You’ve got the vision: leather chairs, polished wood, cases of glass-front humidors lining the walls of your shop, and the jingle of the doorbell announcing new customers — but now are you wondering how much opening a tobacco shop costs?
If you are interested in starting a successful tobacco shop but unsure what you will need financially to make it happen, look no further. Use our guide to bring yourself up to speed on the costs and fees associated with opening a tobacco shop and directing your planning phase.
We will explore the pricing considerations to keep in mind and the financial roadblocks to watch out for on the journey to opening your own tobacco retail store. After reading this post, you should have a firm grasp of the financial considerations associated with opening your tobacco shop.
Table of Contents:
How Much Does it Cost to Open Your Tobacco Store?
Despite economic setbacks, IBISWorld estimates that the tobacco sales industry will continue to grow over the next five years at a steadily increasing, albeit slower rate of 2.6 percent. In an economic climate that has evolved heavily in the last few years, planning ahead and delineating costs before opening a small business is more important than ever.
Most upfront and hidden costs of opening a new brick-and-mortar store (due to factors such as floor space and starting inventory) mean a more costly financial investment than opening a tobacco store online. Careful financial planning is required to avoid missing your business goals or underestimating your budget.
Your tobacco shop start-up costs could be between $50,000 and $100,000 initially, depending on your store’s size and location. Opening one in a major city will be more expensive than setting up a shop in a small town in America. Add in an additional $10,000 to $20,000 in fees to that cost if your plan includes opening a franchise.
Starting a Tobacco Shop: 7 Important Considerations
Now that you have a ballpark figure for what starting your tobacco business will cost, it's time to dive into how to allocate budget and effort to get your shop up and running.
Our experience with hundreds of tobacco retailers has surfaced these seven important considerations for moving forward with opening your store.
Business Plan and Budget
If you’re planning to start opening your tobacco shop soon, there are some important considerations to review first. Overestimate — don’t underestimate — start-up costs while planning in this stage. Increased federal and state taxes and restrictions on tobacco retail shops means that new tobacconists must plan ahead financially and fully utilize all available small business tools in order to succeed.
A solid business plan and a realistic, dynamic business budget go hand in hand when creating a vision for your store. To start, grab a notebook to build your startup budget manually, or you can speed up the process by using budgeting features in popular business accounting software.
While creating an initial plan, make sure you consider factors such as licenses and permits, inventory and materials costs, your break-even point (BEP), the location, marketing and advertising budget, and your store’s size.
Permits, Registrations, and Licenses
Like many other businesses, you must comply with local and state permit and license requirements, but you will also have to consider the specific permit requirements associated with selling age-restricted products in your area. Make sure to factor in accountant fees to help you initially set up your accounting system and legal fees to register your business with government entities.
In most states and some local jurisdictions, retailers who sell tobacco products must obtain a retail cigarette and tobacco license and renew it annually. Consult your city and state government websites for which permits, registrations, or licenses you will need to acquire based on the specific products you intend to sell.
A retail cigarette or tobacco license is a legal document issued by a city, county, or state department that signifies your business is legally allowed to sell tobacco products to consumers who are allowed to buy them in your area. The cost of an “Other Tobacco Products” (OTP) retailer license is generally $25 per location and must be displayed prominently for customers and local authorities to easily view.
Location and Fixed Assets
Opening a physical store requires many initial fees and ongoing costs to meet all local and federal requirements. These could involve setting up a lease with a security deposit or buying a building. These costs may be called leasehold improvements or tenant improvements. Facilities costs could also include improvements to be made before opening or new signage. Use a startup cost calculation tool like the Small Business Administration (SBA) hosts on their website to make sure you’re hitting all the bases.
Budget for what you’ll need to set up your location and start your business. Fixed assets (also called capital expenditures) are initial business investment costs in the form of furniture, equipment, computers, vehicles, machinery, and anything for your store that is needed to start your business. Also, consider business insurance costs, decor and aesthetics, as well as the price of any initial contracting work needed for repairs.
In order for your tobacco shop to thrive and make sales, you’re going to need to build a marketing plan and budget. Keep in mind pre-opening location marketing costs such as signage (indoor and out), branded rugs or wall art, email marketing software, customer loyalty program tools, and things like business cards or magnets.
Creating a business marketing development plan is a wise idea. Don’t just rely on foot traffic or word of mouth — be proactive by advertising on social media, considering bigger moves like vehicle wraps, or printing out flyers for local boards or to be included in local newspapers. Whatever you do, just make sure you have a marketing plan, stay within your budget, and constantly seek out new, creative ways to make your business known.
Experiential marketing — encouraging consumers to experience or interact with your brand at venues or events like concerts, bars, or nightclubs — is an extremely effective marketing play, but make sure you’re being ethical about it and complying with government guidelines.
Equipment & Technology
Business essentials such as point of sale (POS) systems, computers, web providers, web hosting/domains, mobile payment platforms, and other IT expenses for initial setup can be expensive. Find a POS that fits your tobacco shop’s needs, has all the features you require, and is at a price point within your budget.
Make a list of what that system needs to provide and shop around for the best option within your initial budget. You can always upgrade later. Make sure your software is built for your unique business, has flexible payment options for your customers, great customer support features, and integrated inventory management.
When budgeting for opening your tobacco shop, consider the current price range for the products you want to sell, any accessories associated with those products, branded merchandise for your business, and even things like cleaning supplies or equipment needed to make a great first impression.
Don’t go overboard with building your initial inventory. But do make sure your shelves are well-stocked, displays are attractive, and you have an adequate variety based on your local customer-buying trends and market research. Inventory can be one of the most expensive start-up costs, so plan accordingly for a successful opening.
Unless you plan on operating your shop by yourself initially, plan to budget for the costs associated with hiring at least one employee to help run your store. Keep in mind job listing fees, training hours, any certifications they may need, the cost of branded uniforms, gear, or IDs, as well as future costs such as admission and travel to events, health insurance, time off, etc.
You can use an integrated POS software system to streamline employee management with features like digital timecards, employee hourly totals and trends, payroll reports, and user permissions. You’ll be able to hire and keep great staff if you’re organized and prepared to give them an exceptional workplace experience.
How to Start a Smoke Shop: Quick Checklist
Now for a recap, here are the steps to starting your tobacco shop:
- Select a location
- Develop a business plan
- Determine a (realistic, yet dynamic) budget
- Acquire local and state permits and licenses
- If required in your location, acquire a retail cigarette or tobacco license
- Update your budget. At this point you'll need to factor in:
- Location and facilities costs, don't forget repairs if needed
- Capital expenditures for anything needed to setup your store
- Business insurance
- Décor and aesthetics cost
- Map out your marketing plan, readjust your budget as needed
- Claim social media channels
- Determine which marketing sources will be utilized for promoting your business
- Decide what materials and support you need to execute your promotions
- Decide which business software and equipment you will need, then shop around:
- Web provider, domain, and hosting
- E-Commerce platform
- Inventory management software
- Payment processing solution
- Point of sale system **Hint: many POS providers can include solutions for other business software out of the box.
- Stock your shelves by purchasing inventory
- By now you should know the main items you'll want to keep in stock, start with small quantities to see how they move
- Accessories, especially at cigar lounges, consider complimentary items that you can offer to increase average transaction amount
- You'll want to reward returning customers and spread the word about your business with branded items or swag
- Whether it's part of the holidays or rewarding loyal customers, consider stocking some items as giveaways
- Finally, staff your business. Here are a few key positions to consider:
- Store Managers
- Marketing and external sales personnel
Depending on how complex your tobacco store is, or how many locations your business has your checklist may be a bit longer or shorter, but refer to the above as a starting point!
Investing in a Tobacco Shop POS System
New business owners who invest in top-notch tobacco store point of sale (POS) software know that it’s a smart move. Budgeting for a dynamic, tailored tool like an integrated POS software is a forward-thinking step towards securing a highly successful and profitable future for your shop.
If you don’t have a POS system in place before opening, your business may experience setbacks related to inventory, customer, employee, or vendor management and struggle to adapt on the fly. Don’t wait for that to happen!
Check out our POS buyers’ guide to learn more about how a full-featured POS software investment can help you build and maintain a loyal customer base, stay on top of business operations, and encourage sales growth.