Dispensary KPI #3: Cost Per Order (CPO)

Your dispensary's Cost Per Order (CPO) is a fundamental metric that reveals the efficiency of your customer acquisition efforts. It directly impacts your marketing budget allocation and overall profitability by showing how much it costs to generate each customer order.

Cost Per Order measures the average cost incurred to generate a single customer order. For example, if your dispensary spends $10,000 monthly marketing and generates 500 orders, your CPO is $20 ($10,000/500 = $20).

Based on our proprietary BNCHMRK dataset, here's how we categorize dispensary CPO performance:

• Great: CPO < $1.00

• Average: CPO between $1.00 and $2.00

• Needs Improvement: CPO ≥ $2.00

Author Note: This target will evolve over time as our dataset grows. An individual CPO score is highly dependent on the maturity of the location's market, its monthly fixed and variable expenses, how much it allocates to advertising, and the average order value of its customer base.

Our latest data from October 2024 shows significant variations in MER across dispensaries in our dataset; we currently have 9 data from dispensaries in 9 U.S. markets; below is the performance distribution by percentage:

Dispensary Performance Distribution

• Dispensary's Scoring Great: 50% of dispensaries scored in this range with an average CPO of $.49

• Dispensary's Scoring Average: 25% of dispensaries scored in this range with an average CPO of $1.19

• Dispensary's Scoring Needs Improvement: 25% of dispensaries scored in this range with an average CPO of $2.46

To accurately calculate your dispensary's CPO, follow these steps:

#1. Sum Marketing Expenses

Include all direct marketing-related expenses.

• Digital Advertising Costs: Paid social, search ads, display ads.

• Agency Fees: Costs associated with hiring external marketing agencies.

• Marketing Staff Salaries: Salaries of in-house marketing personnel.

• Print Advertising, Events, Sponsorships: Include costs from all traditional advertising and promotional activities.

• Email and SMS Platform Costs: Expenses related to marketing automation platforms.

• Promotional Discounts: Include the cost of discounts offered as part of promotional activities.

#2. Count Total Orders

• Count Unique Transactions: Ensure each order is counted only once.

• Exclude Voided Orders: Do not include canceled or voided transactions.

• Include Both New and Returning Customer Orders: Account for all completed transactions.

#3. Formula

CPO = Total Monthly Marketing Spend / Total Monthly Orders

Several key factors influence your dispensary's CPO:

Market-Specific Variables

Competition Density

• Number of dispensaries in the market area

• Proximity to competitors

• Market saturation level

• Competitive pricing dynamics

Local Advertising Restrictions

Markets with stricter advertising limitations (like Maryland) often require different approaches than those with more flexible rules (like California). Dispensaries in restricted markets typically focus on:

• Organic growth initiatives

• Email marketing optimization

• Loyalty program development

• Community building

• Customer referral systems

Market Maturity

The age of a legal cannabis market significantly influences CPO:

New Markets:

• Higher customer acquisition costs

• More educational marketing is required

• Brand awareness building phase

• Limited customer understanding

Growing Markets:

• Stabilizing acquisition costs

• Increased competition

• Emerging customer preferences

• Market share establishment

Mature Markets:

• Optimized acquisition costs

• Sophisticated customer base

• Established market positions

• Retention-focused strategies

Operational Factors

Menu Optimization

A well-optimized menu can significantly reduce CPO by aligning product offerings with customer preferences and purchase behavior.Key Aspects:

• Product Mix: Offer a strategic mix of core products and seasonal items.

• Category Balance: Maintain appropriate inventory levels across product categories.

• Clear Price Tiers: Provide clear good-better-best options to cater to different customer segments.

Staff Training Effectiveness

Well-trained staff can help reduce CPO by:

• Higher Conversion Rates: Improved product knowledge leads to more successful sales.

• Increased Average Order Value: Staff can effectively upsell and cross-sell products.

• Enhanced Customer Experience: A better customer experience leads to repeat business and lower acquisition costs.

Delivery & Technology Integration

Based on our experience working with dispensaries across multiple markets, we see several key areas that drive improvements in Cost Per Order:

Marketing Channel Optimization

Focus on optimizing your marketing channels to lower CPO:

• Channel Focus: Identify and invest in high-performing acquisition channels.

• Attribution Tracking: Implement tracking to measure channel effectiveness.

• Performance Optimization: Continuously test and refine campaigns to improve CPO for each channel.

Operational Alignment

Aligning marketing efforts with operational efficiency can further reduce CPO:

• Process Enhancement: Optimize inventory systems, streamline transaction flows, and align staffing with customer demand.

• Customer Retention Focus: Retention strategies like loyalty programs and personalized communication help keep acquisition costs low by increasing repeat purchases.

To get a complete picture of marketing performance, monitor these related KPIs:

• Marketing Efficiency Ratio (MER)

• Acquisition Marketing Efficiency Ratio (aMER)

• Customer Return Rate

• BNCHMRK Monthly Reports: Access the latest insights on dispensary performance.

• Marketing Performance Scorecard: Get your free BNCHMRK scorecard to assess your marketing efficiency.

• Consultation with Growth Experts: Schedule a free consultation with one of our cannabis growth experts for personalized advice.

Improving your CPO requires an understanding of both marketing efficiency and operational alignment. Focus on optimizing high-performing channels, enhancing customer retention, and aligning operations with customer needs to drive better cost efficiency and profitability.

Last Updated: November 10, 2024. Data sourced from BNCHMRK's proprietary database of dispensary performance metrics.

What is a good Cost Per Order for a dispensary?

A good CPO for dispensaries is $2 or lower. Our data shows that top-performing dispensaries achieve CPOs of $.50 - $1.00, while the BNCHMRK dataset average is $1.16.

How often should I calculate my dispensary's CPO?

Track CPO weekly and monthly to identify trends and adjust strategies. Quarterly and annual CPOs should also be calculated to account for seasonal variations and long-term marketing investments.

Which costs should I include in CPO calculations?

Include all marketing expenses directly related to generating orders: digital advertising, print ads, SMS/email marketing costs, agency fees, marketing staff salaries, promotional discounts, and local event costs. Exclude general operational expenses.