How to Open a Smoke Shop: 5 Key Steps for Success

You’ve crunched the numbers, and you’re thinking about opening a smoke shop. But before you dive in, make sure you have a plan.

Here’s why:

The vape and tobacco industry in the U.S. is highly competitive. According to one study, the number of smoke shops in the U.S. doubled between 2000 and 2017 (from 7226 to 14690 shops). And since 2017, new vape shops have grown by 21% every year.

For a new smoke shop, that means two things:

1. You will face competition.

2. You’ll have to differentiate your store for long-term success.

Fortunately, opening a smoke shop doesn’t require a huge investment of capital. Most new smoke shops have start-up costs of about $50,000 to $60,000 (with inventory being the largest expense).

Therefore, if you have a plan and the capital, you can launch a smoke shop and be profitable. And here’s the good news: A well-run smoke shop or vape store can be highly profitable. The best-run stores see profit margins of 20% or more.

Ultimately, successfully launching a new smoke shop starts with a clear plan. So, if you’re wondering how to open a smoke shop, we’ve compiled five areas to focus on:

1. Gather what you need

2. Create a business plan

3. Secure licensing

4. Build a marketing strategy

5. Choose the right products

1. What Do You Need to Open a Smoke Shop?

Even before you’ve filed for a business name for your smoke shop, it’s important to understand exactly what you’ll need.

One advantage of opening a smoke shop: The start-up costs are relatively low. You don’t need to fund an expensive build-out, and you can operate out of the majority of retail spaces for rent.

Here’s a quick list of the most important items you will need to start a smoke shop:

I. Funding

As a new smoke shop, you’ll need access to capital. However, relative to most brick-and-mortar businesses, smoke shops tend to be less capital-intensive. Some of the biggest start-up costs for a smoke shop include:

• Inventory – Start-up inventory costs average about $30,000. This would allow you to fully stock your store with tobacco/vape products and accessories.
• Rent / Deposit – Rent and a lease deposit averages $2,500. Important to note: You’ll need to pay rent even as you work on a build-out. So choose a space with minimal build-out needs.
• Legal Costs – This includes business incorporation, licensing, insurance and legal counsel. These costs average $500 to $1000.
• Build-Out – The cost to set up your store depends on its size, current state, and location. For example, you might need to build a desk and displays. Build-out costs an average of $500 to $2500 for new smoke shops
• Marketing / Website – Prepare to invest in a website (about $2000), grand opening promotions, social media promotions, and business cards. This cost averages about $3500.

Many tobacco retail businesses are self-funded. However, some choose loans, investors or crowdfunding to raise capital.

II. Licenses

Licensing requirements depend on the type of smoke shop you open. You’ll likely need a:

• Tobacco retailer license
• General retail license or permit
• Tax license (federal and state)

Talk to an attorney to learn about the legal requirements for starting a smoke shop.

III. Business Plan

We cover creating a business plan for your smoke shop in more detail below. However, this is absolutely one of the first steps. A business plan will help you become profitable as quickly as possible.

IV. Inventory

Purchasing inventory is an important step. But again, planning is critical. If you properly plan inventory, you’ll sell items more quickly and hit your break-even points faster

To create an inventory plan for your smoke shop, ask yourself these questions:

• Which products will attract customers?
• What products have high margins? What are the holding costs?
• What wholesalers will you work with?

V. Business Software

Finally, the software you use will be the heartbeat of your business. For example, a smoke shop POS system is an important tool (especially one with inventory and scan data reporting tools). You might also consider digital signage, inventory management, and sales analytics tools.

Also, find a provider that offers special rates on smoke shop credit card processing. A POS system with integrated payments like FTx POS may help.

2. Create Your Smoke Shop’s Business Plan

Start by creating a business plan. This plan provides direction for all phases of your business.

Most plans start with an executive summary. This section introduces your business, defines the opportunity, and provides an overview of important sections. Then, a smoke shop business plan typically includes information about:

I. Business overview

This section outlines key details about your business. Be sure to include type of shop, location, ownership structure, funding, and your short- and long-term plans.

Ask yourself:

• What is the purpose of my smoke shop?
• What opportunity did we see?
• Who is behind the business? (Investors, owners, etc.

II. Market research

II. Market research

Ask yourself:

• What gap in the market am I filling?
• Where do my customers live? What is their average income?
• Who are the biggest local competitors?

III. Marketing plan

Your smoke shop business plan should include information on how you will drive sales. This will provide a broad overview of the marketing tactics you will use.

Ask yourself:

• Who is my audience?
• What channels will I use to reach them? (Social media, advertising, roadside signage, etc.)
• Will you have a marketing budget?

IV. Financial planning

Define how you will fund your smoke shop, as you get started. Will you take on loans? Do you have investors? This section should also outline costs/expenses, revenue targets, and estimated cash flow.

Ask yourself:

• What is a conservative estimate of Year 1 sales?
• What are your tobacco business’s assets, liabilities, equity?
• What are my financing needs? Where will these funds come from?

V. Product Planning

Use this section to define the products you will sell, your pricing strategy, inventory costs, and if you will offer services. (We offer in-depth advice on selecting your smoke shop’s inventory mix below.)

Ask yourself:

• What products / product categories will you offer?
• How will your price your products? How does this compare to competitors?
• What are average margins for your product categories?

In addition, you might add information about your operations (smoke shop POS software, hiring needs, employee pay structure, hours of operation, etc.) and management structure. This latter step is necessary for multi-store locations or smoke shops with investors.

Then, once you have a business plan in place, you can start to look at securing a location and buying inventory.

3. Choose the Right Product Mix

Planning inventory for your smoke shop is a challenge. But if you’ve done market research, you’ll know:

• what gaps exist in the market
• who your target audience is
• the types of products your audience prefers

Some areas to consider include:

I. Market Gaps

You’ll be competing against other smoke shops, as well as convenience stores, groceries, and pharmacies. Therefore, product mix is really important.

One way to stand out: Find an undersaturated product category.

You might choose:

• Product category – Offer the best selection of an undersaturated category, e.g. disposable vapes.
• Product uniqueness – Offer custom formulations or premium brands of an underserved product category, e.g. custom e-juice.
• Brands – Identity premium brands that no one else sells, e.g. premium cigarettes or best-in-class vape mods.

II. Specialty

Pick a specialty. This will help you draw in an underserved target market.

Some of the best specialties for smoke shops include:

• Disposable vapes
• Premium cigars
• Budget-friendly cigarettes
• Vape accessories
• Glass and cannabis accessories

III. Margins

Cigarettes are a low margin product (with some estimates at 4-6% margins). In other words, they may help get people in the door, but you’ll have to sell in huge volumes to generate stable revenue.

Therefore, in your inventory plan, consider these options:

• Focus on higher-margin smoke shop products. Offer products with high margins (40%+). These could include vape mods, disposable vapes, beverages, CBD / kratom products, and smoking accessories.
• Drive up your average order value. Use upselling tactics to increase sales. You can also use loyalty programs and scan data rebates to offer bundled items.

Learn more. See how Smokers Choice increased sales by 400% using scan data incentives.

4. Secure Licensing and Legal Requirements

In many states, a shop selling tobacco, vape or cannabis products typically requires a special distributor license.

For example, 39 states require a special license for tobacco resellers. This certificate is required in these states if you sell tobacco and, in some cases, vape products. (Permitting requirements for vape products depend on the state.)

As a new smoke shop, this is one of the most important licenses you will need. Fines for not having the proper license can climb to $500 or more (and can cost thousands if not dealt with promptly).

In addition, focus on tax licensing, file your business entity, and secure any local, state and federal business permits.

5. Build A Marketing Plan

Marketing starts before you open your doors, and you should plan to invest in marketing throughout your first year. However, there are many things you can do that are no- or low-cost, like adding products to your website or doing local SEO campaigns.

Here are some must-do marketing activities after opening a smoke shop:

• Local search – Build a Google My Business profile and keep it up to date with hours of operation, phone number, and your store’s address.
• Social media – Create social profiles on platforms your audience uses. Facebook and Instagram, however, are two of the biggest priorities.
• Advertising / PR – Plan to make an initial brand awareness push with advertising. You might use search ads to appear higher in map listings, grow your brand locally on social media, or send a press release to local media.
• Review marketing – Create a plan to get reviews. For example, you might ask for an email at checkout, and then ask for reviews in a follow up email (and offer a coupon on their next visit). This will help improve your visibility in local map listings, as well as make your business more credibility to potential customers.
• Online store – Add products to your website. Many vape and tobacco customers are brand loyal, so they’ll check your shop’s website and see if you have what they’re looking for.
• Signage – Make your business recognizable and enticing from the road. Window displays, for example, can be a huge driver of walk-in traffic

Finally, you should plan a grand opening event. Use signs visible from the road to drive people in and focus on getting the word out on social media. For example, your social profiles should have a pinned post for your grand opening as the date nears.

Wrapping Up

Opening a smoke shop is an exciting process. But as any new business owner will tell you, it’s also nerve-wreaking. These steps, though, will help calm your nerves. Here’s why:

• You’ll have a plan that you can consult (and update) throughout your first year.
• This will provide a roadmap for becoming a successful business. You can make adjustments if needed.
• You’ll make better choices on POS providers, product mix, pricing, and more.
• You’ll begin to define what your brand is, who you serve, and what differentiates you from competitors.

Need some help getting started? FTx POS is a top tobacco store POS system, and we offer a wide range of tools to help tobacco retailers grow.