Is Cigar Lounge Business Profitable

Is Cigar Lounge Business Profitable?

We have analyzed 7 cigar lounge businesses across three US states and found that 5 out of the 7 cigar lounge businesses are profitable. The other 2 have been operating for around 2 years and have not been able to become profitable. We found that these two businesses are operating from relatively more expensive locations and their overall fixed costs are higher. We have the permission to disclose one of the profitable businesses: Belvedere Cigar Lounge amongst the businesses of our study.

In 2023, the world cigar market wasn’t just staying the same; it was booming. It was worth an amazing $46 million (Mordor Intelligence), and it’s expected to reach an even higher $114.4 million by 2030 (Industrial Cigar & Co.). Having a growth rate of 11.90% per year for eight years, that’s a big jump. Back in the US, the cigar zone is also doing very well; they hope to make $12.70 billion this year alone. There’s more good news on the way: the market is expected to grow at a rate of 4.54% CAGR from 2023 to 2027(IBIS).

This growing market isn’t just a bunch of numbers; it’s a story of different places, from the busy towns in the US to the markets in Europe and the Asia-Pacific region to new areas in Asia, the Middle East, and Africa. The cigar and cigarillos market is greatly affected by the different tastes that each area brings to the table.

Profitability depends on 3 important factors- Your Revenue, Your Costs and Your Investments. Let’s take a deep dive into these 3 factors to find out if Cigar Lounge Business is Profitable?

Cigar Lounge Profit Calculator

Investments

We need to create a hypothetical situation. Let’s say that we are starting a cigar lounge called Ember Haven Cigar Lounge in Miami, Florida. We need to first consider our CapEx or Fixed Asset investments. Some of the obvious items include Humidor, Facility, Furniture, et.c.

Following are some revenue items:

• Property Acquisition or Leasehold Improvements: If you're purchasing a property, this is a major CapEx. If leasing, you may need significant leasehold improvements to customize the space for a cigar lounge.

• Interior Design and Furnishings: This includes comfortable seating like couches and chairs, tables, décor and possibly a humidor room. High-quality, durable furniture that aligns with the ambiance of a premium cigar lounge is essential.

• Specialized Ventilation System: An advanced air filtration and ventilation system is crucial in a cigar lounge to manage smoke and maintain air quality.

• Humidors and Cigar Storage : Investment in quality humidors for storing cigars at optimal conditions is a key CapEx item. This might include both personal and commercial-grade humidors.

• Point of Sale System and Technology : This includes cash registers, credit card processing machines and potentially an inventory management system.

• Lighting and Sound System : Appropriate lighting to create the right mood and ambiance, along with a sound system for music or entertainment.

• Security Systems : Includes cameras, alarm systems and possibly access control systems, especially if you're storing high-value cigars.

• Building Modifications for Accessibility and Safety : Ensuring the lounge meets all local building codes, safety standards and ADA compliance, including ramps, restrooms and emergency exits, is an important CapEx.

• Signage and Exterior Design : External branding, including signage, lighting and exterior design elements that attract customers and communicate the nature of your business.

• Initial Inventory of Cigars and Accessories : Purchasing a diverse range of cigars and related products (cutters, lighters, ashtrays) to start operations.

• Insurance Premiums for Initial Coverage : While partly operational in nature, getting your business insured might require an initial lump sum payment as part of your startup costs.

• Licensing and Permits : Costs associated with obtaining the necessary permits and licenses to operate a cigar lounge, including liquor licenses if applicable.

• Technology and Software : Investment in software for customer relationship management, accounting and other back-office functions.

• Website and Initial Marketing Campaigns : Designing a professional website and initial marketing and promotional materials to launch your business.

These CapEx items represent significant upfront investments needed to start and equip your cigar lounge for operation. Each of these should be carefully planned and budgeted to ensure a smooth launch of your business.

Revenue

You can generate revenue when you acquire members or customers for your cigar lounge. In order to acquire customers you need to either spend on marketing & promotions or get friends or family members as your customers. 

So, let’s say that you are using social media and SEO for getting new customers. Now, let’s assume that you are planning to spend $1000 annually on your marketing budget and split the budget equally on social media and SEO. In addition, your average Customer Acquisition Cost (CAC) for social media is $100 and for SEO it's $50. Thus, you can acquire 5 customers from social media ($500/$100) and 10 customers from SEO ($500/$50).

Now, let’s discuss the pricing and revenue sources. Your primary revenue sources for the cigar lounge involves Cigar Sales, Beverage Sales and Membership Fees. Now here is a breakdown of each category:

All of the factors mentioned will determine your revenue. Then you should create a projection for at least 3 to 5 years. This will help you analyze the performance over multiple years.

Following are some key revenue sources:

• Cigar Sales: The primary source of revenue for a cigar lounge comes from selling cigars. Offering a wide range of cigars, from affordable to premium selections, can cater to various customer preferences and budgets.

• Beverage Sales : Many cigar lounges serve alcoholic and non-alcoholic beverages. This can include a selection of spirits, beers, wines, coffee and soft drinks. Pairing beverages with cigars can enhance the customer experience and boost sales.

• Membership Fees : Implementing a membership model can provide a steady revenue stream. Members could receive benefits like access to exclusive lounges, special events, or discounts on products and services.

• Private Events and Rentals : Renting out space for private events such as corporate gatherings, parties, or special occasions can be a significant source of income. Tailored packages including cigars, food and beverage services can be offered.

• Retail Sales of Accessories : Selling cigar-related accessories, such as cutters, lighters, ashtrays, humidors and cigar cases, can add an additional revenue stream. These items also make for great gifts, increasing their sales potential.

• Food Service : If your lounge includes a kitchen, offering a menu of appetizers, snacks, or even full meals can significantly increase revenue. Food items can be tailored to pair well with cigars and beverages.

• Tasting Events and Classes : Hosting cigar tasting events, pairing sessions with beverages, or educational classes about cigars can attract enthusiasts and provide an additional source of income. These events can also be a way to introduce new products.

• Online Sales : Selling cigars and accessories online can expand your customer base beyond Omaha. This could include a subscription box service for regular deliveries of curated cigars.

• Merchandise : Branded merchandise like shirts, hats, or mugs can be a source of revenue and also serve as marketing tools.

• Affiliate Marketing and Partnerships : Collaborating with other businesses, such as liquor brands or local restaurants, for cross-promotions or affiliate marketing can generate additional revenue.

• Advertising Space : If your lounge has a significant footfall or an online presence, selling advertising space in your lounge or on your website can be a source of revenue.

• Loyalty Programs : Implementing a loyalty program can encourage repeat business. Customers can earn points for purchases that they can redeem for discounts or free items.

• Seasonal or Themed Events : Hosting seasonal or themed events around holidays or special occasions can attract larger crowds and generate higher revenue during these times.

• Cigar of the Month Club : Offering a subscription-based service where customers receive a selection of cigars each month can provide a consistent revenue stream.

• Educational Workshops or Cigar Tours : Organizing educational workshops on cigar making or tours to cigar-producing regions can be a unique revenue source, especially for enthusiasts.

Cost of Services & Goods Sold

There are two types of costs in a cigar lounge; Variable Costs & Fixed Costs. Variable Costs are costs which depend on revenue and if revenue is $0 then variable costs are $0. For e.g. if you do not sell any cigars then you won’t have to spend on buying cigars.

Any business's overall costs are made up of both variable and fixed costs. Costs that change depending on how much is made or sold. The fixed cost of production is the same amount for every unit made. Variable costs will go up as the amount of output and production goes up. In the opposite direction, when fewer goods are made, the changeable costs of production go down.

Following are some key Cost of Services:

• Inventory Costs: This includes the cost of purchasing cigars, beverages, food items and any accessories you sell. It's a recurring cost and one of the most significant operational expenses.

• Employee Salaries and Wages: Costs associated with hiring staff, such as lounge attendants, bartenders and any other personnel. This also includes taxes, insurance and benefits for your employees.

• Rent or Mortgage Payments: If you don't own the building outright, you'll have monthly rent or mortgage payments for your lounge's location.

• Utilities: Monthly expenses for electricity, water, gas and other utilities are essential for maintaining the operation of the lounge. These costs can be significant, especially if you have a large space or extended operating hours.

• Maintenance and Repairs: Regular maintenance of your lounge, including cleaning services, HVAC system maintenance and repairs for any equipment or furniture. This also includes the upkeep of specialized equipment like humidors and ventilation systems.

• Insurance: Business insurance, including liability, property and worker's compensation insurance, is crucial to protect against potential claims and accidents.

• Marketing and Advertising: Costs associated with promoting your cigar lounge, including digital marketing, print advertising, promotional events and any branding materials.

• Licenses and Permits: Ongoing costs for maintaining any required licenses and permits, such as a tobacco license, liquor license (if applicable) and business permits.

• Technology and Software Subscriptions: Costs for POS systems, inventory management software, customer relationship management software and other technology tools that facilitate business operations.

• Professional Services: Fees for services such as legal advice, accounting, or consulting. This may include costs for tax preparation and financial auditing.

• Credit Card Processing Fees: Fees charged by credit card companies for each transaction. This can be a significant cost if a large portion of your sales is credit-based.

• Waste Removal and Recycling Services: Regular waste removal and recycling services, especially important if your lounge serves food and beverages.

• Employee Training and Development: Costs associated with training new staff and providing ongoing training and development for existing employees.

• Miscellaneous Supplies: Day-to-day operational supplies such as cleaning materials, office supplies, kitchen supplies (if food is served) and bathroom supplies.

• Entertainment and Music Licensing: If you provide live music or play recorded music in your lounge, there may be associated costs such as hiring performers and music licensing fees.

• Health and Safety Compliance: Regular health and safety inspections, compliance with local regulations and any necessary training or equipment to ensure the safety of employees and customers.

• Loan Payments: If you have taken out loans to start or expand your business, the regular repayments on these loans are a recurring cost.

• Depreciation of Assets: Although not a direct out-of-pocket expense, the depreciation of capital assets like furniture, equipment and improvements to the leased property should be accounted for in financial statements.

• Food and Beverage Costs: If your lounge offers food and drinks, the cost of ingredients and supplies for preparing these items.

• Event Hosting Costs: If you host special events or private parties, there are associated costs such as extra staffing, catering, decorations and entertainment.

Managing these operational expenses efficiently is crucial for the financial health of your cigar lounge. Regularly reviewing and optimizing these costs can help improve your profit margins and ensure long-term business sustainability.

Operating Expenses

We have discussed variable cost in the previous section. Now, operating expenses are fixed costs which are not dependent on your revenue generation. For e.g. if you are paying rent on the facility then that cost will not change depending on your revenue.

Understanding and accurately categorizing these costs is crucial for budgeting, pricing strategy and overall financial management. Keeping a close eye on both variable and fixed costs will help in making informed decisions to ensure the profitability and sustainability of your cigar lounge.

• Rent or Mortgage Payments: This is a significant fixed expense for a cigar lounge. The cost depends on the location, size, and prestige of the property. Prime locations with high foot traffic tend to have higher rental or mortgage costs, which can impact profit margins but potentially increase customer base.

• Utilities (Electricity, Water, HVAC): Cigar lounges require a comfortable environment for customers, making HVAC (heating, ventilation, and air conditioning) crucial. Electricity powers lighting, climate control, entertainment systems, and the POS system, while water is essential for sanitation and bathroom facilities. These costs vary based on usage, which is influenced by the lounge's size and hours of operation.

• Employee Salaries and Benefits: Staff costs include salaries, wages, health insurance, and any other benefits provided to employees. The number of staff and their hours will significantly affect this expense. Investing in skilled and experienced staff can enhance the customer experience but also increases this cost.

• Ventilation System Maintenance and Upgrades: Proper ventilation is critical in a cigar lounge to remove smoke and maintain air quality. This expense covers regular maintenance to ensure the system operates efficiently and any necessary upgrades to meet regulatory requirements or improve customer comfort.

• Insurance (Property, Liability, Worker's Compensation): Insurance protects the business from various risks. Property insurance covers damage to the building and contents, liability insurance protects against claims from injuries or damage caused by the business, and worker's compensation provides coverage for employee injuries on the job.

• Marketing and Advertising Costs: Attracting customers requires effective marketing. This can include traditional advertising, social media marketing, event promotions, and loyalty programs. The costs vary based on the scope and channels used.

• Licenses and Permits Fees: Operating a cigar lounge legally requires obtaining and renewing various licenses and permits. These can include business licenses, liquor licenses (if applicable), health department permits, and more. Costs vary by location and specific business activities.

• Point of Sale (POS) System Maintenance: A reliable POS system is vital for transactions, inventory management, and customer data. Maintenance costs ensure the system is updated and running smoothly, to handle sales efficiently and securely.

• Cleaning and Sanitation Supplies: Maintaining a clean environment is non-negotiable in the hospitality industry. This expense covers cleaning agents, tools, and specialized products for air quality and surface cleanliness, critical for customer health and comfort.
• Security Services: Depending on location and hours of operation, some cigar lounges may require security services. These services can range from hired personnel to monitor the premises especially during peak hours.

Conclusion: What's the Verdict?

The profitability of your cigar lounge totally depends on your own management skills. We found that around 70% of cigar lounges are profitable but if you want to take a deep dive and find out the likelihood of profitability based on your investment amount, location and other factors then you should use specialized cigar lounge financial model.

The Cigar Lounge Financial Model will help you in the following ways:

Find out if Cigar Lounge Business is Profitable?

What much investment is needed and what do you need to invest on?

How can Your Acquire New Members for your Cigar Lounge?

How Much Revenue Can you Generate if You Charge $X for the Cigars?

Find out If a Certain Amount Investment will Make the Business Sustainable.

If you are planning to start a cigar lounge then the financial model can save at least 3 weeks of research time and 4 weeks of learning time to prepare a financial model. It's built for newbies who are not proficient in financial modeling. Just Plug & Chuck the numbers! Most of the stuff is already in there and you just have to add some new items based on your requirements. Use Google Sheets or Microsoft Excel. IMPORTANT NOTICE: CIGAR LOUNGE BUSINESS PLAN comes with the CIGAR LOUNGE FINANCIAL MODEL.

The Cigar Lounge Financial Model will also help you with prepared key statements. Here are some sample statements which can be created using the our specialized cigar lounge financial model: