tiers.

Product Lifecycle Management:

Monitor the lifecycle of each product, from introduction to growth, maturity, and decline.
Make informed decisions about when to introduce new products, update existing ones, or discontinue underperforming items.

Steps to Effective SKU Rationalization:

SKU rationalization is the process of evaluating and optimizing the number of SKUs your brand carries. This is an exercise focused even more on your own sales data and costs, and involves identifying and eliminating redundant or underperforming SKUs to streamline operations, reduce costs, and improve inventory management.

Inventory Analysis:

Conduct a thorough analysis of your current inventory to identify slow-moving, obsolete, or redundant SKUs.
Evaluate the contribution of each SKU to overall sales and profitability.

Criteria for Rationalization:

Establish clear criteria for SKU rationalization, such as sales volume, profit margins, production costs, and alignment with brand strategy.
Prioritize SKUs that align with customer demand and strategic objectives.
Consider how a lower margin product may be cannibalizing the sales of a higher margin product if it fits into a similar price or fulfills a similar need. 

Stakeholder Collaboration:

Involve key stakeholders, including sales, marketing, production, and finance teams, in the rationalization process.
Ensure alignment and buy-in across the organization for successful implementation.

Continuous Monitoring and Adjustment:

Regularly review and adjust the SKU portfolio based on market trends, consumer preferences, and sales performance.
Stay agile and responsive to changes in the market to maintain an optimal product mix.

Achieving the End Goal: Increased Revenue and Streamlined Operations

When implemented together, product mix optimization and SKU rationalization create a streamlined, efficient, and customer-focused product portfolio. Here’s the path to achieving that end goal:

Identify and Focus on High-Performing Categories:

Use product mix optimization to identify the product categories that drive the most revenue and meet consumer demand.
Concentrate development and marketing efforts on these key categories.

Eliminate Redundancy and Underperformance:

Implement SKU rationalization to remove redundant and underperforming products within those categories.
Focus on top-performing SKUs to maximize sales and profitability.

Allocate Resources Efficiently:

Reinvest the savings from reduced production and inventory costs into enhancing and promoting the most popular and profitable products.
Ensure that resources are used to develop new products that align with market trends and consumer preferences.

Maintain Customer Satisfaction:

Continuously monitor customer feedback and market trends to ensure the product mix remains relevant and appealing.
Ensure that the streamlined SKU portfolio includes the products that customers want and love, enhancing satisfaction and building brand loyalty.

The Financial Impact of Effective Supply Chain Management on Cannabis Brands

Optimizing your supply chain isn’t just about efficiency—it can significantly impact your brand’s finances. Let’s break down how effective supply chain management can boost your bottom line.

Cut Costs, Boost Profits: Focus on what your customers love and streamline your production to reduce waste. An efficient supply chain means more profits for your brand.
Maximize Sales: Keep best sellers in production and available to satisfy demand and boost sales. The right mix of products meets customer needs and drives profits.
Improve Cash Flow: Maintain the ideal amount of inventory to free up funds. With less money tied up in unsold goods, you can invest in marketing or expand your product line.

Partner with BDSA for Expert Product Mix Optimization and SKU Rationalization

For cannabis brands, optimizing product mix and SKUs are essential strategies for driving revenue growth and improving profitability. By carefully analyzing market trends, consumer preferences, and sales data from BDSA, brands can refine their product offerings to meet demand more effectively. This not only reduces costs and streamlines operations but also enhances customer satisfaction, and builds brand loyalty. In a competitive and evolving industry, these strategies are essential for sustained success and growth.

Whether you utilize BDSA’s product solutions through our granular, interactive GreenEdge dashboards, or rely on our team of cannabis analytics experts to execute the analysis on your behalf, BDSA is your partner for success.