How to Start a Vape Shop

Overview

How to Start a Vape Shop

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. Starting a vape shop of your own can be a rewarding business opportunity, but you’ll also need to be aware of the changes and regulations that are currently affecting the industry.

Business Overview

Vape shops are specialty retail stores that sell electronic cigarettes and related products. These shops typically offer a wide variety of products that they’ve strategically chosen for their quality and reputation. This wide array of products gives customers plenty of choices and helps them explore and learn about new products. Vape shops typically don’t sell tobacco products. Instead, it’s more common for these shops to sell e-cigarettes and e-liquids.

Customers choose to buy from vape shops for many reasons. These shops can help them to discover new products. While shopping in person, customers may have the chance to test products before buying them. Shop owners can serve as a source of valuable information, and retailers offer convenience and instant gratification over buying products from online stores.

Industry Summary

According to Grand View Research, the e-cigarette and vape market has been growing steadily, and that growth is expected to continue. In 2019, the global market reached a value of $12.41 billion. Grand View Research predicts that the industry will continue to experience a compound annual growth rate of 23.8% from 2020 to 2027. Increased demand from millennials should drive the market’s growth, and the increased availability of different e-cigarette products should also drive consumer spending.

In 2019, vape mods were more popular than other products, significantly driving sales. North American consumers also accounted for the majority of the vaping market. Vaping supplies and e-cigs are sold online and in retail stores, including drug stores, smoke shops, convenience stores, and specialty stores. These retail stores often help users to test out different items before purchasing them, a definite advantage for consumers who are new to the industry or who are looking to explore new products.

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Industry Trends

The vaping industry has experienced rapid growth, and many trends have evolved that are currently shaping the industry. According to The Green Fund, certain products have become particularly popular in 2020. Smaller vaping devices are in high demand, with consumers preferring more compact devices. This preference is reflected in manufacturing, as vape pens become smaller and smaller rapidly.

There’s also an increased demand for nicotine salts and flavored e-cigarettes. Nicotine salts have high levels of nicotine, but they remain a safer alternative to smoking cigarettes. Flavored e-cigarettes have been in high demand for years, and they’ve proven to be particularly appealing to younger consumers.

Even smartphone technology is playing an important role in the vape industry. Now, it’s possible to control new vape devices with Bluetooth technology. While this technology comes at a price, these smartphone-compatible vaporizers are fast and user-friendly.

This industry has also been affected by vape-related illnesses and the legal response to these threats, reports Vice. As vape-related illnesses and deaths rapidly occurred in the United States in 2019, vaping became highly politicized. While some of the illnesses were linked to black-market vape products, states and major cities began taking action to ban or restrict the sale of e-cigarettes and vaping products.

The FDA stated on December 20, 2019, President Trump signed legislation that increases the minimum age to buy tobacco products from 18 to 21. This legislation includes the sale of e-cigarettes and e-liquids.

Target Market

Vape shops market to vaping enthusiasts. These are often consumers who are already smokers and are looking for a healthier alternative, depending on the products that a shop stocks, it may cater to different target markets, like younger consumers seeking flavored or novelty products.

Skills, experience, and education useful in running a vape shop

Starting a vape shop doesn’t require a business degree, but certain skills and experiences can help the business to 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.

Checklist for Starting a Vape Shop

If you’re thinking about starting a vape shop, it’s important to do your research first. Here is a checklist to help you get started.

Step 1: Write a Business Plan

After coming up with the idea, the next step in starting your business should be to write a business plan. Not only will a bank require you to have a business plan, but multiple studies have shown that a business plan helps increase the odds of starting a successful business.

Related: How to write a business plan

Step 2: Name the Business

Finding the perfect business name can be challenging. Not only does the name have to resonate with your customers, but it also has to be available to use.

Step 3: Form a Business Entity

A business entity refers to how a business is legally organized to operate. There are four primary business entities to choose from, which include the sole proprietorship, partnership, corporation, and Limited Liability Company (LLC). Each type of entity has its own pros and cons, such as liability exposure, costs, and administrative requirements.

When deciding on which business entity is best for a vape shop, it normally comes down to the sole proprietorship and Limited Liability Company.

A partnership opens the owners up to unnecessary personal liability because if a partner does something to get the business sued, or runs off with cash from the business, the other partners are personally liable to repay. The corporation can be a good choice because it separates the business assets from the owner’s assets. If the corporation is sued or certain business debts can’t be paid back, the owners aren’t personally responsible to repay them. The downside to the corporation is that it is more complicated than all the other entities and requires more administration than the LLC. If you plan on raising a lot of investment though, the corporation is usually the better choice.

That leaves the sole proprietorship and LLC.

The sole proprietorship is the least expensive and easiest entity to start which is appealing. The downside is the owner is personally liable should anything happen to the business, which is an important consideration. The LLC offers the ability to operate as a sole proprietorship with the liability protection of a corporation. Depending on the state, the cost to form an LLC runs from $40 – $500, which is pretty inexpensive for protecting the owners from business-related lawsuits and certain debts.

Related: Guide to forming your LLC
 

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:


IncFile - $0 plus state fees & free registered agent for 1 year!

IncAuthority - $0 plus state fees & free registered agent the first year!

ZenBusiness - $49 plus state fees & free registered agent for 1 year!

Step 4: Select your Location

Rental costs will vary with the size of the space, location, and amenities. Spaces in high-traffic retail areas are preferable for vape shops. While these locations will cost more, the walk-in traffic will be beneficial. A shop in a high-traffic area can also help to generate public awareness of the business.

Related: Choosing a business location

Step 5: Apply for Business Licenses and Permits

A vape shop owner will need to abide by the FDA regulations that govern tobacco sales, which 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.

Related: Common business licenses, permits, and registrations by state

Step 6: Find Financing

Coming up with a good business idea and having the skills to run it are one thing, but getting the funding to start a vape shop is another. In order to get a loan, the borrower(s) will need to have good credit and be able to invest 15-25% of their money towards the total start-up costs.

Related: Finding the money to start a business

Step 7: Open a Business Bank Account

Keeping your small business and personal finances in separate bank accounts is important to track the income and expenses of your business and identify trends.
 
Many banks offer free business checking accounts, so be sure to find a cost-effective option for your business.

Step 8: Get your Marketing Plan in Place

Marketing is important both in promoting a new shop and in continuing to help that shop bring in new customers. Many vape shops use social media marketing, review sites like Yelp and Google, online advertising, print advertising, and even radio advertising to reach their target audiences. Marketing costs depend on the type of activity performed and the volume of marketing, too.

Related: Low-cost ideas to market a new business

One important marketing task is developing an online presence. A website developer may be out of the budget, but Wix makes it easy for non-technical people to get a website running quickly and affordably.

Step 9: Get Business Insurance

A vape shop needs several types of insurance for full coverage:
General liability insurance protects the businesses from expenses that could result if a customer is ever hurt while on the property.
Commercial property insurance protects the business against financial losses if the shop and its inventory are ever damaged or destroyed by an event like a fire.
Worker’s compensation insurance covers expenses like medical bills and legal fees that a business might face if an employee were hurt while working.

The cost to insure a vape shop will vary based on a number of factors like the size of the business, location, and the value of its inventory and equipment. To get the best idea of insurance costs, request quotes from multiple providers.

Related: Common types of insurance a business may need

Step 10: Hire Employees

A shop owner may be able to initially staff the store in its early days, but eventually, a shop owner will need to hire at least a couple of employees. Indeed reports that vape shop sales representatives earn an average of $9.00 per hour, though that can range from $7.25 to $13.50 per hour.

In addition to employee salaries, a vape shop will need to cover other expenses like workman’s comp, unemployment insurance, and paid time off.

Related: Hiring your first employee

Step 11: Set up an Accounting System

Setting up an accounting system is critical to the long-term success of your business.

Staying on top of taxes not only keeps the business out of trouble with the government, but the numbers can be used to track and monitor trends and cash flow in the business and maximize profits.

Related: Setting up the accounting for your business

The thought of accounting can be intimidating for a lot of new entrepreneurs. There are a number of ways of handling bookkeeping, from DIY to hiring a bookkeeper. These include:

- Pen and paper - Low expense, but difficult to track.
- Spreadsheet - Low expense, but easy to make errors.
- Accounting software - Medium expense, but owner typically inputs expenses. Some great accounting software programs include Freshbooks or Wave Accounting.
- Hire a bookkeeper - Higher expense, though very affordable at $100-$200 per month in most cases. A dedicated bookkeeper will probably save money because, in addition to handling all of the bookkeeping (so you can focus on the business), they also provide personalized tax advice and ensure the business is in compliance.

Find bookkeepers in your local area or use a service like 800Accountant.

How much does it cost to start a vape shop?

Starting a vape shop is relatively affordable, especially when starting a smaller shop. Plan to spend between $35,000 and $75,000 to start a small shop, with larger shops that cross into other types of inventory costing $100,000 or more.

Some of the startup costs for a vape shop include:
– Inventory such as vape pens, replacement coils, tanks, vape juice, vape batteries, chargers, etc.
– Shelving and displays
– Security system
– Computer and cash register or point of sale system (POS system)
– Signage

How much does a vape shop owner make?

Vaping business profits will depend on many variables, including the shop’s size and specialty, profit margins, years in business, and location. These shops can be highly profitable. According to Vapor Vanity, brick and mortar vape shop sales amounted to $26,000 per shop in 2015. Sales totaled more than $300,000 per year. This is before accounting for store expenses and employee salaries, but it is evidence of the demand for these products and the potential sales that a store could see.

Are there grants to start a vape shop?

It’s extremely rare to find a grant to start a vape shop. If you search for business grants, you will come across a lot of scams and misinformation. Occasionally an organization will offer grants to start a business, however, be skeptical and don’t provide any sensitive personal information or pay money to get more information.

Legitimate federal grants can be found at Grants.gov and you can check on your state’s economic development office to see if they have any grants available.

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.

Related: What is a NAICS code and how to find yours

Resources:
Vapor Technology Association

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