Vape Business: How to Start a Vape Shop & Everything There Is to Know

Vaping has taken the world by storm due to outstandingly optimistic industry projections. These forecasts have prompted the interest in starting a vape shop for an increasing number of entrepreneurs.

The vape market was valued at an estimated $12 billion towards the end of 2019. The market is expected to keep growing at a nearly 20% growth rate in the next seven years.

This growth has to do with the growing popularity of vaping products among millennial crowds, the ever-expanding product landscape & innovation, and the expansion of cannabis legalization laws.

Vaping was initially adopted as a nicotine alternative and tobacco replacement by an already significant market composed of tobacco smokers, particularly cigarette smokers. As the industry’s research and development efforts continued to advance, other industries became a part of the vaping market.

This includes but is not limited to enterprises in the cannabis and beauty industries.

Along with expansion came accessibility. Since 2014, vaping devices have become more economically accessible and increasingly effective. Not to mention that the rising price of traditional cigarettes has also beckoned forecasters to predict a bright future for the industry.

Sub-niches within the industry itself like vaping competitions and ‘cloud chasing’ also continue to expand.

Any observant entrepreneur can anticipate good business when it comes to the vaping industry.

Table Of Contents

1. A Step-by-Step Guide On How to Start a Vape Shop
2. Writing a Vape Shop Business Plan [What is a Business Plan?]
3. Financing Solutions for Your Vape Shop
4. How to Set Up Your Vape Shop’s Accounting
5. Vape Shop Regulations & Permits
6. Brick & Mortar or Online Vape Shop
7. Choosing the Right Location
8. How Much Does it Cost to Start a Vape Shop? [From Scratch and Vape Shop Franchise]
9. Choosing Your Vape Shop’s Product Range
10. Choosing Wholesalers and Distributors
11. Conclusion
12. References

A Step-by-Step Guide On How to Start a Vape Shop

Of course, certainty is a luxury. As it is to be expected with any industry, challenges like legal regulations and permits are a commonality, one that’s especially difficult to surpass for small businesses.

Revenue forecasts and industry developments are promising. These are the six steps you should take to before starting a vape shop:

1. Write a Business Plan

Before even thinking about starting your own business, vape shop, or otherwise, you should first define the type of business you want to lead. This part of the business plan is called the 'executive summary.'

This section is where you define your business, what it does, where it stands, where you envision your business being in the short and long term, and why it stands to be successful.

The executive summary is a critical element of a business plan because it allows you to understand what your business plans to achieve and how you plan to grow it. Still, most importantly, it will enable investors to digest what they are buying quickly.

In short, an executive summary should answer the what, where, and why questions to your business plan and are usually split up into six essential elements; mission statement, general-purpose, highlights, products & services, financial information, and goals.

While it seems like a lot of information, executive summaries are usually under two pages long.

After the executive summary, make sure you include the company overview of your vape shop. A good company overview will consist of what your business does, the industry it makes a part of, and your business's legal structure. Legal structures will also provide an ownership structure.

Other important information to have as a part of a business plan may include:

• Performing a market analysis.
• Describing products and services in detail.
• Explaining the marketing and sales strategies.
• Detailing a financial plan with projections.

2. Register Your Business

After writing a carefully thought out business plan, you should be able to list out clearly and efficiently all of your city’s or state’s vape licenses & permits.

The FDA has a clearly defined set of rules for selling e-cigarettes and other Electronic Nicotine Delivery Systems (ENDS). Since e-cigarettes are considered tobacco products by the FDA, complying with these regulations is part of your federal duty.

Because of the nature of a vape shop business, it’s also highly likely that you’ll need to comply with tobacco retailer and manufacturer regulations stipulated by the FDA.

This type of information can be incredibly challenging to understand if you don’t have experience setting up a tobacco-related business in your state. If this is the case, the best way to go about this step is to consult with a licensed lawyer, preferably one with experience in the vaping industry.

Once you have sorted through all the licenses and permits needed, you’ll be able to register your vape shop as a legal business entity.

3. Apply for Licenses and Permits

With the groundwork laid out in front of you( with help from your lawyer) and your business set up officially, you'll be able to apply for any licenses and permits.

Understand that licenses and permits needed may vary from state to state and city to city. It's essential to understand your location's regulations before applying for what you don't need or failing to apply to those you do need.

4. Purchase Business Insurance

One of the significant ‘turn-offs’ of setting up a business is paying for insurance that may not be needed later on. But it’s even a giant headache to encounter an issue later down the road and find yourself out of business because you decided not to have an insurance fee in your budget.

The value of your insurance policy will vary depending on variables like the value of your stock, property, and equipment.

Insurance policies for vape shops tend to be higher in cost than insurance costs for other businesses with the same coverage.

Your best bet at doing things is hiring an insurance broker specialized in policies for vape shops. This way, specialty items like e-juices and vaping devices will not be missed in your insurance policy.

5. Get Funding if Necessary

Starting a vape shop is a risky business, so acquiring financial funding from banks is a difficult feat, especially when insurance companies seem to confirm the high risk behind a business like a vape shop.

Even if you’re not venturing into the vaping industry, new businesses with no previous financial backing are quite challenging to get banks to offer up loans for. You’ll need to prove that the revenue streams you’re planning on attacking are indeed profitable.

Alternative funding might be required for a business venture like a brand-new vape shop. Some alternative funding sources may include:

• Crowdsourcing
• Bootstrapping
• Friend & Family Loans
• Joint Venture Business Plan

Perhaps the best way to fund your new vape shop is by convincing potential business partners that your idea is indeed profitable and an investment worth making. This could lead you straight into a joint venture with a partner that has more financial capacity and could potentially help run the business.

Sure, this would mean that you are no longer the owner of 100% of your vape shop. But it might be the case that it’s better being a part-owner than just a person with a dream.

If this is not a feasible option for what you envision, then it could be that it’s time to open up a business checking account and get yourself a business credit card.

This option allows your new vape shop to start building the kind of credit that will convince money lenders that your business is a good investment. However, this is strongly dependent on the credit card payments being made regularly and in full.

6. Open a Business Checking Account and Credit Card

Great advice that any successful business person will give you is keeping your business expenses separate from your personal expenses. As briefly discussed above, opening a business checking account is a great way to ensure that the two types of expenses are always kept separate.

Using your business credit card for personal expenses could result in running your business to the ground before you even know it and, not to mention, very unhappy business partners.

On the flip side:

Using your personal credit card for business expenses could mean that you run through your life savings swiftly. Resulting in a very unhappy partner and personal problems that you don’t want to experience.

A business bank account provides you with a safe place to store the money that’s coming into the business and a credit card with an easy way to pay employees and unexpected expenses.

Having a credit card for your vape shop also means that your credit score is slowly but surely becoming more and more solid. Which could result in better and bigger loans down the road.

Assuming this is a brand new business venture, it’s likely that credit card issuers will ask for your personal information instead of your business financial information. That doesn’t mean that this will be a personal credit card. It’s just a way for the entity to support the card's issuance and your ability to pay off the debt once you begin to make expenses.

Business credit cards also give you a clear advantage over any other payment form, especially if you’re starting with your vape shop. You have immediate access to money and debt, which is likely to be absent with other payment forms like cash or checks.

Writing a Vape Shop Business Plan [What is a Business Plan?]

Although we’ve already mentioned this step above, writing a business plan can be a bit of a challenge, especially if you don’t have experience doing so. 

On top of and after getting done with your executive summary, these are the six steps you should take when writing a professional business plan that adds value to your vape shop.

1. Construct a Company Overview

The company overview is a top-level view into what your company does and how it’s structured to do so. Unlike the executive summary, the company overview is more operations based, giving the reader a clear idea of how the vape shop operates rather than results and financial information as you would have on the executive summary.

It’s a good idea to divide your company overview into sections detailing what your business does, the industry and marketplace it operates in, and the legal structure of your vape shop.

The first section is the equivalent of an ‘elevator pitch.’ It should explain briefly what your vape shop does and how it stands out from the competition. This part gives the reader a general sense of your business.

When explaining your business industry, in this case, the vaping industry, make sure to detail how your vape shop fits in it. Rather than explaining the industry from scratch, the idea is for your investors to understand how their new investment fits into the whole scheme of things. The needs you are solving for your client and how you are solving them are both good questions to answer in this section.

The third and final section is the legal structure of your vape shop. There are four main types of business organizations; sole proprietorship, partnership, corporation, and limited liability company (LLC). The business organization or legal structure is primarily determined by your investor status and the type of business entity you’re running.

2. Perform a Market Analysis

Performing a market analysis is an essential step for any business that wants to succeed. It allows the business owner to determine if it's worth entering this industry and providing the investors with a sense of reliability in leading the enterprise.

Your business plan's market analysis section should include:

• An industry description.
• A market overview & characteristics.
• The size of the market and expected growth.
• The market share potential.
• Pricing.
• Entrance barriers.
• Results of your competitor research.

The industry description should include how big the market is to date. Include data on overall sales and average revenue, how the industry has behaved in the past five years, and how you think it will behave in the future. An excellent way to do this is to analyze the results of existing players and key competitors.

Preferably competitors that cater to the same niche within the vaping industry that you are planning to serve.

The target market overview is a description of the features that characterize your niche. Whether you're a B2B or a B2C business model is likely to play an important role and worth mentioning in this section.

Market size is also defined by who your client is, but especially by how many purchases your target client makes every year. This information will give you a good idea of how big your market is and how much it should grow in the coming years compared with the number of competitors that currently cater to the target buyer. Good questions to ask include:

• How often
• How much
• At what time
• At what price are the most purchases made

Market share potential can be gathered from the information collected and answered by painting a picture of how the market would look with and without your vape shop in the picture.

With a detailed understanding of your market, you’ll also be able to answer which market entry barriers are most prominent and the pricing point that makes the most sense to target from a strategic standpoint.

3. Define a Business Organizational Structure

The first thing to do here is to create an organizational chart that clearly defines who does what and where they stand in the organization. This plan determines who needs to make which decisions and why.

However, an organizational structure is different from an ownership structure. The ownership structure should also be mentioned here once more, along with a clear insight into owners and the board of directors' background.

Having a board of directors that can make unbiased decisions is incredibly important and will ultimately determine your business's hiring needs. For a small brick and a mortar vape shop, the board of directors and overall organizational structure is probably straightforward and usually dials down to a few owners who make all the decisions.

With more extensive operations like online retailers that handle hundreds of suppliers, teams are likely to grow. The organizational structure could include a marketing team, sales, product, and even a social media team.

Safe to say, this is something we're particularly familiar with here at Vape Ranger.

4. Description of Products and Services

The description of your product or service means to detail what you’re selling, how much it costs and different product/service options, the current status of your product/service offering, intellectual property policies, and sourcing strategy.

With a vape shop, this step prompts you to specify which products you plan to sell, how much you plan to sell them for and if you plan on having any ‘bundle offers,’ and who you plan to source them from.

Other variables like intellectual property and product status are essential to define but not necessarily the most important in a brick and mortar operation.

An online vape shop is probably more fitting for intellectual property policies and service offerings.

5. Build a Marketing and Sales Plan

A vape shop's marketing and sales plan include how you plan to advertise your shop, get the word out, and make sure that everybody in your area knows what products and brands you carry.

The marketing plan for an online vape shop does not fall far from the tree either.

The execution of the project, however, can be a lot more complex. You'll be required to define an online marketing strategy, Google Ads, and other SEO strategies that will drive organic traffic to your website. But the overall goal remains the same; getting the word out about your vape shop and making it convenient for customers to make a purchase.

Sales are made once the customer enters your local in a brick and mortar operation. From that point on, most of the sales responsibility is left to the salesman. Other features like store displacement and design can also have a significant impact on closing a sale.

Online vape shops are pretty similar, but the salesman is no longer a key player in closing the sale. This is where content marketing and clear, professionally written product descriptions, shipping rates, and conditions become essential. It is these that are the defining factors of closing a sale or an abandoned cart.

6. Create a Financial Plan with Estimated Projections

An entrepreneur with direction understands that financial balance will be the defining factor in the survival of any business. Like any other retail operation, a vape shop's financial status is defined by its revenue, in other words, by the sales generated.

A financial plan details the business's current economic state and the place where the company strives to be in the future. Actual data should support the future financial status of the vape shop.

The data used could be the information from the past few months' financial performances if your business has existed for a while now. If this is a brand new vape shop, then you'll have to work with market data, especially from your direct competitors.

Useful information that can be used to create a financial plan includes income, cash flow statements, balance sheets, accounts receivable and payable, and debt obligations.

The resulting information should split up into projected income statements, cash flow forecasts, balance statements, and a capital expenditure budget.

Financial projections should extend as far out as 12 months into the future.

However, this could vary depending on the type of business and the pace at which the industry grows. Longer-term financial goals should also be covered for 3-5 years.

By the time you're ready to create your financial plan and projections, you should also know what sources you'll be taking loans from. That said, you should be prepared to include a 'funding' segment in your financial plan. This segment should consist of information like funding amount needed at the moment, the funding required for the future, and the purpose and impact of your business's funds. Perhaps a portion of it is necessary for working capital, another percentage for inventory building, and so forth.

Explain financial projections with charts and graphs. This practice shows professionalism and builds trust in your investors.

Financing Solutions for Your Vape Shop

Financing can be the trickiest part of starting a vape shop. The risk of investment in the industry is considered high by most banks. This doesn’t stem far from reality because of the ever-changing regulations, laws, and bans that characterize the market.

Investing in a vape shop could be profitable, but the vaping industry is highly volatile and subject to ‘surprises.’ This could mean that a fine line separates a profitable business from a failing one.

This could make it hard to secure investors, let alone a bank loan. So many vape owners turn towards alternative funding sources and financing options:

1. Crowdfunding

Suppose your business idea is innovative enough or has a purpose that resonates with people. In that case, it might be a good idea to hop on a crowdfunding website like Indiegogo or Kickstarter. If you don’t think your vape shop business plan is appealing enough, crowdfunding is also a great way to ask for financial help from peers, friends, and family that are not ready to become leading investors.

2. Peer-to-Peer Lending

Peer-to-Peer lending websites are businesses that hand out business loans with higher interest rates. Because of the volatility associated with the vaping industry, a peer-to-peer option like Prosper.com or LendingClub.com could be the way to go.

3. Online Loans

Companies like SoFi, LendingTree, and QuickenLoans are very much like peer-to-peer lending sites. Still, the type of loans available seems to be much more varied, including options like mortgage, housing, and education loans.

4. Personal and Business Credit Cards

A business credit card would be the best option, but a credit line of $20k-$50k might be a challenging goal to achieve using a single credit card. Accumulating several credit cards could be an option, but extreme caution is advised.

How to Set Up Your Vape Shop’s Accounting

Accounting advice is best left to a professional accountant. So the best bit of advice we could give you is to acquire professional accounting services.

Like any other business, vape shops will have their own set of specific accounting needs. Industries behave differently from one another, so it would be wisest to seek accounting advice from professionals with expertise.

Apart from the accounting itself, you’ll also need to secure a Point of Sale Accounting solution.

POS is a type of service that usually includes real-time accounting/sales reports, customizable hardware and software to gather said information, and hardware & software support.

For a physical location, this could include things like IPad POS services or other hardware options. A few POS accounting businesses to keep in mind that offer vape shop specific services are ShopKeep, NCR silver, and LightSpeed.

Vape Shop Regulations & Permits

FDA’s sets of regulations around the vape industry are classified differently for three possible types of entities: manufacturers, retailers, and consumers.

Because your goal is to open a vape shop, then you are likely considered a retailer. Based on your business's nature, it's also highly likely that the FDA will consider you a 'tobacco retailer.' A label that will leave you subject to the following FDA regulations:

1. Only sell tobacco to customers age 18 and older.
2. Check the ID of everyone under age 27 attempting to purchase tobacco products.
3. Do NOT give away free samples, including components and parts.
4. Do NOT sell in a vending machine unless in an adult-only facility.
5. Do NOT sell, distribute, or display advertisements for any tobacco product without a health warning statement on the package.

If you classify as a manufacturer, you'll need to comply with an even longer list of rules.

Additionally, the list shared above should not be considered your only requirement. Laws and regulations change depending on the state you're located in, and if you're an online vape shop, this could include a list of various state laws. So make sure you are aware of all the state regulations that apply to your business.

Apart from regulations and requirements, licenses and permits are also an important feature to factor in. Without applying and being granted the proper permits, you are not legally allowed to sell. As with legal regulations, vape shop permits may also vary depending on the location of your business.

In some cases, the sales of vape products and tobacco products could be ruled by various regulations. We suggest becoming very familiar with the vape industry's rules and requirements in the CASAA, SFATA, and SBA official websites. It could also help visit the Secretary of State Webpage for the states you'll be operating in.

Brick & Mortar or Online Vape Shop

Opening either option will come with costs and obstacles that the other option does not have, so there isn’t a ‘right’ answer. It will ultimately come down to your vision and business plan. Here are a few key features to keep in mind when making the decision:

• The standard size for a physical location will oscillate between 500 and 1500 feet squared.
• Opening a physical location means you deal with your state’s regulations. Opening an online vape shop indicates that you also need to comply with your shipping destination’s legal requirements.
• Part of opening an online vape shop is designing an e-commerce website. There are certain advantages to making it a responsive website from the ‘get-go.’

Choosing the Right Location

Choosing the right location for a physical retail store is a key decision in the path to success. Key elements of choosing a successful location are:

1. Branding

This feature applies to both physical locations and online retailers. Ensuring that your brand identity and store/design are aligned plays a massive role in attracting the target audience.

2. Signage

Letting your target customer know that you are now open and where they can find you is also extremely important. This could involve hosting a series of events with physical locations, putting up signs, or distributing flyers in the neighborhood. This practice's online version would be devising an effective SEO strategy that lets online buyers know your vape shop exists.

Because the government and FDA strictly regulate the vaping industry, it's essential to understand the regulations regarding vape shops and signage before deciding to make a serious investment.

3. Size

There isn't a standard for the correct size in a vape shop. You might find competitors with physical locations starting at 500 feet squared and scaling up to 1500 feet square. The right size will be whatever makes sense for your business plan. How much inventory you are planning on keeping, how many people are in your vape shop at a time, how much can you afford in rent, and Covid-19 regulations for in-store purchases are all excellent questions to ask yourself before picking a location.

4. Competition In the Area

The book's oldest trick for successful retail stores is to stay as far away from the competition as possible. However, locating your store far away from customers isn't an option either. You'll have to make sure that your location has a healthy balance between customer accessibility and competition in the area.

These are few useful tools to research your competition:

• VaporSearchUSA allows you to search all the vape shops in your area.
• Yelp gives you access to competitor reviews.
• With CityFeet.com, you can look up commercial listings in your target area.

How Much Does it Cost to Start a Vape Shop? [From Scratch and Vape Shop Franchise]

A starting investment in a brand new vape shop could be anywhere between $25k-$50k. This amount could vary and potentially step out of the range provided depending on location, size, and overall starting budget.

If starting from scratch is not part of your business plan, it could be an exciting idea to invest in a vape shop franchise. It will depend on the brand you decide to go with, but a fair estimate of a starting investment could be anywhere between $10k-$20k.

Other potential physical or online vape shop costs include:

1. Rent
2. Licenses and Permits
3. Vape Shop Insurance Fees
4. Taxes
5. Payroll
6. Inventory
7. Marketing Costs

Choosing Your Vape Shop’s Product Range

A good rule of thumb is to try and stick with established, reliable brands. The vaping industry has been under the eye of the storm for a while, and consumers are continually purchasing brands they feel safe with. Strategically, it makes more sense to include as many well-known brands as possible in your inventory.

A good rule of thumb is to try and stick with established, reliable brands. The vaping industry has been under the eye of the storm for a while, and consumers are continually purchasing brands they feel safe with. Strategically, it makes more sense to include as many well-known brands as possible in your inventory.

Choosing Wholesalers and Distributors

A wholesaler is a person or company that sells goods in large quantities at low prices to retailers.

A distributor is an agent who supplies goods to retailers. Distributors could even provide your vape shop with goods directly from manufacturers.

You have two options to choose from. You could go with a local wholesaler that can sort out most of your brand requirements or try to buy directly from manufacturers. Whether you use a distributor or not is totally up to you.

Buying directly from manufacturers is more affordable but entails more work and hidden transportation costs. Buying from a wholesaler is perhaps the most comfortable option, but you won’t always find the brands you’re looking for.

Conclusion

The vaping industry seems to be on an upward trend and continues to grow. It is turning a few heads from investors and companies looking to take over.

That scenario is usually what ambitious entrepreneurs look for when starting a new business. However, opening a vape shop comes with a few legal obligations and increasingly difficult permits to get a hold of.

Critical steps to opening a successful vape shop include:

• Creating a business plan.
• Securing financial funding.
• Doing business with reliable suppliers.
• Using an accounting system that works.
• Applying for the proper licenses.

References

[1] E-Cigarette And Vape Market Size & Share Report, 2020-2027. (2020, February). Grand View Research.

https://www.grandviewresearch.com/industry-analysis/e-cigarette-vaping-market#:%7E:text=Report%20Overview,increasing%20product%20demand%20from%20millennials.

[2] Goldstein, C. (2020, October 22). How to Open a Vape Shop: The Step-by-Step Ultimate Guide. JustBusiness.Com.

https://www.justbusiness.com/starting-a-small-business/how-to-start-a-vape-shop

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