The vaping industry has provided cigarette smokers with a healthier alternative, one that many smokers view as an aide to quitting cigarettes. As a result, vape shops have become highly popular over the past decade.
Despite its popularity, starting a vape shop isn’t just about knowing your e-liquids and mods but also about stepping into a market with its legal requirements, customer expectations, and trends. Don’t worry, though, this guide is designed to walk you through the basics of setting up your vape shop. We’ll cover an overview of the business, answers to common questions, and we’ll give you a roadmap for getting started..
Vape shops are specialty retail stores that sell electronic cigarettes, e-liquids, vape mods, and related products. These shops typically offer a wide variety of products they’ve strategically chosen for their quality and reputation and having a wide array of products helps customers explore and learn about new products. Vape shops typically don’t sell other tobacco products. Instead, it’s more common for these shops to just sell e-cigarettes and e-liquids.
Vape Industry Summary
The surge in popularity in the vaping industry resulted in the opening of many new vape shops, but it remains a relatively young market. This presents both opportunities and challenges when starting a vape business. According to IBISWorld research, there are over 9,500 vape shops in the United States as of 2022, generating a combined annual revenue of $8 billion.
Growth is expected to continue as vaping gains mainstream acceptance. However, the FDA plans to enact new regulations on e-cigarettes in 2023 that may impact vape shop products and operations. Keeping abreast of pending rules and adapting your inventory and services accordingly will be critical.
Steps To Start A Vape Shop
Step 1: Research the Market
Before you even think about setting up shop, you should ask two key questions: Is it legal to start one and is there a demand for a vape shop? Understanding the legal side helps you avoid potential roadblocks, like fines or even having to shut down. Finding out if there’s enough interest in vaping products in your area gives you a good idea of whether you’ll have customers.
The first step is determining whether there are any local zoning laws that prohibit or restrict vape shops in your area. Some communities are more difficult than others to open a vape shop, and you’ll want to know the landscape before investing too much time.
Once you have a good idea of the legal landscape, you want to be sure there are enough people to support a new vape shop. This involves collecting data on the number of people who vape in your area, the number of vape shops in the area, and the demand for vape products. You can gather this information by conducting surveys, analyzing competitors, and interviewing vape users in your area.
Once you have an overview of the market and industry trends, you’ll need to assess your strengths and weaknesses. Identify your competitive advantages and the unique selling proposition of your vape shop. What will be special about your shop that will lure customers to buy from you versus the competition?
Step 2: Write a Business Plan
Once you’ve tested the waters and found data that supports interest in a new vape shop, the next logical step is drafting a business plan. Think of this as your roadmap, showing where you want to go and how you plan to get there. For lenders, this document serves as proof that you’ve thought things through and have a solid strategy.
All of the sections need to be completed, but there are a few sections that will really grab a lender’s attention and you should spend a little extra time putting together.
In this section, you’ll outline why your vape shop will be a hit. This is where you’ll discuss the demand you’ve identified, the competitors, and your target market. This part tells the lender that you understand the landscape and are not just jumping in blindly. Explain how your vape shop will fill a gap in the market or offer a better product or service than existing businesses.
People often say that a good idea is only as good as the people executing it. Lenders agree. In this section, talk about who’s who in your business. Discuss the experience, skills, and roles of the owner(s) and any key employees. This gives the lender confidence that competent, capable folks are steering the ship.
Location can make or break retail businesses like a vape shop. Use this section to describe where you plan to set up shop and why it’s the right place. Mention things like foot traffic, nearby businesses, and ease of access. Lenders want to see that you’ve chosen a location that will attract customers, not just because it’s convenient for you.
If there’s one section a lender will zoom in on, it’s this one. You need to show how you expect the business to perform financially. Include forecasts for sales, expenses, and profits. You also need to know these numbers inside and out because a lender will ask questions. They want to make sure you’ve not only done your math but understand it as well.
Final Check Before Lender Presentation
Before taking your business plan to a lender, have someone else go through it, preferably someone with business or financial know-how. This isn’t about doubting your work but is about making it as strong as possible. They can ask questions you might not have considered, giving you the chance to refine your plan, before sitting across the desk from a lender.
Related: How to write a business plan
Step 3: Secure Funding
You’ve done your market research, and your business plan is polished. The next step is ensuring you have the money to make this dream a reality. Funding is a hurdle for most entrepreneurs, but by knowing your options and what each entails, you’re able to make a more informed decision.
Personal savings: Your first go-to source is your own bank account. It’s the quickest and least complicated way to fund your venture. But let’s be realistic; it is expensive to outfit a new retail store, so personal savings might not cover everything.
Bank loans: After personal funds, banks, and credit unions are usually the next most popular sources of funding. These institutions usually require borrowers to invest at least 15% of their own money into the project, in addition to a good credit score and sufficient collateral. If a lender considers the loan to be too risky, they might opt for an SBA (Small Business Administration) business loan guarantee, which can make it easier for small businesses to secure loans.
Friends and family: Another source is friends and family. Yes, they believe in you, but mixing business and personal relationships can be tricky. So, if Aunt Susan is chipping in, make sure to put everything in writing. Spell out the terms clearly to avoid misunderstandings down the road.
Microloans: If your funding needs are on the lower side, or if traditional lenders are out of reach due to credit issues, microloans are an option. They’re smaller loans, often provided by local economic development organizations, that are accompanied by business training.
Step 4: Acquire & Build Out the Shop
You’ve tackled market research, nailed down your business plan, and rounded up your funding. Now it’s time to get your hands on a brick-and-mortar location. It’s like going from drawing board to reality, where all your careful planning starts to take physical shape.
Your business plan already tells you who your target market is, so choose a location that makes sense for those customers. As a reminder, before you sign any contracts, make sure your funding is in place. It’s not uncommon for funding to stall, or you could even get a “no” at the last minute. Double-check that the area is zoned for a vape shop too, so you have any legal hiccups later on.
Once the keys are in your hand, it’s time to build a shop layout that’s clean, comfortable, and easy to navigate for customers. You’ll need display shelves, counters, and other equipment to turn that empty room into a vape shop.
Related: Choosing a business location
Step 5: Register the Business
After all the planning and preparation, it’s now time to make your vape shop officially a business. Registering your business is more than just filling out paperwork. It’s also setting the legal foundation for your venture. Each state has its own rules, so make sure to check your local regulations.
Choose a business structure: First off, decide on a business structure. You’ve got four options here: sole proprietorship, general partnership, corporation, and Limited Liability Company (LLC).
- Sole proprietorship: This is quick to set up and costs less than the other options. However, your personal assets could be at risk if the business runs into financial trouble.
- General partnership: If you’re starting the shop with someone else, a general partnership might make sense. Just like a sole proprietorship, it’s easy to set up but lacks protection for your personal assets.
- Corporation: This is a more complex structure that provides personal liability protection but involves higher costs and more administrative requirements.
- Limited Liability Company (LLC): This is a hybrid that offers the liability protection of a corporation and the ease of operation of a sole proprietorship or partnership.
Given the potential for liability risk in a vape shop, many lean towards LLCs for their flexibility and liability protection.
Related: Comparison of business structures
Forming an LLC sounds complicated and expensive, but using an entity formation service guides you through the process so you know it was done right.
Some popular LLC formation services include:
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Business name registration: After registering the business structure, you may need to register your business name. This process will vary depending on what business structure you pick. Sole proprietors and partnerships will often be required to register a “Doing Business As” (DBA), while corporations and LLCs register with the state during the formation process.
During this time, it’s also a good idea to check if the name you want is available as a web domain, even if you’re not ready to set up a website yet.
Obtain business licenses and permits: Vape shops must comply with federal, state, and local regulations. These can include general business licenses, sales tax permits, and specific permits related to the sale of tobacco or vaping products (normally a Tobacco Retail License).
The FDA regulates all tobacco and vaping products, so you’ll need to familiarize yourself with these regulations as well. A few of these regulations include:
- Checking the photo ID of any customer who looks under 27 years of age
- Selling only to customers who are of age
- Not giving out free samples of products, parts, or components
Individual states also have their own rules regarding the sale of e-cigarettes and tobacco products, so be sure to research those as well.
In addition to vape-specific requirements, there will also be general business registrations to consider, such as a local business license, sales tax permit, Employer Identification Number, and Occupancy Permit.
Step 6: Stock Inventory
The next step in starting a vape shop is to find suppliers to stock the shelves. With the increasing demand for vaping products, the market is flooded with numerous suppliers offering their services. However, as a vape shop owner, you need to ensure that you are working with reputable suppliers that can provide you with high-quality products.
Start by searching the internet for wholesale vape suppliers. Websites like Alibaba have directories of manufacturers, distributors, and factories that specialize in vape products. You can also find specific vape supply companies like Wholesale Vapor or VaporBeast that offer a wide variety of products.
The quality of the products you sell will affect your shop’s reputation. So, make sure to verify the quality of the products a supplier offers before making any orders. You can do this by reading reviews, asking for samples, or checking if their products have been tested for quality. You can also reach out to other vape shops to ask for recommendations. Once you have a shortlist of potential suppliers, you can reach out to them to discuss their products and services.
Step 7: Hire Staff
As a new vape shop owner, hiring employees is an important step that comes with legal obligations. Before you start hiring, you need to be aware of the legal requirements and financial implications involved.
To legally hire employees in the U.S., you must first obtain an Employer Identification Number (EIN) from the IRS. This unique number is used for business tax filings and to report information about your employees to state agencies.
Next, ensure that all potential hires are eligible to work in the U.S. You’ll need to verify each employee’s identity and employment authorization using Form I-9.
In terms of state reporting, each state has different requirements for reporting new hires, so be sure to check with your local Department of Labor for specific guidelines.
Most states also require businesses to carry worker’s compensation insurance, which provides benefits to employees who suffer work-related injuries or illnesses.
Last, familiarize yourself with labor laws, which regulate wages, hours, safety, and health standards. These laws protect both employers and employees, and it’s essential to comply with them to avoid legal issues.
Step 8: Create a Marketing Strategy
As you prepare to open your vape shop, it’s important to consider effective marketing strategies.
Social media is one popular marketing tool vape shops use to build brand awareness and interact with customers. Creating accounts on platforms like Facebook and Instagram enables promoting products, sharing content, and fostering community. Email newsletters that offer deals and information help retain patrons.
Loyalty programs with points, rewards, and special offers encourage repeat business. Sponsoring local events like concerts or festivals gets brand exposure to new audiences while supporting the community.
Search engine optimization through keyword-optimized websites and content improves findability online. Also, claiming your business on relevant online business directories is another important channel. This includes not only Google Business Profile but also other popular directories like Yelp or Yellow Pages. This can improve your online presence and make it easier for potential customers to find your shop.
Step 9: Prepare to Open!
After securing your location and inventory, there are several additional steps you’ll need to take before opening your vape shop:
Business insurance: This is important for protecting your business from potential risks. You’ll need to consider several types of insurance, including general liability, product liability, and property insurance. We recommend getting at least three insurance quotes, including local insurance agents and online providers like Coverwallet or Hiscox to get the best coverage and price.
Setting up bookkeeping: Good financial management is key to the success of your business. Invest in solid bookkeeping practices from the start. This will help you track expenses, manage cash flow, and prepare for tax time. You may want to consider using accounting software like Wave Accounting (FREE) or Quickbooks.
Opening a bank account: A business bank account will help you keep your personal and business finances separate. It also adds a level of professionalism when dealing with vendors and customers.
Setting pricing: Carefully determine your pricing strategy. Consider factors like product costs, competition, and desired profit margins. Be competitive while maintaining profitability.
Joining industry associations: Associations like the Smoke-Free Alternatives Trade Association (SFATA), Vapor Technology Association (VTA), and the American Vaping Association (AVA) can provide valuable resources, networking opportunities, and advocacy support.
Preparing for your grand opening: Plan an event to celebrate your new vape shop. This could include special promotions, giveaways, or even inviting a local DJ or band to play.
Common Questions When Starting A Vape Shop
How much does it cost to start a vape shop?
Starting a vape shop involves several upfront costs that potential owners should be aware of. While the total cost can vary depending on factors like location and size, expect an initial investment of approximately $50,000 to $100,000.
Here’s a breakdown of the key expenses you can expect:
Location costs: The cost of securing a suitable location for your vape shop can vary significantly based on factors like the city, neighborhood, and size of the space. In many cases, you’ll need to pay an initial deposit to secure the lease. This deposit can range from a few thousand dollars to several months’ worth of rent upfront. Additionally, consider expenses for interior renovations or customizations to create an appealing store layout.
Business insurance: The initial cost of business insurance for a vape shop depends on factors like coverage limits and your location. On average, you might expect to pay anywhere from $1,000 to $3,000 or more for your first year of coverage. This insurance typically includes general liability, property insurance, and potentially product liability coverage.
Marketing: Initial marketing costs can vary widely based on your strategy. Setting up a basic online presence, including a website and social media profiles, can cost several hundred dollars. If you plan to work with a marketing agency or run paid advertising campaigns, budgeting for a few thousand dollars for initial marketing efforts is reasonable.
Inventory: The cost of stocking your vape shop with inventory is one of the most significant expenses. The amount you need will depend on your business plan and the range of products you intend to offer. On average, the initial inventory cost for a small to medium-sized vape shop can range from $10,000 to $30,000 or more.
Equipment and fixtures: You’ll need display cases, shelves, cash registers, and other equipment to run your store. The cost can vary, but budgeting around $5,000 to $10,000 for these essentials is a reasonable estimate.
Licenses and permits: Obtaining the necessary licenses and permits to operate a vape shop can involve application fees and regulatory costs. These costs depend on your location but can range from a few hundred to a few thousand dollars.
Point of Sale (POS) system: To process sales efficiently, you’ll need a POS system, which includes hardware and software. Budget around $1,000 to $2,000 for a basic setup.
Miscellaneous expenses: Factor in additional expenses like signage, security systems, and initial office supplies. These can add up to a few thousand dollars.
Working capital: As a recommendation, it’s crucial to have three to six months’ worth of operating expenses on hand as a buffer. This ensures you can cover ongoing costs like rent, utilities, and payroll until your business becomes profitable. Calculate your monthly operating expenses and multiply them by three to six to determine the required working capital.
Keep in mind that these are estimates, and the actual costs can vary.
How profitable is a vape shop?
The potential profit for a vape shop owner can vary widely depending on several factors, including location, business size, and market conditions. To estimate potential profits, let’s consider a simplified example based on common industry statistics.
Let’s say your vape shop sells a mix of products – devices, e-liquids, and accessories – and averages $50 per sale. If you have an average of 20 customers per day, your daily revenue would be $1,000. Over a month (30 days), this amounts to a revenue of $30,000.
When evaluating the profit potential of a vape shop, a useful formula is to estimate that the cost of goods sold (COGS) will be around 50% of revenue, operating expenses around 30% of revenue, and profit around 20% of revenue. For example, if a vape shop generates $360,000 in annual revenue, the COGS at 50% would be $180,000. Operating expenses at 30% of revenue would be $108,000. That would leave an estimated $72,000 profit or 20% of revenue.
Of course, profit margins can vary greatly depending on competition, location, inventory offerings, and operational efficiency.
What skills are helpful in running a vape shop?
Starting a vape shop doesn’t require a business degree, but certain skills and experiences can help the business become a success.
Vaping experience: A shop owner who also vapes will be well-prepared to choose quality products, make product recommendations to customers, and develop the shop to be attractive to its target market. A shop owner who can make personal recommendations is also more valuable to consumers.
Knowledge of vaping industry trends: The vaping industry can change quickly, and a store owner needs to stay aware of current trends to keep the store relevant and appealing to its customers.
Customer service skills: Customers often go to vape stores to learn about new products, which is harder to do when ordering products online. A shop owner who has excellent customer service skills will be able to ensure customers have positive experiences, encouraging them to return to the store.
Attention to detail: From choosing the right inventory to managing employee schedules, attention to detail is important in successfully starting and managing a vape shop business.
What is the NAICS code for a vape shop?
The NAICS code for a vape shop is 453991, which is classified as a Tobacco Store.
The NAICS code (North American Industry Classification System) is a federal system to classify different types of businesses for the collection and reporting of statistical data.
Vapor Technology Association