Here’s a common cannabis retail scenario: A dispensary customer chooses a pack of pre-rolls with a $35 price tag. They’re checked out by a budtender, reach in their wallet for cash, and look up to see the product’s cost with taxes is actually $43.86. The customer has to run back to the ATM and pull out more cash, leaving everyone involved wishing for a smoother transaction.
High tax rates in the legal cannabis industry often leave consumers confused. Shoppers are used to general retail taxes which range from roughly 3-5%, but some states require cannabis dispensaries to charge as much as 35% in excise tax.
What is out-the-door pricing?
Out-the-door (OTD) pricing is the process of including all relevant taxes or additional charges in the final cost of a product sold at a dispensary. The price a customer sees is the total price they pay. Out-the-door pricing is sometimes referred to as "tax-inclusive" pricing.
Below, we’ll walk through the pros and cons of out-the-door pricing and some tips to implement the pricing strategy at your shop.
Benefits of out-the-door pricing
An out-the-door pricing strategy is a customer-centric approach to pricing. It gives shoppers the opportunity to see exactly how much they’re going to spend before they check out.
Here are some key benefits of out-the-door pricing:
Stop sticker shock
Sticker shock happens when a customer discovers a product's high or increased price. It's common for cannabis shoppers (especially newbies) to be shocked by the final price of products at a dispensary. They expect a much lower number and can be angry about the confusion. Knowledge of cannabis taxes is not widespread and rates are very high in many cannabis markets.
Don’t force your customers to do the math. Give them the prices up front. It’s a more enjoyable experience to pick out an item with a $20 price tag and end up paying with a $20 bill.
Bank closures caused by the pandemic have left coins in short supply across the country. Many businesses have posted signage asking customers to pay in exact change, which inconveniences shoppers and may turn some people away.
Out-the-door pricing allows you to set a nice, round number for your prices. Customers won't have to dig around for pennies and budtenders won’t spend hours counting loose change. That saved time is significant when added up over time.
Coins are also small, hard to handle, and can be easy to miscount. There’s a chance that your drawers may be off by pennies, nickels, and even multiple dollars due to mistakes made counting change.
Round your prices for cashless payments
Due to the regulatory complexity of cannabis payment processing, some solutions require transactions to be rounded to the nearest five or zero. This means you have to give back change for most debit transactions.
Note: PIN debit solutions allow retailers to pay to the exact penny, but come with a number of risks to beware of.
Combining out-the-door prices with your cashless cannabis payments is an efficient solution to this dispensary workflow. Your budtenders won't have to return change for debit payments and your customers can enjoy a seamless transaction every time.
Customers appreciate efficient business operations. With out-the-door pricing, you're simplifying the most confusing aspect of cannabis shopping – the payment process.
Lines are shorter with OTD pricing because there is no longer a need to count out change and return it to the customer. Plus, shoppers don't have to wait for a final price before pulling out money – they’ll know how much their total is before your budtenders do!
Simply put, out-the-door pricing is a win-win situation for your business and customers.
Drawbacks of out-the-door pricing
While the pros largely outweigh the cons of OTD pricing, it’s worth mentioning a couple problems retailers can face when offering these prices.
Competitor prices may appear lower
If your competitors advertise pre-tax prices, some shoppers will assume their products are more affordable. Of course, the lower price on the tag will eventually come out to a larger amount on the receipt but first-time shoppers don't always realize this.
If you aren’t clear and upfront about the reason your prices are slightly higher, there’s a chance you’ll lose business. We’ll walk through some ways to mitigate this risk in the next section.
Discounting OTD prices can be tricky
Some point of sale discount engines struggle with out-the-door prices. When applying a cannabis discount, it’s recommended to avoid percent-based specials because the final price won’t come out to a whole number. Instead, stick to “dollar-off” or “set a new price” discounts to keep round numbers.
Make the most of out-the-door pricing
To maximize the success of out-the-door pricing, take some extra measures to make the most out of the strategy.
Clearly advertise OTD prices in-store
To avoid confusion and show the unique value of your store’s pricing, make sure customers in your store understand what you’re offering. Showcase signage explaining out-the-door pricing. It can be as simple as “All prices in this store include taxes. What you see is what you pay!”
Budtenders can further explain out-the-door pricing to customers. When shoppers wonder why a store down the street has the same edibles for a lower price, your budtenders can set the record straight. Once the customer understands that taxes are already included in your prices, they’ll feel more comfortable with the shopping experience.
Many cannabis retailers clearly highlight that their prices are "out-the-door" on popular marketplaces. The same should be done for native menus or any online menu associated with your dispensary.
For further transparency, consider including a brief explanation of out-the-door vs. traditional retail pricing. This could be posted to your website's blog, on your home page, or across the site.
Choose a POS system with built-in out-the-door pricing
Flowhub Maui allows you to easily enable out-the-door pricing. By flipping the OTD price setting "On" for your location, you can enter the price you would like items to be "out-the-door" and see your margins and pre-tax prices within your inventory. Flowhub automatically reverse calculates so the correct tax amount is built into every price.
Want to set up out-the-door prices at your dispensary? See how Maui can help.