Vape shops are growing in popularity primarily due to their accessibility and marketing as a safe alternative to traditional cigarettes. If you are an aspiring vape shop owner, strategic planning for cost and compliance is key. It’s a regulated business, so it’s important to do research on your state and city’s regulatory rules before starting a vape shop. Depending on your location and build-out, the cost to open a vape shop can be anywhere from $25,000 to $60,000.
Kickstart your dream business with Chase Business Complete Banking®. Open an account today! |
|
Vape Shop Startup Information at a Glance
Average Startup Cost | $25,000–$60,000 |
Time to set up | 3–6 months |
Estimated Monthly Cost | $6,000–$11,000 |
Estimated Monthly Sales | $9,000–$30,000 (first 2 years) |
Excise Taxes | 31 states plus District of Columbia, local taxes in various states |
Ease of Set Up |
Note: All estimates above will vary based on business size and location.
Opening a vape shop requires determining what kind of shop you want to operate, creating a business plan, getting the funding and necessary paperwork, and purchasing vape products. Here’s how to open a vape shop in five steps:
Step 1: Research Different Types of Vape Shops
There are several different types of vape stores you can open. Most vape businesses have a physical location, but it is not required. You can have an ecommerce-only vape business that sells juices and other products online. If you’re opening a physical location, you may want to consider opening a vape shop franchise, which provides you with an existing brand and system to operate your vape shop.
Most vape shops have a physical location for customers to learn about e-cigarettes, storage for vaping devices, and a vaping lounge. However, you should consider an ecommerce platform if you are not opening a physical location or believe your current customers would rather reorder juices and vape products online instead of coming into the store.
Vape Shops With Physical Locations
If you decide to open a brick-and-mortar vape shop, it’s important to look up the municipal zoning restrictions before connecting with a commercial real estate agent. You may find that zoning restrictions keep you from opening your store in a specific location. For example, many cities place restrictions on how close a vape shop can be to a school or church. Use this municipal zoning restriction information to guide your commercial real estate search.
Ecommerce for a Vape Shop
If you’re going the ecommerce-only route, your biggest challenge will be getting your business in front of potential customers. It will require a lot of search engine marketing, content marketing, and paid ads. There is fierce competition for vape products on Google. If you want to get ecommerce customers it’s best to combine your website with other marketing tactics such as social media marketing or video marketing.
Additionally, many POS systems have ecommerce capabilities. It’s important to know that some payment processors view online vape sales as high-risk and won’t process your online sales, which means you won’t get paid. If you’re interested in ecommerce, make sure whatever company is processing your payments accepts vape shop products.
Vape Shop Franchises
Typically, if you choose to purchase a vape shop franchise, the corporate office will help you with your business plan and financial projections. Some popular vape shop franchises are Vape & Smoke Shop, which now operates eight franchises in the country, and Vapor Shark with over 50 locations. The average initial franchise fee is $20,000.
Step 2: Write Your Vape Shop Business Plan
A business plan is what you’ll use to make the case as to why your vape shop is a great idea. A solid business plan outlines the opportunity to open a vape shop and how it will be profitable. Decide if you will create a traditional business plan—if you need funding—or a modern business plan—which is more visual. The most challenging parts of a business plan are the financial projections, which break down how much money your vape shop will earn and spend every month.
Traditional vs Modern Business Plan for Vape Shops
The traditional business plan is typically required to get capital from a bank or investor. This business plan has similar sections like the executive summary, management background, and target market. In more recent years, a modern business plan has emerged called a Business Model Canvas (BMC). The BMC is a visual business plan with updated sections like key channels, value propositions, and key activities for your vape shop. If you are not seeking funding, the BMC is recommended.
Banks are beginning to accept the BMC as an alternative to the traditional business plan.
Market Research for a Vape Shop
The market research section of your business plan is where you determine if there is a demand for your vape products. Once you are clear on the demographics of your ideal vape shop customer, look at market data from a source like ReferenceUSA, which is available for free at thousands of local libraries.
During your market research, look into the vape shop regulations in your state and city. If you’re seeking funding, it’s wise to include all state and city regulatory information in your business plan. Operating a vape shop is considered a high-risk business because many states and cities are implementing local regulations. For example, San Francisco has banned the sale of e-cigarettes. You can research the regulatory information on your state and city’s official website.
Related reading: Feasibility Study for Small Business
Competitive Analysis
Competitive analysis is the process of reviewing your competitors to determine what makes your vape shop unique. A simple exercise is to find your top five vape shop competitors and list their strengths and weaknesses. What is one advantage your competitors have that your business cannot do better—for example, brand name recognition? What is something you know that your business will do better, for example, having the most comfortable lounge-style shop?
Learn How: SWOT Analysis for Small Business in 5 Steps
Financial Projections
Financial projections are the most difficult and time-consuming sections of a business plan. This is where you outline how much money it takes to start your vape shop and how much money it will make and spend every month. If you’ve never opened a brick-and-mortar business before, you will have to research the costs associated with operating a vape store. Typically, you would use a financial projections worksheet to document your predictions.
Here is what you need to include in the financial projections for your vape shop:
- How much money to open your doors (also called startup expenses)
- Month-by-month breakdown of income and expenses for the first year in operation
- Month-by-month breakdown of income and expenses for the second year in operation
- Three-year breakdown of income and expenses by year
It’s important to keep taxes in mind when creating financial projections for a vape shop. While there are no federal taxes on vape products, many states impose supplemental sales tax that merchants are required to add on to their sales price and include in their expense report. For example, the state of New York charges an excise tax of 20%. If your state charges additional taxes, make sure to include them in your projections, because they could be the difference between earning a profit or operating at a loss.
Did you know? At present more than 30 states and the District of Columbia impose excise taxes on vape products. There are also local taxes within Alaska, Nebraska, Illinois, Maryland, Alabama, Colorado, Missouri, New York, Ohio, Pennsylvania, and Virginia.
Vape Shop Set-up Costs
If you’ve never owned a retail store before, this step may be a challenge. Nowadays, retail businesses can thrive in a physical location, as an ecommerce store, or both. Before creating financial projections, it’s important to know how much it will cost to build out your store and maintain it on a monthly basis.
Build-out costs range wildly from a few hundred dollars to more than $50,000. You can set up an ecommerce website for $200–$6,000. A physical store would likely set you back at least $15,000 in furniture, custom lighting, and glass counters. To calculate the monthly costs you may need to call around and get estimates on expenses like rent, utilities, phone, insurance, and security.
Note that your investment cost should not only cover the cost of building out your vape shop. It should also include purchasing inventory, licensing fees, and operational technology, like a POS system. You should also consider at least the first three months of your utilities and the first 12 months of rent.
The following is an estimate of investment cost to start a vape shop:
Business Plan Software
Learning all of the information to include in a business plan may feel overwhelming. If you’re struggling with how to write a business plan with financial projections, you can use business plan software. Live Plan is a software system that walks you step-by-step through the process of creating a business plan. It also provides examples—for instance, a business plan for a retail tobacco store, which is similar to a vape shop. The pricing to use Live Plan is $19.95 a month.
Step 3: Obtain Necessary Capital for Your Vape Shop
Starting a vape shop will require a minimum investment of $11,000 (if you’re willing to start an ecommerce shop). If you don’t have the funds on-hand, you can obtain the capital needed to open a vape shop from a bank, investor, or crowdfunding. Remember that your capital should cover the cost to:
- Build out/renovate your location
- Budget for your plant for a grand opening
- Marketing and advertising
- Set up equipment
- purchase initial inventory
- Rent (and even salary) expenses for the first year
- Utility expense
- Distribution expense (deliveries and shipping)
Get a Bank Loan
A common way to get funding for a business is by applying for a loan from a bank. However, for merchants (particularly solo merchants) who are just starting out, getting approved for a bank term loan can be tricky. This is primarily due to the combination of the nature of the business and lack of business credit history. From the bank’s point of view, startups are generally risky.
One way to increase your chances is to secure your loan with a certificate of deposit. A CD-secured loan also gives you a chance of getting lower interest rates, which at the moment, averages between 6%–10%. This is because, with a CD-secured loan, the bank has the opportunity to get its money back.
As an alternative, consider getting a loan from the Small Business Administration (SBA). While the SBA’s approval process is considerably slower, averaging 30–90 days (including funding), it offers lower interest rates and longer loan terms. Bank loans generally take 14–30 days.
Find an Investor for Your Vape Shop
Another funding option for your vape shop is to connect with an investor. Typically, an investor wants equity in your business in exchange for funds given. For example, an investor may lend you $75,000 for 50% ownership in the business. Even though you are giving up 50% of ownership and profits in the business, you find having half of a business is more appealing than having no business at all.
Finding an investor is difficult, and if you do find one, the first thing they will look at is your financial projections. They want to know how quickly they can make their money back.
Start a Crowdfunding Campaign
A crowdfunding campaign for a vape shop is when potential customers pre-order vape shop products or services. When you open you will reward those customers with what they pre-order. Crowdfunding is a great way to get customers before you vape shop opens and gain credibility for a potential investor.
The success of your crowdfunding campaign will hinge on your network and your ability to persuade them to purchase vape products before your business opens. Typically, a crowdfunding platform will charge a 5% fee, plus a 3% payment processing fee. The platform fee is for you to use their website to host your campaign. Although it is rare, your campaign may also be picked up as an “Editor’s Choice” and get promoted on the platform for free.
Before you plan your campaign, make sure your crowdfunding platform allows vape and nicotine products. Kickstarter, a popular crowdfunding website, prohibits vape-related products. That being said, a vape shop campaign raised thousands of dollars in 2016 by finding loopholes in the system.
Step 4: File Legal Paperwork for Your Vape Shop
When opening a new vape shop you need to do typical new business tasks like registering the business with the state and opening a business checking account. You also need to comply with all federal, state, and city laws and regulations. Vaping and e-cig regulation is changing rapidly and some cities such as San Francisco are banning the sale of all e-cigarettes.
Obtain Employment Identification Number
One of the first legal tasks to take as a future vape shop owner is obtaining your Employment Identification Number (EIN). This is your federal business number that the IRS will use for income and payroll tax collection. You also need this number to open a bank account.
Register the Vape Shop Business
Every vape shop needs to register the business as a legal entity. Doing so protects your personal assets if a lawsuit were to occur in the business. The most common small business registration is an LLC. To register your business you can go directly to your state’s website or save time and frustration by using an online legal service.
Obtain State & Federal Licenses
Federal and state vaping requirements continue to change and those who are in the industry should pay close attention to these developments. However, there are established licensing standards that potential vape shop business owners can begin to work on.
For starters, you have to be familiar with the types of licenses required to set up your vape shop. You will need to apply for a business license from your local government, a retail license issued by the state, and a health permit from the local health department.
Before you get approved for these licenses, you will also be required to provide proof of tax registration from the local Internal Revenue (IRS), as well as insurance policies to cover losses from property damage and personal and employee injury.
The Food and Drug Administration (FDA) has also finalized its list of application requirements for all vape stores that mix liquids or assemble e-cigs. This includes identifying restrictions, requiring warning statements on the packaging, and guidelines for customer verification before selling e-cigarettes, e-liquids, and other electronic nicotine delivery systems.
To learn more about each of these regulations and to obtain the proper licenses, visit the business section on your state and city’s official website.
Get Vape Shop Liability Insurance
All vape shop owners need to get liability insurance. This protects you from the liability of selling your vape products. For example, there have been reports of e-cigarette batteries reportedly exploding. If one were to injure one of your customers and they filed a lawsuit against your company, you’d want to be protected. The average cost of liability insurance for a vape shop is slightly higher than the industry average of $750 per year.
Open a Business Checking Account
Once you obtain your EIN number, you need to open a business checking account before you incur startup expenses for your vape shop. Don’t mix personal and business checking accounts, because maintaining separate accounts simplifies IRS audits.
Chase Business Checking provides startups safe and secure checking with a minimum balance of $2,000 along with a merchant account. It also offers fast funding, including same-day credit card and ACH, as well as real-time ACH deposits, at no extra cost.
Visit Chase Payments Solutions
Step 5: Purchase Your Vape Products
Before opening your doors you need vape products. You can put a lot of research into this step because there are hundreds of vape product wholesalers. You may also be considering selling vape products with your own label on them, also called white labeling. To sell your products in-store, you need a point-of-sale (POS) system to record and process.
Connect With Vape Product Wholesalers
One of the first big decisions you make as a vape shop owner is from what company to buy your products. There are now hundreds of vape product wholesalers. A wholesaler is a company that sells you a product in bulk at a discount, so you can sell it at a mark-up and profit in your shop.
A few questions to consider when purchasing from wholesalers are:
- Will you purchase from China or the US?
- What brands would you like to sell?
- What is the shipping cost?
Start your search by visiting importing directories such as the American Association of Exporters and Importers website. (Source: AAEI.org)
White Labeling Vape Products
You might want to consider white labeling your products if you want to expand your brand into juices as well. White labeling is when you take someone else’s product and put your own brand on it. There are several white-labeling juice companies that will work with you to create a custom label. The cost is about $21 to purchase the juice and $250 to purchase a hundred labels.
Opening Your Vape Shop
Opening your vape shop starts with hiring staff and marketing early with a press release. You need to market your business to potential vaping customers and get them through the door. Physical marketing tips and online marketing strategies can help you get the word out about your business to potential customers. You may also want to have a grand opening and announce to the community you are open.
Hire Staff for Your Vape Shop
If you have a small vape shop, you may be the only staff member. However, most vape shops need more than one employee and you’ll have to hire staff. The average vape shop representative pay is $9 per hour. You may want to consider a commission structure as well to incentivize your staff to increase average customer spend per purchase.
Pro tip: Use reputable online hiring platforms like Indeed to post job vacancies for free. Visit Indeed for a free account.
Manage & Pay Your Vape Shop Staff
When purchasing your POS software, it’s important to know if they offer a complimentary or low-cost add-on for employee management. Many POS systems have built-in employee scheduling with the ability for staff to check in and out of their shifts. Additionally, you want to pay your staff. Consider payroll management platforms such as Gusto that offer low-cost payroll as well as onboarding and employee benefits support from $45 per month. Visit Gusto to learn more.
Press Kit for Your Vape Shop
It’s important that journalists know about which local businesses are opening. Journalists prefer to learn about your vape shop in a press release, which is a short summary of your business. A press release is created in a specific format that is important to follow. Once you have yours written, you can email it to local newspapers or use a company like eReleases to distribute it to journalists nationwide for $199. Visit eReleases to learn more.
In a press release, it’s important to have a hook or story that a journalist may be interested in covering. For example, if you decided to open a vape shop because it helped you quit smoking tobacco products, you should share your experience. Be sure to include photos of the business with your press kit.
Learn how to make a press kit that makes your business stand out. Our guide also comes with a free template.
Vape Shop Grand Opening
A grand opening is an event where you celebrate your vape shop business. You don’t have to schedule it on your first day in business, and the event doesn’t have to last an entire day. A grand opening is a great way to simply create a buzz about your new shop.
Additionally, it’s a great hook in your press release. This gives local journalists a specific story to cover. There are various types of grand openings; consider a three-hour event where you offer free food, discounted products, and giveaways.
Marketing Your Vape Shop
Consider traditional and online marketing for your vape shop. Traditional marketing includes physical materials and is important to have during networking and in your shop. Online marketing is everything digital, including a website, Google My Business listing, and social media pages.
Traditional Marketing for Your Vape Shop
Traditional marketing involves purchasing physical materials like business cards, flyers, mailers, paper advertising, or car wraps. As a new business owner, you want business cards to hand out at networking events. Additionally, you may want to sponsor and go to local events to hand out flyers. Before creating marketing materials it’s important to have your branding aligned, which includes logos, messaging, fonts, and colors.
Online Marketing for Your Vape Shop
Online marketing is a great opportunity for your vape shop. The challenge is learning the latest opportunities to get your shop in front of your ideal customers. A website is still a must-have for vape shops, in addition to your free Google My Business listing. Email marketing is also great as it builds anticipation for your grand opening.
Basic online marketing opportunities for a vape shop are:
- Website: A website is the online billboard for your vape shop. Even if you choose to not sell products online, your website can persuade potential customers to come into the store with photos of your store, juice descriptions, and customer testimonials. Every website needs hosting to store online information, like photos. Hosting also keeps the website up and running. Try Dreamhost—a reliable and safe hosting platform to create your first vape shop website.
- Google My Business: Every business that has a physical location and is looking for local customers gets a free business listing from Google called Google My Business (GMB). Claim this listing, fill it out, and update it frequently to get your business’s information in Google and in front of people looking for vape products.
Google My Business allows customers to message you questions right in Google.
- Social media: Social media marketing is not as effective as it was several years ago for vape shops. However, it is still a free opportunity to reach your loyal customers. In particular, if you have a visually appealing business, Instagram is a great tool to get in front of your customers for free.
- Email marketing: Before opening your shop, build anticipation with your family, friends, and local acquaintances through email marketing. With email updates, you can take them through the journey of opening your vape shop. After opening your store, use email marketing to stay in touch with your most loyal customers with vaping tips, new products, and discounts.
Once you finish preparing the market for your vape shop’s debut, you’ll be ready to officially open your business. Doing all of the research and planning on the front end will make operations much smoother when customers start coming.
Frequently Asked Questions (FAQs)
This section includes the most frequently asked questions about how to start a vape shop.
The amount of money your vape shop earns depends on location, the number of nearby customers, and the quality of your shop. Some vape shops are happy with a few hundred dollars a day in revenue. Others report making more than $4,000 a day. Remember, this is revenue. Profit for the business owner is the amount leftover after expenses, like rent and products, are subtracted.
Yes, you will most likely need a license to operate a vape shop. Currently, you don’t need a federal license, but that may change in the next couple of years. Whether your state or city requires a license depends on their regulations. Some states classify vape shops under tobacco regulations.
Other states classify vape shops more specifically as e-cigarette stores. Additionally, some cities require an e-cigarette license. For example, San Marcos in California passed a city ordinance that requires any business that sells tobacco, including e-cigarettes, to obtain a retail tobacco license.
If you don’t have the capital to open a vape shop, your best bet is crowdfunding. A successful crowdfunding campaign will rely on your own personal network and get them to pre-purchase products before your shop is open. Another option is an investor, however, the typical investor will want a personal return as well. Remember, you want to create a thorough business plan with financial projections before approaching any local investors.
Yes, vape shops can still be profitable. Some vape shops report daily revenue of $300 a day. This type of income is most likely for a one-employee shop. Other vape shops report daily revenue of $4,000+ a day. Your profit on this revenue depends on several factors like your vape shop location, how well you operate and market your business, and how well you control expenses.
The biggest expense for starting an online vape shop is gaining approval from a payment processor. Before receiving approval, you need to comply with your state’s legal age requirement for purchasing tobacco online. Then, you’ll need a legal letter confirming your website’s compliance from a lawyer, which costs between $500–$1,000. You’ll present the legal opinion letter to the payment processor to gain approval. Additionally, you’ll need an ecommerce platform to sell your products.
Bottom Line
Many small vape shops found success despite increasing competition but there are a number of things to consider if you are considering going into the business. Starting a vape shop is riskier than a standard retail business, but it can still be successful. Depending on your location and store popularity, your daily income could be anywhere from $300 to over $4,000 a day. To open a vape shop, you’ll begin by writing a business plan and putting your ideas on paper to market the business so you can get customers through the door.
