Tobacco may not be so great for your health, but that hasn’t stopped people from using it! This is due in part to smokeless tobacco options and the increased use of water pipes, or hookas. Tobacco shops now sell much more than just cigarettes and cigars, so the industry is now worth $14 billion and expected to grow in the coming years.
With your own tobacco shop, you could help others indulge while making a good living. You also have the option of starting a physical shop with a larger investment, or an online shop for less.
But before you jump in, there is so much you should know about starting a business. Luckily, this step-by-step guide will fire you up with all the information you need to get your successful tobacco shop up and running.
Step 1: Decide if the Business Is Right for You
Pros and cons
Starting a tobacco shop has pros and cons to consider before deciding if it’s right for you.
- Large Market – Demand for tobacco products remains strong
- Social Experience – Meet interesting people
- Product Variety – Candy, snacks, vapes to boost revenue
- Strict Regulations – Subject to government regulations
- Low Margins – Profit margins for a tobacco shop are low
Tobacco industry trends
Industry size and growth
Trends and challenges
Trends in the tobacco shop industry include:
- 33% of tobacco users aged 21-29 use non-combustibles, such as chew, dip, dissolvables, e-cigarettes, and snuff.
- Premium cigarettes and deep-discount cigarettes have shown the largest increases in sales in recent years.
Challenges in the tobacco shop industry include:
- Since the US raised the minimum age for tobacco from 18 to 21, more and more youth are using fake I.D.s to make purchases, presenting a risk for tobacco shops.
- New taxes have been imposed on “reduced-risk” tobacco products such as e-cigarettes, and the dangers of e-cigarettes are increasingly being exposed, which may cause sales for that product segment to decline.
How much does it cost to start a tobacco shop business?
Startup costs for an online tobacco shop are about $11,000. The largest cost is for an inventory of tobacco products. To start a brick-and-mortar tobacco shop costs about $60,000. Costs include shop rental and preparation, and an entire inventory for your shop.
|Start-up Costs||Ballpark Range||Average
|Setting up a business name and corporation||$150 - $200||$175
|Business licenses and permits||$100 - $300||$200
|Business cards and brochures||$200 - $300||$250
|Website setup||$1,000 - $3,000||$2,000
|Shop rental deposit||$0 - $5,000||$2,500
|Shop preparation||$0 - $3,000||$1,500
|Inventory||$10,000 - $50,000||$30,000
|Total||$11,550 - $62,100||$36,825
How much can you earn from a tobacco shop business?
Prices for tobacco products vary greatly. Packs of cigarettes cost around $7 depending on the brand and your location. In New York City the average pack costs about $14. Pipes, cigars, and other tobacco products have varying prices. For an online store, your profit margin should be about 40%. For a physical store, it will be about 10%. These calculations assume you’ll start with an online store.
In your first year or two, you could make $300 in sales per day, bringing in $110,000 in annual revenue. This would mean $44,000 in profit, assuming that 40% margin. As your site grows in popularity, sales could climb to $1,000 per day. With annual revenue of $365,000, you’d make a tidy profit of $146,000.
What barriers to entry are there?
There are a few barriers to entry for a tobacco shop. Your biggest challenges will be:
- The startup costs of inventory and the physical store
- Breaking into a competitive market
Related Business Ideas
If you’re still not sure whether this business idea is the right choice for you, here are some related business opportunities to help you on your path to entrepreneurial success.
Step 2: Hone Your Idea
Now that you know what’s involved in starting a tobacco shop, it’s a good idea to hone your concept in preparation to enter a competitive market.
Why? Identify an opportunity
Research tobacco shops in your area to examine their products, price points, and what sells best. You’re looking for a market gap to fill. For instance, maybe the local market is missing a shop that specializes in smokeless tobacco products like vape products or a pipe tobacco and cigar shop.
You might consider targeting a niche market by specializing in a certain aspect of your industry, such as hookah tobacco or electronic cigarettes.
This could jumpstart your word-of-mouth marketing and attract clients right away.
What? Determine your products or services
You can offer a wide variety of products in your shop including:
- Smokeless tobacco products
- Bags of tobacco and shells for rolling
- Cigarette rolling machines
- Chewing tobacco
- Pipe tobacco
- Hookah tobacco
- Electronic cigarettes
- Candy, gum, nuts, snacks
How much should you charge for tobacco?
Prices for tobacco products vary widely. Check competitor prices to find an average. For an online store, you should aim for a profit margin of about 40%.
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.
Who? Identify your target market
Your target market will be broad. You should spread out your marketing to include sites like TikTok, Instagram, and Facebook.
Where? Choose your business premises
If you decide to open a brick-and-mortar shop, you’ll need to rent a shop space. 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:
- Central location accessible via public transport
- Ventilated and spacious, with good natural light
- Flexible lease that can be extended as your business grows
- Ready-to-use space with no major renovations or repairs needed
Step 3: Brainstorm a Business Name
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:
- Short, unique, and catchy names tend to stand out
- Names that are easy to say and spell tend to do better
- Name should be relevant to your product or service offerings
- Ask around — family, friends, colleagues, social media — for suggestions
- Including keywords, such as “tobacco” or “tobacco shop”, boosts SEO
- Name should allow for expansion, for ex: “Jim’s Bakery” over “Jim’s Cookies”
- Avoid location-based names that might hinder future expansion
- Use online tools like the Step by Step Business Name Generator. Just type in a few keywords and hit “generate” and you’ll have dozens of suggestions at your fingertips.
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.
Step 4: Create a Business Plan
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:
- Executive Summary: Brief overview of the entire business plan; should be written after the plan is complete.
- Business Overview: Overview of the company, vision, mission, ownership, and corporate goals.
- Product and Services: Describe your offerings in detail.
- Market Analysis: Assess market trends such as variations in demand and prospects for growth, and do a SWOT analysis.
- Competitive Analysis: Analyze main competitors, assessing their strengths and weaknesses, and create a list of the advantages of your services.
- Sales and Marketing: Examine your companies’ unique selling propositions (USPs) and develop sales, marketing, and promotional strategies.
- Management Team: Overview of management team, detailing their roles and professional background, along with a corporate hierarchy.
- Operations Plan: Your company’s operational plan includes procurement, office location, key assets and equipment, and other logistical details.
- Financial Plan: Three years of financial planning, including startup costs, break-even analysis, profit and loss estimates, cash flow, and balance sheet.
- Appendix: Include any additional financial or business-related documents.
If you’ve never created a business plan, it can be an intimidating task. You might consider hiring a business plan specialist at Fiverr to create a top-notch business plan for you.
Step 5: Register Your Business
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!
Choose where to register your company
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 tobacco 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.
Choose your business structure
Business entities come in several varieties, each with its pros and cons. The legal structure you choose for your tobacco shop will shape your taxes, personal liability, and business registration requirements, so choose wisely.
Here are the main options:
- Sole Proprietorship – The most common structure for small businesses makes no legal distinction between company and owner. All income goes to the owner, who’s also liable for any debts, losses, or liabilities incurred by the business. The owner pays taxes on business income on his or her personal tax return.
- General Partnership – Similar to a sole proprietorship, but for two or more people. Again, owners keep the profits and are liable for losses. The partners pay taxes on their share of business income on their personal tax returns.
- Limited Liability Company (LLC) – Combines the characteristics of corporations with those of sole proprietorships or partnerships. Again, the owners are not personally liable for debts.
- C Corp – Under this structure, the business is a distinct legal entity and the owner or owners are not personally liable for its debts. Owners take profits through shareholder dividends, rather than directly. The corporation pays taxes, and owners pay taxes on their dividends, which is sometimes referred to as double taxation.
- S Corp – An S-Corporation refers to the tax classification of the business but is not a business entity. An S-Corp can be either a corporation or an LLC, which just need to elect to be an S-Corp for tax status. In an S-Corp, income is passed through directly to shareholders, who pay taxes on their share of business income on their personal tax returns.
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 ZenBusiness’s 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.
Step 6: Register for Taxes
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.
It is important to consult an accountant or other professional to help you with your taxes to ensure you’re completing them correctly.
Step 7: Fund your Business
Securing financing is your next step and there are plenty of ways to raise capital:
- Bank loans: This is the most common method but getting approved requires a rock-solid business plan and strong credit history.
- SBA-guaranteed loans: The Small Business Administration can act as guarantor, helping gain that elusive bank approval via an SBA-guaranteed loan.
- Government grants: A handful of financial assistance programs help fund entrepreneurs. Visit Grants.gov to learn which might work for you.
- Friends and Family: Reach out to friends and family to provide a business loan or investment in your concept. It’s a good idea to have legal advice when doing so because SEC regulations apply.
- Crowdfunding: Websites like Kickstarter and Indiegogo offer an increasingly popular low-risk option, in which donors fund your vision. Entrepreneurial crowdfunding sites like Fundable and WeFunder enable multiple investors to fund your business.
- Personal: Self-fund your business via your savings or the sale of property or other assets.
Bank and SBA loans are probably the best option, other than friends and family, for funding a tobacco shop business.
Step 8: Apply for Licenses/Permits
Starting a tobacco shop business requires obtaining a number of licenses and permits from local, state, and federal governments.
Every state has its own requirements to get a tobacco license. Check with your state to learn about the process.
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.
Step 9: Open a Business Bank Account
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 tobacco 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.
Step 10: Get Business Insurance
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:
- General liability: The most comprehensive type of insurance, acting as a catch-all for many business elements that require coverage. If you get just one kind of insurance, this is it. It even protects against bodily injury and property damage.
- Business Property: Provides coverage for your equipment and supplies.
- Equipment Breakdown Insurance: Covers the cost of replacing or repairing equipment that has broken due to mechanical issues.
- Worker’s compensation: Provides compensation to employees injured on the job.
- Property: Covers your physical space, whether it is a cart, storefront, or office.
- Commercial auto: Protection for your company-owned vehicle.
- Professional liability: Protects against claims from a client who says they suffered a loss due to an error or omission in your work.
- Business owner’s policy (BOP): This is an insurance plan that acts as an all-in-one insurance policy, a combination of the above insurance types.
Step 11: Prepare to Launch
As opening day nears, prepare for launch by reviewing and improving some key elements of your business.
Essential software and tools
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 Korona POS, PTechPOS, or NRS, to manage your purchasing, inventory, and payments.
- Popular web-based accounting programs for smaller businesses include Quickbooks, Freshbooks, and Xero.
- If you’re unfamiliar with basic accounting, you may want to hire a professional, especially as you begin. The consequences for filing incorrect tax documents can be harsh, so accuracy is crucial.
Some of your business will come from the casual passerby or online visitors, but you should still invest in digital marketing! Getting the word out is especially important for new businesses, as it’ll boost customer and brand awareness.
Once your website is up and running, link it to your social media accounts and vice versa. Social media is a great tool for promoting your business because you can create engaging posts that advertise your products:
- Facebook: Great platform for paid advertising, allows you to target specific demographics, like men under age 50 in the Cleveland area.
- Instagram: Same benefits as Facebook but with different target audiences.
- Website: 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.” This can sharply increase purchases.
- Google and Yelp: For businesses that rely on local clientele, getting listed on Yelp and Google My Business can be crucial to generating awareness and customers.
Take advantage of your website, social media presence, and real-life activities to increase awareness of your offerings and build your brand. Some suggestions include:
- Signage – Put up eye-catching signage at your store and website.
- Email marketing/newsletter – Send regular emails to customers and prospects. Make them personal.
- Start a blog – Start a blog and post regularly. Change up your content and share on multiple sites.
- Paid ads on social media – Choose sites that will reach your target market and do targeted ads.
- Pay–per-click marketing – Use Google AdWords to perform better in searches. Research your keywords first.
- Influencer marketing – Pay people with large social media followings to promote your tobacco shop. You can find micro-influencers with smaller followings and lower rates.
Develop your website
Website development is crucial because your site is your online presence and needs to convince prospective clients of your expertise and professionalism. 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.
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.
Focus on USPs
Unique selling propositions, or USPs, are the characteristics of a product or service that set 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 tobacco 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 tobacco shop business could be:
- Smoke up — we got you covered
- Come chill in our smoke and vape shop
- Smokeless tobacco products – reduce your health risk
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 tobacco shop, or a LinkedIn contact of yours is connected to dozens of potential clients. Maybe your cousin or neighbor has been working in tobacco 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 tobacco. You’ll probably generate new customers or find companies with which you could establish a partnership. Online businesses might also consider affiliate marketing as a way to build relationships with potential partners and boost business.
Step 12: Build Your Team
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 tobacco shop business include:
- Shop Clerks – make sales, customer service
- General Manager – ordering, inventory management, accounting
- Marketing Lead – SEO strategies, social media
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.
Step 13: Start Making Money!
The tobacco shop industry is thriving, offering a whole new world of products including smokeless tobacco products. If you have a love for smoking, with some hard work and a small investment, you can build a lucrative tobacco shop, whether online or in a brick-and-mortar location. It’s a great opportunity to be in control of your work life and your income while doing what you enjoy.
You’ve taken the first step by educating yourself, so it’s time to hit the ground running and launch your successful tobacco shop!
Tobacco Shop Business FAQs
How much does it cost to start a tobacco shop?
You can start an online tobacco shop for about $11,000, with the largest cost being for inventory. To start a physical tobacco shop, you’ll spend $60,000 or more for space rental and a full stock of shop inventory.
Is a tobacco shop profitable?
A tobacco shop can be profitable, but you need to have a high volume of sales because profit margins are low. The key is to offer the products that are most in demand and to have a great location.
What licenses do I need to start a tobacco shop?
Every state has its own requirements to get a tobacco license. You may need other business licenses and permits at the state and local levels. Check with your local governments for requirements or visit MyCorporation’s Business License Compliance page.
How should I price my tobacco products?
Prices for tobacco products vary. Check competitor prices to find an average. For an online store, you should aim for a profit margin of about 40%. For a physical store, your profit margin should be about 10%. Once you know your costs, you can use this Step By Step profit margin calculator to determine your mark-up and final price points.