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The vape and e-cig industry is booming. It’s becoming more popular than ever before to smoke in one of these two formats. The variety of flavors and experiences, plus the reduced health impact, sets vaping and e-cigs apart from traditional smoking. However, those are all general facts about the industry at large. They don’t get into your specific plans and goals. In this post, we will explain what you need to do and what you should learn to maximize your chances of success as you work to build an online e-cig company. Managing the risks and rewards of supporting your payment gateway for an online vape store is one of the most overlooked yet important steps toward a merchant account.
Merchant Account Risks of Vapes and E-Cigarettes
As with any other company, you should do your research to understand the risks involved. For this industry in particular, one of the biggest risks is regulation.
E-cigs and vapes are a new type of product. However, there is nothing new about smoking. It is centuries old and has had a long history of regulation by various governments. The current approach to smoking varies depending on the country, but in general, there are tight controls governing the sale and production of tobacco products.
Not all e-cigs and vapes use tobacco, but many of them do. As a result, they are falling under consideration by federal and local governments as part of or adjacent to the nicotine and tobacco companies. The fact that they are so new and that they are often sold online means that there is little consensus on how to regulate e-cigs so far. But that is likely to change, hence the risk.
It is not clear what the government will do about the sale of e-cigs. For example, they might leave the devices alone and target nicotine directly with taxation or oversight. Or they might impose rules that restrict who can buy e-cigs and vapes, which could require sellers to get ID from buyers. All of this uncertainty about regulation affects you, the business owner. You don’t know exactly what will happen and how costly these regulations will be once they arrive. This affects your vape store business plan and your profitability in unpredictable ways. It also means you will have to deal with some banking issues that we will address later on in this post.
Other risks exist as well, like maintaining quality control and protecting customer data, but regulation is probably the one that is most unique to selling e-cigs and vapes.
Formulate Your Online Business Plan
Not everyone is aware of how detailed a business plan should be, even for building an online vape store. That is a big part of the reason why most new businesses fail within a year- their planning was not detailed enough to support their path to profitability.
Businesses require start-up money to get going- you will have to pay for your inventory, designing the website, hosting the site, setting up logistics, and everything else you need to get it up and running. On top of that, you will have to face the fact that your business starts out with no customers and no brand awareness. So you will be spending money with no immediate flow of revenue to pay it back and start making a profit.
That is why a good plan is so important. You need a detailed breakdown of every one of your costs, both in aggregate and per unit. You also need to know how much you can charge for each sale and have a good idea of how many people would be willing to buy at that price. That way, you will know how much you can get in profit per unit. Another way of looking at it is that the business plan tells you the prices that you need to maintain in your vape store to remain in business. If you are forced to cut your prices lower than that due to competition or low demand, then you won’t make a profit anymore and you risk shutting down.
The business plan should include backups for what happens in case things go wrong.
- If it turns out that you don’t have enough inventory to satisfy all your orders, do you have a backup supplier?
- What happens if your distribution system falls through, what will you do to make sure the product gets to the consumer?
- Do you have a return policy?
- Can your customers contact you if they run into an issue?
Your plan should address all of these things because they can all determine your long-term success.
Online Payment Gateway for Your E-Cigarette Business
To return to the earlier point about regulations, e-cigs and vape companies face a unique issue. Due to the regulatory uncertainty, mixed with high rates of chargebacks by customers, traditional banks will usually refuse to work with your kind of company. That means they won’t work with you to process the payments that your customers make. PayPal, Square, Stripe, etc. are all out of the question and it isn’t clear if they will ever be available to you. Vape and e-cig credit card processing needs to come from a different source.
An e-cigarette payment gateway or vape merchant account has to come from a specialized partner, one who understands the risks, challenges, and opportunities facing this industry. They need to be willing to accept the regulatory issues as well as the chargeback risk. In this context, chargebacks from customers are expensive and hard to deal with for a new company, so they often get passed along to the payment processor. Vapes and e-cigs tend to have a high rate of chargebacks, so that is another reason for traditional banks to avoid the industry.
High-Risk Vape Merchant Account
Vape and e-cig credit card processing is a critical part of your business if you plan to sell online. Nowadays most new vape shops want to go all-online because of the lower startup costs and quick setup. It is much cheaper and easier to maintain than a physical storefront. But without a reliable e-cigarette payment gateway, you won’t have any way to accept customer sales. The processor is the entity that provides the secure gateway to your online shopping cart.
To work with a good merchant account provider for e-cigs and vapes, you need to apply for one. That means detailed information about your company and your plan. These processors know the risks they are facing, so they want to be careful to only work with high-quality sellers. If you can convince them that your business model is sound, they will approve you for a high-risk merchant account and embed their portal into your website. The end result is a seamless purchasing process for your customers and peace of mind for you.
The bottom line is that the regulatory uncertainty means you will need to deal with high-risk payment processors who can handle your industry. This may sound intimidating, but you can rest assured that once you are approved, you have the security to do business in a compliant way. So, find a payment partner that you trust and start working on an application so that you can get to sell your product.