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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 31, 2022
Updated on November 23, 2023
Investment range
$23,550 - $48,100
Revenue potential
$200,000 - $502,000 p.a.
Time to build
1 – 3 months
Profit potential
$60,000 - $150,000 p.a.
Industry trend
Growing
Commitment
Full-time
A hookah lounge, or shisha lounge, is a relaxing place people visit to smoke tobacco through a water pipe. Hookah lounges have been popping up across the US and around the globe, with the global hookah industry set to double by 2030.
If you’re a hookah fan, or just enjoy providing a chill environment, it could be a great time to get in on the action and start your own hookah lounge. You can have fun, help others have a great time, and make good money.
But before you fire up the pipes, you’ll need to know the business launch process. Luckily, this step-by-step guide will expand your knowledge and put you on the path to hookah success.
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Starting a hookah lounge has pros and cons to consider before deciding if it’s right for you.
Trends in the hookah lounge industry include:
Challenges in the hookah lounge industry include:
Startup costs for a hookah lounge range from $23,000 to $48,000. Costs include the space rental, space preparation, and hookah equipment and supplies. They also include a liquor license and liquor inventory.
You’ll need a handful of items to successfully launch your hookah lounge business, including:
| Start-up Costs | Ballpark Range | Average |
|---|---|---|
| Setting up a business name and corporation | $150 - $200 | $175 |
| Business licenses and permits | $100 - $300 | $200 |
| Insurance | $100-$300 | $200 |
| Business cards and brochures | $200 - $300 | $250 |
| Website setup | $1,000 - $3,000 | $2,000 |
| Space rental | $2,000 - $4,000 | $3,000 |
| Space preparation | $10,000 - $20,000 | $15,000 |
| Hookah equipment and supplies | $5,000 - $10,000 | $7,500 |
| Liquor license and liquor inventory | $5,000 - $10,000 | $7,500 |
| Total | $23,550 - $48,100 | $35,825 |
Hookahs are usually priced at about $20 an hour. Your profit margin after all costs should be about 30%.
In your first year or two, you might serve 20 hookahs a day and serve $15 in alcoholic beverages to 10 people, bringing in $200,000 in annual revenue. This would mean $60,000 in profit, assuming that 30% margin. As your hookah lounge gains popularity, you might serve 50 hookahs a day and beverages to 25 people. With annual revenue of $502,000, you’d make a healthy profit of $150,000.
There are a few barriers to entry for a hookah lounge. Your biggest challenges will be:
Now that you know what’s involved in starting a hookah lounge, it’s a good idea to hone your concept in preparation to enter a competitive market.
Market research will give you the upper hand, even if you’re already positive that you have a perfect product or service. Conducting market research is important, because it can help you understand your customers better, who your competitors are, and your business landscape.
Research hookah lounges in your area to examine their products, price points, and customer reviews. You’re looking for a market gap to fill. For instance, maybe the local market is missing a hookah café that serves liquor or a shisha bar that offers food.
You might consider targeting a niche market by specializing in a certain aspect of your industry, such as herbal shisha or flavored tobacco.
This could jumpstart your word-of-mouth marketing and attract clients right away.
You’ll want to create a hookah menu with different flavor mixes. You could also serve liquor with the proper licensing. If you put in a kitchen, you could offer food as well.
Hookah prices range from $15 to $25 per hour. Check prices in your area to make sure you’re competitive. Your profit margin after supplies, rent, and overhead should be about 30%.
Once you know your costs, you can 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.
Your target market will be Hookah smokers, which are likely to be a younger crowd, so you should focus your marketing on TikTok and Instagram.
Choosing the right location for your hookah lounge is crucial for attracting customers and ensuring its success. Look for a spot in a high-traffic area with good visibility, such as a busy nightlife district or a college town.
Consider accessibility and convenience, ensuring that the location is easily reachable by public transportation and has ample parking. Additionally, assess the competition in the area and aim to differentiate your hookah lounge by offering unique flavors or a relaxing and comfortable atmosphere.
By strategically choosing the right location, you can establish a profitable and popular hookah lounge that offers a unique and enjoyable experience for customers and stands out in the competitive hospitality industry. You can find commercial space to rent in your area on sites such as Craigslist, Crexi, and Instant Offices.
Your business name is your business identity, so choose one that encapsulates your objectives, services, and mission in just a few words. You probably want a name that’s short and easy to remember, since much of your business, and your initial business in particular, will come from word-of-mouth referrals.
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 with domain registration and social media account creation. Your business name is one of the key differentiators that sets your business apart. Once you pick your company name, and start with the branding, it is hard to change the business name. Therefore, it’s important to carefully consider your choice before you start a business entity.
Every business needs a plan. This will function as a guidebook to take your startup through the launch process and maintain focus on your key goals. A business plan also enables potential partners and investors to better understand your company and its vision:
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’re planning to expand, you might consider looking elsewhere, as some states could offer real advantages when it comes to hookah lounges.
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 hookah lounge 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’re 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 hookah lounge business. You might also try crowdfunding if you have an innovative concept.
Starting a hookah lounge business requires obtaining a number of licenses and permits from local, state, and federal governments. For starters, you’ll need a tobacco license as well as a liquor license if you serve alcohol.
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 may also need 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 hookah lounge 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 Restaurant365, lightspeed, or toast to manage your menus, inventory, schedule, and invoices.
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 website builders. 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.
They are unlikely to find your website, however, unless you follow Search Engine Optimization (SEO) practices. These are steps that help pages rank higher in the results of top search engines like Google.
For your hookah lounge, the marketing strategy should focus on showcasing the unique, relaxing experience you offer, the quality and variety of your hookah flavors, and any additional amenities or services, such as a comfortable seating area, live entertainment, or specialty beverages.
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 hookah lounge 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 hookah lounge 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 hookah lounge business, or a LinkedIn contact of yours is connected to dozens of potential clients. Maybe your cousin or neighbor has been working in hookah lounges 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 hookah lounges. You’ll probably generate new customers or find companies with which you could establish a partnership.
If you’re starting out small from a home office, you may not need any employees. But as your business grows, you will likely need workers to fill various roles. Potential positions for a hookah lounge 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.
Hookah lounges have been common in the Middle East for centuries, and recently made their way to the United States. The hookah market is taking off, expected to double in the next decade. If you’re a hookah lover and want to share your passion with others, now is the right time to launch your own hookah lounge. You could help people enjoy their evenings out and make a good living at the same time.
Your business knowledge is fired up now, so it’s time to start buying water pipes and getting your successful hookah lounge off the ground.
Yes, a hookah lounge can be profitable. You’ll need to design an interesting hookah menu and create a great atmosphere, and you can be successful.
To differentiate your hookah lounge business from competitors, you can focus on providing a unique atmosphere or ambiance that sets your lounge apart. This can include offering a diverse selection of high-quality shisha flavors, creating a comfortable and inviting space with unique decor or lighting, or providing exceptional customer service.
It would be very difficult to start a hookah lounge on the side unless you have limited hours, which could seriously affect your ability to make a profit.
The music and entertainment you offer in your hookah lounge business will depend on your target audience and the atmosphere you want to create. Some popular options include playing ambient or chill-out music, hosting live performances or DJs, or offering karaoke or open mic nights.
There are several partnerships or collaborations you can establish for your hookah lounge business, such as partnering with local businesses to offer discounts or promotions, collaborating with musicians or performers to host special events, or working with suppliers to offer exclusive shisha flavors or products.
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