[ANSWERED]: How Profitable Is a Smoke Shop?

Now is the time to open a smoke shop.

Bold claim? Perhaps. But the United States tobacco market continues to grow year over year. Estimated at $75 billion in 2021, it's predicted to reach $78.3 billion in 2022. People are buying cigarettes, cigarillos, cigars, and next-generation products at an increasing rate, so if you’re ready to strike, the iron is hot.

But is a smoke shop worth it? Can you turn a good profit? That depends on several factors, such as your inventory management, marketing strategy, the types of products you sell, and your location.

This blog post will give you an overview of the expected profit and the factors to consider when opening a smoke shop.

How Profitable Is a Smoke Shop, and Is It Worth it?

A smoke shop or tobacco shop typically sells tobacco and vaping products. If you have the vision, you can easily open a store. Once you have your location, permits, and startup costs covered, you’re good to go.

While you must consider your inventory and what you want to sell carefully, you also need to consider how much profit you’ll make. What will your bestsellers be? Which products might not sell well in your location?

If you don't streamline operations, analyze reports, and track inventory, you risk losing out on profits.

There’s no definitive answer to how profitable a smoke shop is because it depends on several factors. One thing is for sure, though: A purpose-built point of sale (POS) system can help you grow your business. From build kits to age verification and carton-pack inventory tracking, a modern POS system has you covered.

DOWNLOAD: The Tobacco Store POS Buyers' Guide

How Profitable Is the Average Smoke Shop?

Depending on location, the economic environment, and the size of your shop, it can cost between $50,000 and $100,000 to open a smoke shop.

However, the estimated revenue of smoke shops is $300,000 per year. If you do things correctly, your store can make a lot of money. High revenue doesn’t always equate to increased profit.

The profit your store makes depends on your costs and overheads. You might incur higher costs if you want to sell high-end products like imported cigars and pipes. Some states charge more for licenses. 

Your best bet is to write a detailed business plan and cover all your bases, including startup costs, licenses, permits, registering your business, and projecting income and profits.

What Are Some of the Expenses Associated With Owning and Running a Smoke Shop?

1. Location

You need to analyze the potential location of your smoke shop. Think about ease of access, a budget-friendly space, and the licenses you need to open your store where you are.

If you’re in an affluent location, you might charge more for products, but you can expect to pay more for retail space. Do you need all that space? Perhaps you want to provide a space for people to smoke. Will you be able to accommodate them?

Malls aren’t a great idea because, although you’ll have high foot traffic, the mall dictates opening hours and there will be smoking restrictions. Depending on your contract, you might have to pay the mall a percentage of your gross annual sales.

Where will you open your store? Don’t rush into a decision without considering everything above.

2. Taxes

In the US, tobacco excise taxes, like sin taxes, are levied on each item sold by the producer and the wholesaler. For example, the current federal cigarette tax is $1.01 per pack. At the state level, the average cigarette tax is $1.81 as of 2018.

These costs drive up the retail price of goods for customers as retailers need to charge more to turn a profit.

You also have to consider the array of tobacco products you sell. In some states, e-cigarettes and vape products are subject to a 40 percent tax rate. All of this without mentioning other taxes and your monthly tax returns.

That’s not to say your store can’t overcome tax issues. Ensure you stock top-selling brands and offer accessories like lighters, cases, ashtrays, hookahs, and more. Cigars are popular and, when promoted well, could be lucrative.

3. Equipment

A smoke shop is still a retail store, and you’ll need to kit it out in a way that’s inviting and convenient for shoppers. You’ll need furniture and specialized display cases that showcase your products. Countertop showcases can feature higher-end products, and glass showcases offer greater security and an expensive look.

You’ll need an up-to-date point of sale (POS) system and an internet provider to run your store and manage inventory. But a custom solution for your POS needs is preferable. Will you go for a server POS option and pay more up front, or a cloud POS solution where you pay a monthly subscription fee?

Beyond the standard POS hardware setup, you might want to consider barcode label printers to print custom tags for individual products, and ID scanners to facilitate age verification.

4. Marketing

Easily forgotten, it’s essential to factor marketing dollars into your budget. You need to build a marketing plan — factor in the initial outlay for promoting your store opening and then ongoing costs to bring customers in. Think about pre-opening signage, branded rugs, and artwork.

Will your tobacco store be unique? Will it feature a smoking cafe? Optimize your website for local traffic if you’re focused on showing up in local search results. Also, promote your uniqueness on social media. Build a following and showcase your local products.

Where and how you spend your marketing budget impacts potential profits. It might not be wise to pay for ads if you don’t know how to make the most of them. Conversely, a modern POS system provides marketing capabilities like loyalty programs and email marketing integrations.

5. Inventory

Robust inventory management can make or break your store. Don’t go overboard with initial inventory, but make sure your shelves are well-stocked with top-selling brands and that you invest in attractive displays.

What do your customers want to see based on your trends and market research? Once you know, you’ll have a better idea of what to stock. Then you can focus on inventory management.

POS Nation proudly works with hundreds of tobacco stores and cigar lounges nationwide. Our POS system is feature-rich yet customizable and scalable. You can take control of your inventory with features like carton-pack inventory tracking and loss prevention features. Want to discover more about our POS system specifically for tobacco stores? Talk with an expert today.

6. Staffing

You might want a small tobacco store that you can run yourself, but you’ll probably need some help if you're going to thrive. Keep in mind hiring costs, job ads, and training staff — which includes learning about all of your products. Health insurance, paid time off, and other benefits should be considered, too

You can use an integrated POS software system to streamline employee management with digital timecards, employee hourly totals and trends, payroll reports, and user permissions. You’ll be able to hire and retain great staff and give them an exceptional workplace experience.

How Can You Increase Profits and Reduce Costs?

Make It Easy To Shop

A convenient checkout process is necessary for any retail store, including smoke shops. If you’re going for a relaxed look in your store and selling high-end products, you don’t want a clunky checkout experience that doesn’t match the impression you’re trying to create.

Where you place products makes a difference. Make it easy for your customers to find the products they want. Also, consider impulse buys. Zippo lighters, ashtrays, and other smoking paraphernalia should be well-placed in the checkout space.

Build a Customer Database

Using your POS system, you can collect email addresses during checkout. The more data you collect on customers, the better you can personalize their experience. From there you can offer discounts and rewards.

You can also build trust with repeat customers. People who buy tobacco products are habitual; they need to replenish their tobacco products regularly. 

When your POS system has a customer loyalty and tracking feature,  you can see the time of day, week, or month your regulars visit, the items they buy, and how often they come in. You can use this data to send relevant event information and loyalty rewards to keep customers coming back. 

The Right Product Range

Your product range should reflect your customer base. Everything we’ve touched on above informs the products you might stock. You may want to target a niche crowd or diversify to satisfy a range of customers or niches to build a tribe.

Also, keep track of your top-selling categories and ensure your shelves are always stocked. Empty shelves are terrible, and customers will go elsewhere if they can’t get the tobacco products they want.

How Profitable Is a Smoke Shop? It’s All in the Details

Any business can be profitable with the proper research and execution. Smoke shops are profitable because tobacco is in demand. Also, next-generation products like vapes and e-cigarettes are helping tobacco stores stay relevant and sell to a new demographic.

A robust POS system is the ideal partner in your quest for profitability. POS Nation can be that partner.

With carton-pack inventory tracking, you can stop counting individual cigars and cigarette packs with carton-pack inventory tracking. Instead, your software will automatically record the status of cartons, packs, and boxes when you sell individual units.

You can verify the age of your customers, build kits, and make well-informed business decisions with prebuilt reports to analyze every aspect of your business and drive your bottom line. Finally, reduce shrinkage with our loss prevention features, so your profits stay in your pocket.

Check out our Tobacco Store 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.