Do you want to know how much money tobacco stores make yearly? If YES, here are 9 factors that determine the income & profit margin of cigarette store owners.
Whenever any entrepreneur wants to start a new business, one of the first questions they usually ask is how profitable the business is. This narrative also applies to entrepreneurs who are looking towards starting a tobacco business. They would want to know how much they are likely going to make annually from their tobacco store and the profit margin they should be expecting from their investment.
Estimated Profit Margin for a Cigarette Store
In 2019, revenues from tobacco tax amounted to 12.46 billion U.S. dollars. The forecast predicts a decrease in tobacco tax revenues down to 11.55 billion U.S. dollars in 2025. Total U.S. government revenue in 2018 was 3.5 trillion U.S. dollars.
While cigarettes are the top selling product, they rank second in gross profit dollar contribution. Cigarettes contributed 17.75 percent of the average gross profit dollars per store, ranking behind non-alcoholic packaged beverages which are first at 18.04 percent and $91,153.
As a matter of fact, in the United States, the minimum retail markups ranging from 6 to 25 percent are set by law in 25 of the 50 states, according to the Centers for Disease Control and Prevention. Combined with federal and state excise taxes on tobacco, these pricing minimums will reduce demand for cigarettes.
The truth is that there is no one-mold-fits-all when it comes to how much a tobacco store is expected to make. There are some factors that we are going to look into before giving an estimate of how much an average tobacco store can make yearly and these factors are;
Factors That Determine How Much Money Tobacco Stores Make
1. The Size of the Tobacco Store
You can hardly get the accurate amount a tobacco store is expected to make yearly if you do not know the size of the tobacco store. The amount a small road-side tobacco store is expected to make annually will be far different from the amount a standard tobacco store franchise will make annually even if they operate in same location.
Of course, the amount invested in a small roadside tobacco store is different from the amount invested in a large store hence the amount they will both make will be different.
2. The Location of the Tobacco Store
When it comes to setting up a new business, location plays a major role which is why feasibility studies and market survey are essential before settling for a location.
Usually, if your tobacco store is located in an area with good human and vehicular traffic, and you stock your shop a wide variety of tobacco from different brands, you may not have to struggle to get people to visit your shop and make purchase.
Note that the amount a tobacco store that is located in a low traffic area will make yearly will be lower when compared to the amount a tobacco store that is located in a high – traffic area will make.
So, if you want to make it big with your tobacco store business, then you must be ready to rent a store in a high traffic area, a location with the right demography of people. Please note that you are going to be paying more to rent a store in a high – traffic area as against the rent you are expected to pay in a low-traffic area.
3. The Brands of Tobacco Retailed in The Shop
Another important factor that will determine how much a tobacco store is expected to make yearly is the brands of tobacco that are retailed in the store.
According to 2017 sales data reported by Management Science Associates, Inc. (MSA), the seven most popular cigarette brands in the United States are Marlboro (40% market share), Newport (14%), Filtered Camel (8%), Pall Mall Box (7%), Maverick (2%), Winston (2%), and Kool (2%).
Marlboro is the most popular cigarette brand in the United States, with sales greater than the next seven leading competitors combined. The three most heavily advertised brands—Marlboro, Newport, and Camel—continue to be the preferred brands of cigarettes smoked by young people.
4. Other Related Products and Services Offered by the Store
Aside from retailing a wide range of tobacco brands, retailing other tobacco-related accessories as cigarillos, lighters, dissolvable tobacco products, electronic cigarettes (Vape Pen, e-Hookah, Hookah Pen), traditional smokeless tobacco products, waterpipes (Hookah, Shisha, Narghile, Argileh) et al will surely boost the amount you are expected to make from your tobacco store.
So also, if you offer additional services such as delivery services or providing cigar lounge, it will position you to earn more money from higher profit margin.
5. The Management Style of the Tobacco Store
Another key factor that will determine the amount a tobacco store is expected to make yearly is the management style of the tobacco store. Trust me, the results you will get when you have a good manager will be far greater than what an average or bad manager will get. Even if you give the managers same conditions to work and same products to retail.
6. The Business Model of the Tobacco Store
There are different business models that a tobacco store can adopt and these business model offers different results. For example, the amount a tobacco store that also runs online store make yearly will be different from the amount a strictly brick and mortar tobacco store will make yearly.
The amount a tobacco store that also sells franchise will make yearly will be far different from the amount a strictly one location walk-in tobacco store will make.
7. The Advertising and Marketing Strategies Adopted by the Tobacco Store
Another key factor that will determine the amount a tobacco store can make yearly is the advertising and marketing strategies adopted by the store. Trust me, there are several advertising and marketing strategies that can help a business increase their earnings.
But the results you will make will far outweigh the amount you spent on advertising and marketing. Of course, you don’t expect a tobacco store that is engaging in aggressive advertising and marketing to make same amount yearly with a tobacco store that is passive with its advertising and marketing.
8. The Source of The Tobacco That are Sold in the Store
When it comes to making profits from a business, the source of the products that are retailed plays a major role. For example, a tobacco store that get supplies directly from tobacco production companies will make more money than a tobacco store that get supplies from merchants and wholesalers. As expected, the merchants or wholesaler would have markup the products because they need to make their own profits.
9. The Number of Years the Business is in Existence
In business, the number of years you are in existence will go a long way to determine the amount you will make especially if the business is properly managed. This is so because you would have over the years win loyal customers.
For example, in your first fiscal year (FY1) you might make a hundred thousand dollars ($100,000), in your second fiscal year (FY2) you might make hundred and fifty thousand dollars ($150,000) and in your third fiscal year (FY3) you might make two hundred thousand dollars ($200,000). Interestingly, most businesses including tobacco store usually breakeven from the third year of operations.