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Written by: Carolyn Young
Carolyn Young is a business writer who focuses on entrepreneurial concepts and the business formation. She has over 25 years of experience in business roles, and has authored several entrepreneurship textbooks.
Edited by: David Lepeska
David has been writing and learning about business, finance and globalization for a quarter-century, starting with a small New York consulting firm in the 1990s.
Published on May 11, 2023
Investment range
$63,900 - $114,000
Revenue potential
$273,750 - $547,500 p.a.
Time to build
3-6 months
Profit potential
$82,125 - $164,250 p.a.
Industry trend
Growing
Commitment
Full-time
Important points to remember when setting up your cigar shop:
You May Also Wonder:
Is a cigar shop profitable?
A cigar shop can be very profitable. You need a convenient location, good product offerings, and a marketing strategy to be successful.
What is the growth potential of a cigar shop?
You can grow your revenue by adding new products to sell. You can also expand to new locations, or even franchise your shop.
What type of business is a cigar shop?
A cigar shop is considered a tobacco shop which is NAICS code 453991. In more general terms, it’s a retail business.
Can you start a cigar shop on the side?
If you have limited hours, you can have a cigar shop as a side hustle, but you probably wouldn’t make much money. It’s better to run a cigar shop as a full-time business.
Trends
Challenges
Startup costs for a cigar shop range from $60,000 to $115,000. Costs include space rental and preparation, inventory, and an operating budget.
You’ll need a handful of items to successfully launch your cigar shop business, including:
| Start-up Costs | Ballpark Range | Average |
|---|---|---|
| Setting up a business name and corporation | $100 - $500 | $300 |
| Business licenses and permits | $500 - $1,000 | $750 |
| Insurance | $100-$500 | $300 |
| Website | $200 - $1,000 | $600 |
| Space rental | $2,500 - $5,000 | $3,750 |
| Store preparation including humidors | $25,000 - $50,000 | $37,500 |
| Operating budget | $10,000 - $20,000 | $15,000 |
| Marketing budget | $500 - $1,000 | $750 |
| Inventory | $25,000 - $35,000 | $30,000 |
| Total | $63,900 - $114,000 | $88,950 |
What you charge for cigars and other items will vary based on the types. These calculations will assume and average sale per customer of $30. Your profit margin should be about 30% after all costs.
In your first year or two, you might get 25 customers a day, bringing in $273,750 in revenue. This would mean $82,125 in profit, assuming that 30% margin.
As you gain traction, you might get 50 customers a day. With annual revenue of $547,500, you’d make a tidy profit of $164,250.
There are a few barriers to entry for a cigar shop. Your biggest challenges will be:
Now that you know what’s involved in starting a cigar shop, it’s a good idea to hone your concept in preparation to enter a competitive market.
Market research could give you the upper hand even if you’ve got the perfect product. Conducting robust market research is crucial, as it will help you better understand your customers, your competitors, and the broader business landscape.
Research cigar shops in your area to examine their products, price points, and customer reviews.
This should identify areas where you can strengthen your business and gain a competitive edge to make better business decisions.
You’re looking for a market gap to fill. For instance, maybe the local market is missing a cigar shop that sells a particular cigar or rare cigars, or a cigar lounge that hosts cigar clubs.
You might consider targeting a niche, such as premium cigars. This could jumpstart your word-of-mouth marketing and attract clients right away.
In addition to cigars, you could offer cigarettes, cigar related items, bags of tobacco, or even anything that you can find in a full blown smoke shop.
Prices should be based on market prices, but also on your costs to purchase the cigars.
Once you know your costs, use this Step By Step profit margin calculator to determine your mark-up and final price points. Remember, the prices you use at launch should be subject to change if warranted by the market.
Cigar smokers tend to be millennials and older, so you should focus your marketing on Instagram and Facebook.
You’ll need to rent out a storefront. You can find commercial space to rent in your area on sites such as Craigslist, Crexi, and Instant Offices.
When choosing a commercial space, you may want to follow these rules of thumb:
Here are some ideas for brainstorming your business name:
Once you’ve got a list of potential names, visit the website of the US Patent and Trademark Office to make sure they are available for registration and check the availability of related domain names using our Domain Name Search tool. Using “.com” or “.org” sharply increases credibility, so it’s best to focus on these.
Finally, make your choice among the names that pass this screening and go ahead and reserve your business name with your state, start the trademark registration process, and complete your domain registration and social media account creation.
Your business name is one of the key differentiators that sets your business apart. Once you pick a name, reserve it and start with the branding, it’s hard to switch to a new name. So be sure to carefully consider your choice before moving forward.
Here are the key components of a business plan:
If you’ve never created a business plan, it can be an intimidating task. You might consider hiring a business plan specialist to create a top-notch business plan for you.
Registering your business is an absolutely crucial step — it’s the prerequisite to paying taxes, raising capital, opening a bank account, and other guideposts on the road to getting a business up and running.
Plus, registration is exciting because it makes the entire process official. Once it’s complete, you’ll have your own business!
Your business location is important because it can affect taxes, legal requirements, and revenue. Most people will register their business in the state where they live, but if you are planning to expand, you might consider looking elsewhere, as some states could offer real advantages when it comes to cigar shops.
If you’re willing to move, you could really maximize your business! Keep in mind, it’s relatively easy to transfer your business to another state.
Business entities come in several varieties, each with its pros and cons. The legal structure you choose for your cigar shop will shape your taxes, personal liability, and business registration requirements, so choose wisely.
Here are the main options:
We recommend that new business owners choose LLC as it offers liability protection and pass-through taxation while being simpler to form than a corporation. You can form an LLC in as little as five minutes using an online LLC formation service. They will check that your business name is available before filing, submit your articles of organization, and answer any questions you might have.
Choose Your State
The final step before you’re able to pay taxes is getting an Employer Identification Number, or EIN. You can file for your EIN online or by mail or fax: visit the IRS website to learn more. Keep in mind, if you’ve chosen to be a sole proprietorship you can simply use your social security number as your EIN.
Once you have your EIN, you’ll need to choose your tax year. Financially speaking, your business will operate in a calendar year (January–December) or a fiscal year, a 12-month period that can start in any month. This will determine your tax cycle, while your business structure will determine which taxes you’ll pay.
The IRS website also offers a tax-payers checklist, and taxes can be filed online.
It is important to consult an accountant or other professional to help you with your taxes to ensure you are completing them correctly.
Securing financing is your next step and there are plenty of ways to raise capital:
Bank and SBA loans are probably the best option, other than friends and family, for funding a cigar shop business. You might also try crowdfunding if you have an innovative concept.
Starting a cigar shop business requires obtaining a number of licenses and permits from local, state, and federal governments.
Federal regulations, licenses, and permits associated with starting your business include doing business as (DBA), health licenses and permits from the Occupational Safety and Health Administration (OSHA), trademarks, copyrights, patents, and other intellectual properties, as well as industry-specific licenses and permits.
You’ll need a tobacco license and may be required to have other industry specific licenses at the state and local levels.
You may also need other state-level and local county or city-based licenses and permits. The license requirements and how to obtain them vary, so check the websites of your state, city, and county governments or contact the appropriate person to learn more.
You could also check this SBA guide for your state’s requirements, but we recommend using MyCorporation’s Business License Compliance Package. They will research the exact forms you need for your business and state and provide them to ensure you’re fully compliant.
This is not a step to be taken lightly, as failing to comply with legal requirements can result in hefty penalties.
If you feel overwhelmed by this step or don’t know how to begin, it might be a good idea to hire a professional to help you check all the legal boxes.
Before you start making money, you’ll need a place to keep it, and that requires opening a bank account.
Keeping your business finances separate from your personal account makes it easy to file taxes and track your company’s income, so it’s worth doing even if you’re running your cigar shop business as a sole proprietorship. Opening a business bank account is quite simple, and similar to opening a personal one. Most major banks offer accounts tailored for businesses — just inquire at your preferred bank to learn about their rates and features.
Banks vary in terms of offerings, so it’s a good idea to examine your options and select the best plan for you. Once you choose your bank, bring in your EIN (or Social Security Number if you decide on a sole proprietorship), articles of incorporation, and other legal documents and open your new account.
Business insurance is an area that often gets overlooked yet it can be vital to your success as an entrepreneur. Insurance protects you from unexpected events that can have a devastating impact on your business.
Here are some types of insurance to consider:
As opening day nears, prepare for launch by reviewing and improving some key elements of your business.
Being an entrepreneur often means wearing many hats, from marketing to sales to accounting, which can be overwhelming. Fortunately, many websites and digital tools are available to help simplify many business tasks.
You may want to use industry-specific software, such as Bepoz, LINGA, or KORONA, to manage your inventory, purchases, and sales.
Website development is crucial because your site is your online presence and needs to convince prospective clients of your expertise and professionalism. You can create your own website using services like WordPress, Wix, or Squarespace. This route is very affordable, but figuring out how to build a website can be time-consuming. If you lack tech-savvy, you can hire a web designer or developer to create a custom website for your business.
Your customers are unlikely to find your website, however, unless you follow Search Engine Optimization (SEO) practices. SEO will help your website appear closer to the top in relevant search results, a crucial element for increasing sales.
Make sure that you optimize calls to action on your website. Experiment with text, color, size, and position of calls to action such as “Buy Now” or “Order”. This can sharply increase purchases.
Here are some powerful marketing strategies for your future business:
Unique selling propositions, or USPs, are the characteristics of a product or service that sets it apart from the competition. Customers today are inundated with buying options, so you’ll have a real advantage if they are able to quickly grasp how your cigar shop meets their needs or wishes. It’s wise to do all you can to ensure your USPs stand out on your website and in your marketing and promotional materials, stimulating buyer desire.
Global pizza chain Domino’s is renowned for its USP: “Hot pizza in 30 minutes or less, guaranteed.” Signature USPs for your cigar shop business could be:
You may not like to network or use personal connections for business gain. But your personal and professional networks likely offer considerable untapped business potential. Maybe that Facebook friend you met in college is now running a cigar shop business, or a LinkedIn contact of yours is connected to dozens of potential clients. Maybe your cousin or neighbor has been working in cigar shops for years and can offer invaluable insight and industry connections.
The possibilities are endless, so it’s a good idea to review your personal and professional networks and reach out to those with possible links to or interest in cigar shops. You’ll probably generate new customers or find companies with which you could establish a partnership.
You will likely need workers to fill various roles. Potential positions for a cigar shop business include:
At some point, you may need to hire all of these positions or simply a few, depending on the size and needs of your business. You might also hire multiple workers for a single role or a single worker for multiple roles, again depending on need.
Free-of-charge methods to recruit employees include posting ads on popular platforms such as LinkedIn, Facebook, or Jobs.com. You might also consider a premium recruitment option, such as advertising on Indeed, Glassdoor, or ZipRecruiter. Further, if you have the resources, you could consider hiring a recruitment agency to help you find talent.
The popularity of cigars is growing, as is the size of the cigar industry. Cigar shops are great places for cigar aficionados to unite, and your own shop could be very profitable for you. It takes an investment to get started, but you should earn a healthy return on that investment over time.
You’ve got the business savvy now, so you’re ready to light up your community with your own successful cigar shop!
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