As a vape shop owner, you should have passion for what you do, especially since your love of the industry is one factor in your long-term success. But you can’t run your business purely on passion; you need to know how to make money from your shop, too. Based on our experience with this industry, about 80 percent of the vape shops out there will probably be gone in a few years. If you want your shop to be among the last ones standing, you need to have some inside knowledge on how to ramp up revenue, and we have the information you need.
The Three Ways to Grow a Business
Traditionally, there are three main ways to grow a business in any industry:
- Increase customers
- Increase units of sale
- Increase frequency of purchase
To increase customers, you simply focus on getting more people to buy from your business. It’s the most common — and sometimes only — approach for many businesses. But on its own, it’s not always effective.
You can also try increasing the units of sale, meaning you make more money from your customers per transaction. Essentially, you upsell people so you can increase their average order value (AOV).
Finally, you can work on increasing the frequency of purchase, which means you try to get customers to come back more often. Frequency marketing can work well, especially in this industry, considering the types of devices used right now are going through a ton of vape juice. They no longer last several days before running out. Instead, people might use 30 mL per day or more. This means customers who used to come in every two weeks might have a reason to come in every week instead. If you can continue this, you’re quickly adding to your net value.
So you take one of these three ways to grow a business and increase it by 25 percent to improve profits. But if you take two and increase each one by 25 percent, you’ll have exponential growth. If you take all three, you’ll have even more growth. You can learn more about this concept with this interview from Tony Robbins and Jay Abraham.
The One Calculation to Keep In Mind
As a business owner, you need to think about the lifetime value of a customer. In other words, how much is each customer worth to you? While you might not want to reduce customers to numbers, it’s crucial that you make this calculation so you know the worth of each one for your vape shop.
This means figuring out your average order value. Start by determining how much your average customer will spend in the worst case scenario, how many times he or she will come back in a year, and how long that person will remain a customer. Then consider the customer acquisition cost, or how much it costs to get new customers.
As long as your customer acquisition cost is less than the lifetime value (LTV) of your customer, it makes financial sense to offer some discounts or even freebies. So if a customer spends $50 per month and comes back 10 times per year, you make $500 per year from your customer. It makes sense to do what you can to get new customers in the door and keep old customers coming back, even if that means giving away hardware.
For instance, if a vape starter kit costs you $15, and giving it away to a new customer gives you a good chance of making $50 per month from that person when he or she returns for more vape liquid, that giveaway makes sense. This is called a loss leader, and your favorite brands likely use this tactic to get people in the door.
How to Determine Revenue Goals
You can use some reverse engineering to come up with revenue goals for your vape shop. Start with the amount it costs you to run your shop every month. Add your desired monthly profit, and the result will be your monthly goal. Then divide that goal by your average order value (AOV) to find out how many transactions you need each month to meet your goal.
Let’s say your vape shop costs $3,000 per month to operate, and you want to make $5,000 per month in profit. Add those two together to get $8,000, and this is your monthly goal. Then divide $8,000 by your AOV of $50, and you get 160. That means you need 160 transactions of about $50 every month, which is only about five transactions per day!
If you want to double your revenue, just double any of the following:
So if you can find a way to increase the amount the average customer spends per visit, you can double your revenue. The same goes if you can increase the frequency of visits or if you can retain the customer for twice as long. And, of course, if you can increase more than one of these details, you’ll increase revenue even more.
In the end, this industry — like life in general — is really all about mindset. If you think you’re going to fail as a vape shop owner, you’re probably right. But if you think you’re going to succeed, you’re already on the path to success! As long as you keep a positive, hopeful attitude while also learning more about ways to succeed in this business, you’re on the right track and could be one of the only vape shops still around in a few years.
Author: Jesse Plautz
Jesse is the Digital Marketing Director at VapeMentors and Chief Technology Mentor. He is an ecommerce and internet marketing expert with a background in business and technology.