The Financial Value Of Smokers
Tobacco companies make immense sums of money
Tobacco companies make immense sums of money. Annual revenues for the industry are roughly $500 billion globally, with the top six tobacco companies earning total profits over $35 billion a year. There are several incredible statistics about how tobacco companies figure out the value of each smoker, how much they spend on marketing, and how much the government makes from taxes on the vice.
The easiest way to comprehend how the tobacco industry's reach is to look at the government, specifically taxes. Although individual cities and states will continue to increase regulations on where people can smoke, it's very unlikely they'll attempt to get the practice banned any time soon. The federal government collects almost $7 billion a year in excise taxes, plus continued income that various companies in the industry are paying the federal and state governments to settle lawsuits from the 1990s, which will total more than $250 billion over the course of 25 years. Of course, multiple levels of government also get a slice of the mullet-billion dollar yearly income in the form of conventional taxes. So from the perspective of the regulators that have the most power to step in and help discourage smoking and promote quitting, there is a strong conflict of interests.
Cigarette industries, on the other hand, have one goal with no conflicted interests: sell more cigarettes. The nature of their product being that it kills people, this means that they need to get new people hooked and attempt to mitigate the impact of anti-smoking legislation on sales. And despite relatively progressive changes in the United States that have cut down on television ads glorifying smoking, for example, big tobacco is still doing fairly well.
In 2010 there were 43.5 million adult smokers who purchased more than 303 billion cigarettes in the United States. That's an average of a pack a day per smoker. At $8 a pack, the industry earns a revenue of about $2,800 per smoker per year. The CDC estimates that the average smoker lives seven fewer years than the average nonsmoker. That means tobacco companies get an average of 40 to 50 years out of most of their customers, meaning each customer is roughly worth $125,000 in revenue. There are a lot of estimates used to get to this estimate but it gets the point across.
Contrast that with how much tobacco companies spend advertising. In 2006, the combined cigarette marketing budget in the United States was about $12.4 million. That's over $200 per customer per year on advertising. While most of this expenditure tends to go to promotions that decrease the cost of a pack of cigarettes, a lot of the actual advertising budget ends up impacting youth very strongly, despite measures aimed at preventing this. On top of that, tobacco companies spend about $17 million a year on lobbying in the United States, as well as an unidentified amount on international lobbying.
All these numbers emphasize two things. First, cigarettes sales is a huge, entrenched industry that will be very difficult to combat solely through regulation, especially at the international level. Second, tobacco companies spend money however they can to attract new smokers, because a smoker who starts early in life represents a valuable, consistent source of income. This should be cause for alarm and stronger efforts to help smokers quit and escape this gigantic beast.
by: Nathan Roberson
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