The demand for e-cigarettes is booming and around 2.2 million UK vapers use e-cigs on a regular basis, according to the ONS. Accordingly, the number of e-cigarette shops on the high street has risen by 445% in just six years and the figures are still growing.
If your entrepreneurial spirit has spotted a gap in the market in the form of a high traffic area and an opportunity to create a profitable business, then it's time to prepare a business plan and to assess the viability of creating a new vaping retail brand. There is plenty to consider before launching a new vaping business, although there are also different degrees of risk, depending on the model that you choose. The following are the main steps that you will need to consider.
1. Decide on your business model
Consider here whether you want to have a wholesale business or a drop shipping model. These are two very different business models and each has its own pros and cons. However, they are both valid options for any entrepreneur that doesn't want to be responsible for manufacture.
With a wholesale vaping model, you would buy the products at a discount and then sell them to your own customer base with a mark-up for profit. The margins can be good and sales are likely as the product will be recognised by the market, but it is usually necessary to order in bulk and to be responsible for supply.
The three business models available then are...
Bricks and mortar business
Most high streets now have vaping stores and these can be very successful, especially if the shop offers an engaging experience to customers with the opportunity to relax, try out new products and to build a relationship with the retailer. Expect to spend around £15k on set-up and remember that you don't need a traditional shop to sell direct; pop-up shops can also work well, as can attractive mobile units. Remember to have plenty of great inventory on display so that your customers buy 'with their eyes' and are never disappointed by a sold-out item. If you do opt for a traditional bricks and mortar business, it’s still crucial you have an online presence, even if it’s just to advertise your business to prospective shoppers.
E-commerce website (wholesale model)
It's worth knowing that 86% of UK customers choose to shop online and an e-commerce model works very well for vaping businesses. An e-commerce website will allow you to reach a national audience and keep your costs low, without the need for physical retail space if you prefer not to have it. You'll need to choose a website URL, organise hosting and, integrate an e-commerce platform such as Shopify. The website itself should reflect your brand and should include SEO-friendly copy, delivering intuitive user journeys that meet your target customers' expectations. The easiest way to do this is with specialist support of a website design freelancer or agency. Costs can be kept low by using a system such as Wordpress which uses plug-ins for functionality such as Shopify, email marketing and so forth.
E-commerce (dropship model)
With drop shipping, you remove the need to hold inventory yourself from the equation. The customer buys from you at the retail price that you set and you send the order to the wholesaler - at wholesale rates - for them to fulfil directly. You keep the profit margin between these two prices without the need to worry about fulfilment. Although it does hold a huge amount of stock, Amazon is one of the best-known examples of a business that does drop shipping. For entrepreneurs looking to set up a vape business, the initial investment and risks of dropshipping are lower but the margins are reduced significantly so you’re going to have to shift a lot of units to make a decent profit.
2. Secure your suppliers
If you are buying in your vaping products then you will need to secure the right manufacturers or suppliers to purchase from. Look for signs of other happy customers, trustmarks and accreditations and clear processes which demonstrate a quality business. You'll want to test the product too to confirm quality. Competition is high in the vaping retail industry, so you want to ensure that your product stands out in some way. Yes, you can sell a cheap product at the lower end of the market but margins are likely to be very tight. A high-quality product that stands out for its tastes and experience is likely to net you long-term and profitable repeat custom.
3. Get up to speed with tax
Register yourself as a business with HMRC and keep your books from day one, using a bookkeeper if you prefer. Ideally, use the services of an accountant so that you are operating in line with all relevant tax regulations and as a legitimate business.
4. Consider your brand and name
In this competitive industry, your USP is key. Sign up to the industry code of conduct to demonstrate your credentials, make sure your website is secure and join your local Chamber of Commerce if necessary, again, to signal that you are a trustworthy business. This will help you to create a meaningful and credible brand. Define your target audience after carrying out market research in your target geography or demographic. Work with a designer to create a logo and brand assets that will allow you to create ongoing print and digital marketing communications. Work with a copywriter to create branded key messages, and an online marketing expert to launch your online marketing campaigns and to build organic traffic through vape SEO.
5. Plan your finances
From rent and rates through to hosting, inventory, marketing, staffing and advertising, there are plenty of fixed overheads and variable costs to consider whenever you start a new business. You may decide to take a business course to get a handle on the typical costs and to learn how to budget and cash flow forecast accurately. How will you fund your business? Equity and cash are ideal, but many businesses will need to access business funding, angel investment, overdrafts and loans or other finance methods.
6. Think about staffing
It's natural to think about the full product range that you want to stock in any vaping business, but to really create engagement, the customer experience needs to be the major focus. Invest in great people if your business becomes large enough to accommodate extra staff. Train and reward your customer service staff so that they go above and beyond to offer a superb experience and to ensure that your customers come back for more. Consider offering live chat on your website as this can greatly boost conversions and engagement.
7. Prepare for marketing
Remember that many vaping customers start using e-cigs because they are trying to give up nicotine and traditional cigarettes. The more that you can understand their needs, the better you can serve your customers with products that suit them. This means learning about the electronics and chemistry behind the optimum e-cigarette experience. Once you really understand these aspects, you can craft a marketing strategy that satisfies the traditional 'P's' of marketing - price (not too low to retain margins and to position a quality product - aim for a 50% margin), people (your staff), place (your retail channel), product, promotion and PR.
You'll need a strong social media strategy but the good news is that it costs very little to create your Instagram, Twitter and Facebook business pages and to populate them with relevant content that resonates with your audience. Include testimonials, product launches, relevant content, competitions, images, events and more to bring your brand and its products to life with your target audience. Sponsorships can also work very well with this product; perhaps in line with a local bar, restaurant or leisure venue.
8. Consider regulations
Are you aware of the Tobacco Product Directive? Every vaping retailer - whether physical or online - must be compliant with the TPD and broader product health and safety rules. Under this directive, e-cig tanks can only have a 2mL max capacity. e-liquids that contain nicotine must not exceed 10mL in capacity and 20 mg/mL of nicotine strength. If you import your products, make sure they have been tested in approved UK labs which are MHRA registered.
You also need to be aware of the rules that govern advertising and packaging. For example, you cannot advertise in print publications or in unsolicited emails. Vaping products cannot be explicitly marketed as smoking cessation aids. Look at the Gov.UK website for a full list of the rules and regulations that apply to vaping businesses. You also need to know the regulations that relate to e-commerce generally, such as GDPR which regulates how customer data is used. Remember too to secure the right licenses if you are retailing third-party brands. Again, this information is online via the UK government website.
Get these steps in place and consider attending a business training course to ensure you cover all bases before launching in. With time, persistence and a solid strategy, you too could look forward to your own profitable vaping business.