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.
There Are Only Three Ways to Grow a Business
It doesn’t matter what business you are in. There are only three main ways to grow a business in any industry:
1: Increase Customers
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.
2: Increase Units Of Sale
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).
3: Increase Frequency Of Purchase
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.
Putting It All Together – “Customer Lifetime Value”
If you double any one of the three activities listed above, you’ll double your business. If you increase all three by 30%, you also double your business. You can learn more about this concept with this interview from Tony Robbins and Jay Abraham.
Once you start thinking of your business in such a way, now you can begin to calculate something called “customer lifetime value” (CLV).
CLV, in fewer words, is simply how much each customer is “worth” to you. Or, how much you’d expect to make from a new customer that comes into your shop. 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.
Calculating CLV hinges on your ability to accurately calculate and track your average order value, your transaction counts, and your customer’s buying patterns.
The Art Of “Buying” A Customer – “Customer Acquisition Cost”
Once you know your customer lifetime value, the next thing you need to know is your “customer acquisition cost”.
Your business currently has a “customer acquisition cost”, but you may not be calculating it.
This is a really important number to know because it will tell you if you’re acquiring customers at a loss or a gain.
The goal of your business should be to keep your customer acquisition cost LESS than customer lifetime value – meaning you spend less to acquire the customer than what they are worth to you.
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.
Here’s How You Calculate What You Can “Buy” A Customer For:
- Start by determining how much your average customer will spend in the worst case scenario (AOV), how many times he or she will come back in a year (frequency), and how long that person will remain a customer (lifetime). This is your CLV.
- Second, calculate your current “customer acquisition cost” (CAC). This is simply the money you spent on marketing efforts divided evenly amongst all your “new” customers.
- Finally, think of some creative ways to “buy” a customer by keeping the CAC under your CLV.As long as your customer acquisition cost is less than the lifetime value (CLV) 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. You can “buy” a new customer for up to $500 and they will break even for you over the year.
Here Are Some Creative Ways You Can “Buy” A Customer:
- Give away hardware to new customers (loss leader): 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.
- Encourage referrals: Get your current customers to bring in a friend. If they do, they get a “bounty” – could be a gift card, a piece of hardware, or a bag of candy. Doesn’t matter – just needs to be less than your CLV.
- Host a “vape education night”: Do some community outreach and think of ways to get in front of smokers. Perhaps organize a “quit smoking” get together at a local bar and introduce people to vaping. If you, say, rent out a section of the bar for $500 and get 3 new customers from it, you’ve made $1,000.
Using CLV To Determine Daily Activities
Knowing the big picture is useful, but it’s also important to break up the big goals into smaller, day-to-day chunks so you know what to focus on.
For example, you can use CLV to come up with daily transaction goals for your shop:
- Start with the amount it costs you to run your shop every month.
- Add your desired monthly profit. The resulting number will be your monthly revenue goal.
- Now, you can calculate how many transactions you’ll need on a daily and weekly basis to hit that goal.
- Divide that revenue 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!
TL;DR: If you want to double your revenue, just double any of the following:
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.
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.