As a cannabis business owner, you're constantly looking for ways to reduce costs and increase profits. But one area where you may be inadvertently losing money is in the pricing strategy you use to sell your products. "Out the door" pricing, which bundles together taxes and other fees into a single price, may seem convenient, but it can actually end up costing you more in the long run. Here's why:
The Hidden Costs of "Out-the-Door" Pricing
"Out the door" pricing may seem like a straightforward way to present your prices to customers, but it's important to recognize that there are hidden costs involved. By bundling together taxes and other fees into a single price, you're essentially absorbing those costs into your profit margin. This means that you're not passing those costs onto customers or patients in a transparent way, and you may be losing out on potential profits as a result.
By including all costs in a single "out-the-door" price, you may be inadvertently setting your prices too low. This is because you're not explicitly breaking out the cost of taxes and other fees, so customers or patients may not realize just how much they're paying for these additional expenses.
If you were to break out the costs of taxes and fees separately, customers would have a clearer understanding of exactly what they're paying for, which could make them more willing to pay a higher price. This, in turn, could lead to increased profits for your business.
Additionally, by including taxes and fees in your profit margin, you're essentially taking on the risk of any changes in tax rates or other expenses. If taxes or fees increase, your profit margins will decrease, which could negatively impact your bottom line.
To the customer or patient, it could look like your prices on cannabis products are higher than another dispensary and this could lead to less traffic overall due to “out-the-door” pricing.
Lack of Transparency
Another issue with "out-the-door" pricing is that it lacks transparency. When you bundle taxes and other fees into a single price, it can be difficult for customers or patients to understand exactly what they're paying for. This can lead to confusion and frustration, and it may even make some customers hesitant to make a purchase at all.
By breaking down the prices in your cannabis dispensary into transparent components, you can help customers understand exactly what they're paying for and build trust in your business.
Compliance Risks
Cannabis businesses are subject to a wide range of taxes and fees and it's important to ensure that you're staying compliant with all applicable regulations. When you use "out-the-door" pricing, however, it can be difficult to ensure that you're accurately calculating and collecting all of the taxes and fees that are required. This can leave you vulnerable to compliance risks, including fines, penalties, and even loss of your business license.
We often have seen point-of-sale systems set up incorrectly and miscalculating sales and/or excise taxes. This has led to under (and overpaying) taxes to your state!
By working with cannabis tax experts like Redbud Advisors, you can ensure that you're staying compliant and minimizing your risk.
Missed Opportunities
Perhaps the biggest problem with "out-the-door" pricing is that it can cause you to miss out on opportunities to maximize your profits.
When you bundle all of your costs together into a single price, you're essentially capping your profit margin at a certain level. But by breaking down your costs into transparent components, you may be able to identify areas where you can reduce costs or increase prices to maximize your profits- you want to increase your dispensary revenue (we have tips to do this here). This is particularly important for cannabis businesses, which operate in a highly competitive market where every dollar counts.
The Benefits of Transparent Pricing
By moving away from "out the door" pricing and toward transparent pricing, you can reap a range of benefits for your cannabis business.
For one, you'll be able to build trust with customers by clearly communicating what they're paying for. Additionally, you'll be able to identify opportunities to reduce costs and increase profits, which can help you stay competitive and grow your business over time. Finally, you'll be able to ensure that you're staying compliant with all applicable regulations for federal, state, and local, minimizing your risk of IRS audits, penalties, and fines.
Conclusion
While "out-the-door" pricing may seem like a convenient way to present your prices to customers, it's important to recognize the hidden costs involved. By switching to transparent pricing, you can build trust with customers, identify opportunities to reduce costs and increase profits, and ensure that you're staying compliant with all applicable regulations.
If you need help with your cannabis business taxes, setting up a point of sale, or just overall advice don't hesitate to reach out to Redbud Advisors for expert guidance and support.
