How Much Does It Cost to Start a Cigar Lounge? (Sales Forecast and Breakeven Analysis Included)

With a budget as low as $45,000, you can start a small-scale cigar lounge business. So, also, anyone who wants to start a standard cigar lounge business could budget as high as $150,000.

A cigar lounge is a designated space where patrons can relax and enjoy smoking cigars in a comfortable and social atmosphere. Cigar lounges sell a selection of cigars, and beverages to patrons.

The scope of the cigar lounge business an entrepreneur wants to start will determine the amount the entrepreneur will spend to get the business up and running.

Estimated Cost Breakdown for Opening a Cigar Lounge

Opening a cigar lounge with a budget of $150,000 involves balancing between ambiance, inventory, legal compliance, and operational necessities. Here’s a simplified cost breakdown to provide a basic outline for startup expenses:

1. Lease and Renovations: $40,000 to $60,000
2. Inventory: $20,000 to $30,000
3. Furnishings and Equipment: $15,000 to $25,000
4. Licenses, Permits, and Insurance: $10,000 to $20,000
5. Marketing and Branding: $5,000 to $10,000
6. Operational Expenses: $10,000 to $15,000
7. Contingency Fund: $10,000 to $20,000

Sources of Income for a Cigar Lounge

1. Cigar Sales ranging from affordable to premium or rare cigars.
2. Beverage Sales including coffee, soda, spirits, wine, and beer
3. Membership Fees for exclusive benefits such as access to a private lounge area, members-only events, or discounts on products and services.
4. Events and Private Parties like tasting sessions or brand launches
5. Cigar Accessory Sales such as cutters, lighters, ashtrays, humidors, and travel cases, can add to the revenue. Offering a selection of high-quality accessories can appeal to both novice and seasoned cigar enthusiasts.
6. Food Sales ranging from snacks to more substantial fare, can increase the time customers spend in the lounge and add to the revenue.
7. Renting Out Cigar Lockers where customers can store their cigar purchases or personal collections in optimal conditions
8. Selling branded merchandise such as apparel, hats, or mugs
9. Educational Workshops and Classes on topics such as cigar tasting, pairing cigars with beverages, or the art of cigar rolling
10. Online Sales
11. Sponsorships and Partnerships

3-Year Sales Forecast and Breakeven Analysis

If your startup capital is $150,000 and the goal for your cigar lounge is $100,000 in the first year, with a growth rate of 15% per year as the customer base expands and the lounge gains popularity; and your cost of goods sold (COGS) is 40% of sales, covering the cost of cigars, accessories, and beverages.

Year 1

• Revenue: $100,000
• COGS (40%): $40,000
• Operating Expenses: $70,000

Net Profit: Revenue – COGS – Operating Expenses

• Net Profit: -$10,000

Year 2 Forecast

• Revenue Growth: 15%
• New Revenue: $100,000 x 1.15 = $115,000
• COGS (40%): 40% of $115,000
• Operating Expenses: $70,000 x 1.05

Net Profit: Revenue – COGS – Operating Expenses

• Net Profit: -$4,500

Year 3

• Revenue Growth: 15%
• New Revenue: $115,000 x 1.15 = $132,250
• COGS (40%): 40% of $132,250
• Operating Expenses: $70,000 x (1.05)^2

Net Profit: Revenue – COGS – Operating Expenses

• Net Profit: $2,175

Breakeven Analysis

The breakeven point is when total revenue covers all costs, including COGS and operating expenses. The initial capital investment recovery isn’t typically included in yearly operational breakeven calculations but is crucial for total investment recovery.

Cumulative Net Income Over 3 Years

• Total: -$12,325

The cigar lounge’s sales forecast indicates a gradual increase in revenue over the three years, moving from an initial loss towards generating profit by Year 3.

However, the cumulative net income over the three years is still negative, indicating that the business would not have fully recovered its initial operational costs within this period based on the provided assumptions.

The breakeven point, in terms of ongoing operational costs (excluding the initial capital investment), appears to be reached sometime after the third year, as the business begins to generate positive net income in Year 3 but has not yet compensated for the losses incurred in the first two years.

Factors That Influence the Cost of Opening a Cigar Lounge

1. Licensing and Permits

If you are considering opening a cigar lounge business in the United States of America, the first thing to do is to secure all the needed licenses and permits.

Without that, you will not be allowed to legally start your cigar lounge business. Please note that the costs associated with obtaining the necessary licenses and permits to operate a cigar lounge business can vary from one city or state to another.

The licenses, and permits needed to operate a cigar lounge business include a business license, tobacco retailer license, sales tax permit, food service license (if serving food or beverages),

Alcohol license (if serving alcoholic beverages), health permit, sign permit, building permit, music license (if playing copyrighted music), and other related permits and licenses.

Note that in the United States, you should have an estimate of $500 to $5,000 or more for all the needed licenses and permits.

2. The Cost of Purchasing Cigar Lounge Equipment and Supplies

Cigar lounge equipment and supplies are a key aspect of your business. You should make provisions for equipment such as humidors, cigar cutters, lighters or matches,

Ashtrays, seating furniture, ventilation system, beverage service equipment, television, decorative items (e.g., artwork, furnishings), menu or pricing displays, lighting fixtures, and music or entertainment system.

You will also need to stock your cigar lounge with supplies such as different types and brands of cigars, beverage inventory (e.g., alcoholic and non-alcoholic drinks), snacks or light refreshments et al.

From experience, you should have a budget estimate of $10,000 to $20,000 or more to take care of the cost of purchasing the needed cigar lounge equipment and supplies.

3. The Location Where You Want to Start the Business

Different cities have different rental and leasing rates, and they require different budgets to run a business even if the business is the same.

For instance, if you have plans to start your cigar lounge business in San Francisco, California, then you must be ready to spend far more than is required to start the same business in Raleigh, North Carolina.

This is so because San Francisco, California is one of the most expensive cities in the United States, and Raleigh, North Carolina is among the least expensive cities in the USA.

4. The Cost of Marketing and Advertising

Establishing a strong online presence, creating a website, developing marketing materials, and advertising your cigar lounge business and services offering will attract reasonable expenses.

In essence, you should have a budget that will take care of your business website design, online, and offline marketing campaigns, printed materials, and business cards.

Depending on how big you want to announce your presence in the market, you should have a budget estimate of $1,000 to $3,000 or more.

5. The Cost of Purchasing Insurance Policy Covers

If you are considering starting a cigar lounge business, then part of what you should budget for is insurance. You will need insurance coverage, such as general liability insurance, health insurance, and professional liability insurance. 

Note that the costs of purchasing insurance policy coverage for your cigar lounge business will depend on your location and the coverage options you choose. But generally, you should have an of $1,000 to $3,000 per year.

6. Staffing Cost

The only reason why you may not have a budget for staffing costs is if you choose to operate the business as a one-man show.

But, if you plan to hire cigar lounge attendants, a cashier, and other support staff members, then you should consider their salaries, benefits, and training costs.

Note that your staffing expenses will vary because it will depend on the number of staff members you want to hire, and of course, their qualifications.

But generally, you should have a reasonable budget estimate that can cover this cost because it varies based on staff size and salaries.

7. Operational Costs or Ongoing Expenses

Although, there is no fixed amount you are expected to spend when it comes to operational costs, but the truth is that it can be a significant part of your budget especially if you are going to be operating a standard cigar lounge business with over a handful of employees.

Note that your operation costs include ongoing expenses such as office supplies, utilities, transportation costs, and maintenance expenses for your equipment and tools.

We cannot give an estimate of what you should budget for your operational costs because it will vary based on your business size and the volume of clients you handle.