Dispensary KPI #1: Marketing Efficiency Ratio (MER)

Your dispensary's Marketing Efficiency Ratio (MER) is a key metric that reveals how effectively your marketing spend generates revenue. It's a store-level metric tied directly to your target net operating margin, providing insights into how well your marketing investments translate into profitability.

MER measures revenue generated for every dollar spent on marketing. For example, if your dispensary generates $500,000 in revenue from $10,000 in marketing spend, your MER is 50.0.

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

• Great: MER ≥ 75.0

• Average: MER between 25.0 and 75.0

• Needs Improvement: MER < 25.0

Author Note: this target will evolve as our dataset grows. An individual MER score highly depends on the maturity of the location's market, its monthly fixed and variable expenses, how much it chooses to allocate to advertising and the gross margin profile of its merchandising strategy.

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 MER of 98.0

• Dispensary's Scoring Average: 25% of dispensaries scored in this range with an average MER of 42.0

• Dispensary's Scoring Needs Improvement: 25% of dispensaries scored in this range with an average MER of 24.5

#1. Calculate Total Revenue:

Include all sales channels (in-store, delivery, online).

• Exclude Tax Revenue: Ensure your revenue figure is net of taxes.

• Include Loyalty Point Redemptions: Account for loyalty redemptions as part of the revenue.

• Account for Returns and Adjustments: Adjust revenue figures for product returns and other adjustments.

#2. 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, and 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 for promotional activities.

#3. Formula:

MER = Total Monthly Revenue / Total Monthly Marketing Spend

Several key factors influence your dispensary's MER:

Market-Specific Variables

Competition Density

Areas with high dispensary concentration naturally experience more competitive market dynamics that impact marketing efficiency.

Dense urban markets with multiple dispensaries nearby typically see higher customer acquisition costs and lower marketing efficiency than less saturated areas. In highly competitive markets like Denver, successful dispensaries focus on differentiation through:

• Unique product selection and merchandising

• Superior customer service programs

• Specialized loyalty offerings

• Local community engagement

• Distinctive brand positioning

Local Advertising Restrictions

Cannabis advertising regulations vary significantly by state and municipality, directly impacting marketing strategy options.

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 the following:

• 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 marketing performance and strategy requirements. Each stage of market maturity presents distinct challenges and opportunities:

New Markets:

• Higher focus on education

• Emphasis on brand awareness

• Customer acquisition priority

• Market share establishment

• Community acceptance building

Growing Markets:

• Balanced acquisition and retention

• Competitive differentiation

• Service refinement

• Operational optimization

• Brand development

Mature Markets:

• Customer retention focus

• Loyalty program sophistication

• Operational excellence

• Market share defense

• Innovation emphasis

Customer Acquisition Costs

Local market conditions significantly impact customer acquisition costs. Variables affecting CAC include:

• Market density

• Media costs

• Competition levels

• Customer shopping patterns

• Local regulations

Market types (urban, suburban, rural) each present unique challenges and opportunities, requiring tailored approaches to customer acquisition and retention.

Average Order Value in Your Market

Local average order values impact marketing efficiency and strategy development. Market variations require different approaches:

Higher AOV Markets:

• Premium product focus

• Enhanced customer experience

• Specialized service offerings

• Expert staff training

• Luxury positioning

Lower AOV Markets:

• Purchase frequency emphasis

• Strategic bundling programs

• Value-based messaging

• Loyalty program optimization

• Operational efficiency

These market-specific variables create unique conditions requiring tailored marketing strategies. For example, a dispensary in a mature, high-competition market with strict advertising restrictions might focus on:

• Building comprehensive loyalty programs

• Developing email/SMS marketing

• Creating referral systems

• Establishing distinctive positioning

• Emphasizing service excellence

Success comes from understanding your specific market context and adapting strategies accordingly. Regular assessment and adjustment of approaches based on market conditions and performance feedback are essential for maintaining marketing efficiency.

Operational Factors

Menu Optimization

A well-optimized menu serves as a foundation for marketing efficiency. Our analysis shows dispensaries perform better when they focus on:

• Product Mix: Balancing core products with a rotating selection of seasonal and trending items

• Price Points: Offering clear good-better-best options across categories to serve different customer segments

• Category Balance: Maintaining appropriate inventory levels across major categories (flower, concentrates, edibles, etc.)

• Brand Selection: Finding the right mix between established brands and emerging products

Top-performing dispensaries regularly review menu performance and adjust based on sales velocity, margin contribution, and customer feedback patterns.

Staff Training Effectiveness

Staff performance plays a crucial role in converting marketing spend into revenue. Key focus areas for high-performing dispensaries include:

• Comprehensive product knowledge training

• Customer service excellence programs

• POS and technology systems proficiency

• Loyalty program optimization training

Leading stores invest in regular training sessions, focusing on new hire onboarding and ongoing education for existing staff.

Customer Service Quality

Service quality shows a clear correlation with marketing efficiency. Successful dispensaries prioritize:

• Consistent service standards

• Quick response times to customer inquiries

• Personalized product recommendations

• Efficient checkout processes

• Regular customer feedback collection

High-performing stores implement systematic approaches to:

• Customer feedback collection

• Service speed monitoring

• Customer journey optimization

• Issue resolution protocols

• Experience measurement (NPS)

Location Convenience

Store accessibility significantly impacts marketing performance. Important factors include:

• Easy-access location

• Visible storefront

• Adequate parking

• Proximity to major roads

• Clear signage and wayfinding

Well-positioned stores often require less marketing spend to maintain steady customer flow, though strong operations must support location advantages.

Delivery Availability

Delivery service has become increasingly important for dispensary operations. Successful delivery programs focus on:

• Efficient routing systems

• Real-time inventory management

• Well-defined delivery zones

• Strategic minimum order requirements

• Optimized delivery windows

Delivery services can enhance customer retention and improve overall marketing efficiency when implemented effectively.

Technology Integration

Modern dispensary technology infrastructure supports marketing effectiveness through:

• Integrated POS systems

• Customer relationship management

• Inventory management software

• E-commerce solutions

• Analytics tools

Stores with well-integrated systems show an improved ability to:

• Automate marketing processes

• Utilize customer data effectively

• Manage inventory efficiently

• Track marketing performance

• Optimize staff productivity

Inventory Management

Effective inventory management supports marketing efficiency through:

• Optimal stock levels

• Minimized stock-outs

• Strategic product rotation

• Data-driven purchasing

• Regular inventory audits

Leading dispensaries maintain strong inventory practices, including:

• Regular demand forecasting

• Real-time stock monitoring

• Strategic reorder points

• Vendor relationship management

• Category performance analysis

These operational factors create a foundation for marketing success. While specific results vary by market and operation type, dispensaries that excel in these areas typically see improved:

• Marketing efficiency

• Customer acquisition costs

• Customer lifetime value

• Campaign performance

• Overall profitability

The key is to understand how these factors interact within your specific market context and create systems to continuously monitor and improve them.

Based on our experience working with dispensaries across multiple markets, we see several key areas that drive improvements in Marketing Efficiency Ratio performance:

Marketing Channel Mix Optimization

Successful dispensaries focus on developing and maintaining a strategic balance across marketing channels based on their market conditions and growth stage:

Core Channel Strategies

• Building comprehensive loyalty programs

• Implementing targeted digital advertising

• Developing email and SMS workflows

• Creating community-focused events

• Integrating traditional marketing methods

Each channel requires regular assessment and optimization based on performance metrics and customer response patterns.

Customer Retention Focus

Retention strategies often provide better returns than pure acquisition efforts. Leading dispensaries emphasize:

Program Development:

• Structured loyalty rewards systems

• Multi-tiered benefit programs

• Personalized customer recognition

• Special access opportunities

• Member-exclusive events

Communication Strategy:

• Strategic contact frequency

• Customized recommendations

• Educational content delivery

• Systematic feedback collection

• Clear value proposition messaging

Marketing Efficiency Enhancement

Optimization of existing marketing efforts can significantly improve performance through:

Campaign Management:

• Message testing frameworks

• Audience segmentation strategies

• Performance tracking systems

• Customer feedback integration

• Channel effectiveness analysis

Customer Segmentation:

• Customer lifecycle stages

• Purchase pattern analysis

• Product preferences

• Value sensitivity levels

• Channel engagement rates

Average Order Value Improvement

Successful dispensaries implement comprehensive approaches to transaction value growth:

Staff Development:

• Product knowledge systems

• Recommendation frameworks

• Bundle suggestion strategies

• Need assessment protocols

• Communication training

Merchandising Optimization:

• Strategic product grouping

• Multi-unit incentives

• Category connections

• Premium positioning

• Seasonal planning

Operational Alignment

Marketing efficiency requires a strong operational foundation:

Process Enhancement:

• Transaction flow optimization

• Inventory system refinement

• Staff scheduling alignment

• Marketing automation

• Service standardization

Data Strategy:

• Performance monitoring systems

• Feedback integration processes

• Inventory analysis

• Campaign effectiveness tracking

• Staff performance measurement

Community Building

Strong community connections support marketing effectiveness:

Local Integration:

• Community event participation

• Business partnership development

• Neighborhood engagement

• Educational programming

• Social responsibility initiatives

Experience Development:

• Environment optimization

• Staff interaction protocols

• Service consistency

• Customer appreciation programs

• Feedback collection systems

Technology Utilization

Effective technology deployment supports marketing performance:

System Integration:

• Customer relationship management

• Marketing automation tools

• Inventory controls

• Analytics platforms

• Feedback systems

Digital Presence:

• Website optimization

• Menu management

• Social engagement

• Review monitoring

• Communication tools

Implementation Framework

Successful MER improvement requires a systematic approach:

Assessment:

• Current performance review

• Challenge identification

• Resource evaluation

• Competitive analysis

• Process documentation

Strategy Development:

• Impact prioritization

• Resource allocation

• Timeline development

• Goal setting

• Measurement planning

Execution Management:

• Performance monitoring

• Team feedback collection

• Customer input gathering

• Strategy adjustment

• Success recognition

Success in improving MER requires understanding your specific market context and operational capabilities. Focus on systematic implementation while maintaining flexibility to adjust based on performance indicators and market changes.

To get a complete picture of marketing performance, monitor:

• Acquisition Marketing Efficiency Ratio (aMER)

• Cost Per Order (CPO)

• Customer Return Rate

• Marketing Opt-in 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 MER requires understanding your market context, operational capabilities, and a strategic marketing approach. Regular assessment, systematic adjustments, and a strong community presence are crucial to sustaining marketing efficiency.

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

What is a good Marketing Efficiency Ratio for a dispensary?

A good MER for dispensaries is highly dependent on numerous financial inputs specific to the individual retail location. In reality, a good MER allows owners and operators to budget and allocate marketing-related expenses in a way that enables a location to hit its desired target net margin percentage for a given level of advertising spend.

How do you calculate Marketing Efficiency Ratio for a dispensary?

Calculate MER by dividing total revenue by total marketing spend. For example, if monthly revenue is $250,000 and marketing spend is $10,000, your MER is 25.0 ($250,000/$10,000 = 25.0).

Which marketing costs should I include in MER calculations?

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

How often should I calculate my dispensary's MER?

Track MER monthly to identify trends and adjust strategies. Also, calculate quarterly and annual MER to account for seasonal variations and long-term marketing investments.