How to Start a Vending Machine Business
A vending machine business can be an ideal business opportunity
If you have been looking for a new business opportunity that requires no special skills or training, can be done part-time and/or as a home-based business, and can get your whole family involved, you may have just found it. How about starting a vending machine business?
According to U.S. statistics from Brandongaille.com:
- Vending machines average over $7 billion a year in sales.
- The snack and vending machine industry generates over $64 million a year in profits.
- The vending machine business is mostly cash-based—three out of every four vending machine transactions are in cash.
- There are an estimated 4.6 million vending machines in the U.S.
- 56 percent of vending machine sales were for cold drinks, including soft drinks, juices, water, etc.
Just in case you are thinking of vending machines as mere dispensers of chocolate bars and soda pop, think again:
- Healthier snacks outsell traditional snack foods by 300 percent. In fact, some locales have legislation in place to mandate healthier choices in food/drink vending machines.
- The newest pizza vending machines can deliver a pizza cooked to perfection in under three minutes, with a choice of three toppings.
- Vending machines in Beverly Hills malls dispense gourmet delights such as caviar, escargot, and bottarga.
Other advantages of a vending machine business include:
- Scalability: You can start with a few machines and expand your business as time and finances permit.
- Low Startup Costs: Aside from purchasing the machines (which can be financed), your capital costs are relatively low (you don't need building or office space—some space in a garage, utility room or basement is sufficient). Other than a vehicle to service your route, no other equipment or machinery is required.
- Simplicity: Once the machines are in place your only duties are to maintain and restock the machines as needed and collect the money.
- All Cash-Based Transactions: There are no "accounts receivable" as in most businesses.
- Flexibility: The vending machine business is ideal for families. Your spouse and/or children can easily be trained to assist with purchasing, stocking, bank deposits, accounting, etc.
Aside from a little startup capital or financing, the only other requirement is a reasonable degree of physical fitness on the part of whoever is servicing the machines, as it involves a fair amount of walking and hauling of products (especially heavier ones such as drink cases).
If you're thinking that this is the right business opportunity for you, here are the steps to follow to start your own vending machine business.
Do Your Homework!
As with starting any type of business, market research and planning is the key to success. There are a number of ways to start a vending machine business—each has advantages and disadvantages:
1. From scratch, by purchasing machines and sourcing locations yourself. This scenario gives you the most flexibility—you can start with a few machines and expand as opportunities arise and finances permit. It also requires the most legwork—you will need to source and purchase machines, and find and negotiate locations to place them (unless you deal with a machine distributor who both sells machines and provides locations).
2. Buying an existing vending machine business or route has the advantage of having immediate cash flow from the existing business. However, it is essential to determine why the owner wishes to sell. Thorough background research into the business is a must, including scrutiny of the accounts, inspection of the machines, examination of existing contracts, and research on the existing locations for possible problems.
3. Buying a franchise is the easiest way to get into the vending machine business. A franchise gives you the advantage of having an established business model based on vending a particular product or products. Typically, in addition to the startup franchise fee, the franchisor takes a percentage of the profits or a monthly fee. As a franchisee, you are typically restricted to purchasing or renting machines and product from the franchising company.
Whichever way you decide the next step should be to write a business plan. If you don't need financing you can probably get by with a simpler plan—there are different business plans for different purposes. However, if you're looking for investors, you'll want to use an Investor-Ready Business Plan.
An integral part of the business plan is market research to test the feasibility of your business idea. For example, by checking existing vending machine locations and speaking with business owners you may discover that the market for vending machines in your area is already saturated.
Finding Machine Locations and Signing Contracts
Location Is the Key
As in retail and real estate, the most important contributor to success in the vending machine business is location, location, location. Ideally, you want your machines in places that have plenty of foot traffic, such as malls, large office complexes, schools, airports, in front of stores, etc.
In the best case scenario, you want good locations that don't already have vending machines. You will probably find, though, that most of the ideal locations in your area are already taken, and in some cases, the existing vendors will have exclusive contracts with the property owner.
Keep in mind that even with the right location, you need to be vending the right products to be successful. In an obvious example, a candy vending machine outside of a health food store is unlikely to be successful! If you are franchising particular products they may not sell even in a high traffic location if the target market is not suitable.
Theft and Vandalism
When scouting locations be sure to research crime statistics and avoid areas that have high incidents of theft and vandalism. Damage to or theft from your machines will quickly eat up your profits. Preferred locations should be highly visible, patrolled and/or in view of security cameras.
You will have to compensate business or property owners for installing machine(s) on their premises and using their electricity. This is typically done in the form of a negotiated percentage of your gross sales.
Ten to 20 percent is the normal range for commissions, depending on the number and size of the machines. As the owner of the machines, you will be obligated by contract to provide a statement of sales and commissions to the business/property owner at regular intervals.
Your contract with the business/property owner should also specify:
- The machine types and optionally the products sold;
- The length of the contract;
- Termination clauses for breach of contract or unprofitability;
- Exclusivity if applicable;
- Rights to replace, increase or decrease the number of machines.
As always, it is wise to have the contract drawn up or reviewed by a lawyer.
If you are not franchising or purchasing an existing business you will need to acquire one or more machines to get started. Before doing so you will need to decide on what products you intend to sell and what type of vending machines you want:
Bulk machines are small and dispense handful quantities of (typically) bulk snack products such as gumballs, peanuts, M&M's, etc. Costs range from $50—$200 but the profit margins are slim—according to statistics from Vending Times the average revenue from a gumball machine is less than $10 per month.
Obviously, a significant number of bulk machines would be needed to generate a reasonable amount of revenue. However, the machines do not require refilling as often and are simple to service and repair.
Mechanical Machines are larger than bulk machines and can dispense multiple products. Prices range from $2,000—$3,000 per machine but the profit margins are much higher than bulk machines.
Electronic machines utilize modern touch screens and can accept other forms of payment such as bills and credit cards. Electronic machines have the highest upfront cost but are more reliable than mechanical machines.
A new basic electronic soda dispensing machine will cost at least $3,000 per machine. More sophisticated machines that have a larger capacity, vend different products and accept multiple forms of payment can easily double or triple the cost.
Buying Used Machines
Used vending machines can be steeply discounted and acquiring less expensive machines will increase your profits. Sources for used vending machines include:
- CraigsList.org can be a good source for locally available machines
- UsedVending.com is a great resource for searching for used vending equipment. You can conduct comprehensive searches for equipment based on type, price, and location.
- eBay.com or Amazon.com are excellent sources of new and used vending machines. The reviews are especially useful for information on product reliability.
- Vending machine dealers are plentiful, so search the internet and local/regional business publications to find dealers in your area.
Whether you decide to buy new or used, choose the machines that best meet your needs and your startup budget.
New vending machines typically come with at least a one to two-year parts warranty. Used/remanufactured equipment may come with a warranty of one to three months.
If you are mechanically inclined you can learn how to repair the machines yourself. Otherwise, you may need to contract the services of a repair technician.
Maximizing Profits With the Right Products
Talk to the business/property owners about what products they want. (In some cases the type of products will be written into the contract). As previously mentioned, legislation in your jurisdiction may mandate healthy eating choices.
Some products sell well in most public areas whereas others are more location dependent:
- Hot drinks such as coffee, tea, and hot chocolate sell well in most locations, including office buildings, universities, malls, etc.
- Snack machines vending products such as sodas, water, candy, chips, chocolate bars, etc. also do well in most environments.
- Hot food and sandwich machines do well in business environments, schools, and universities.
- Candy and toy machines are suitable for malls, supermarkets, play parks, and other locations that are frequented by families.
- Personal items such as feminine hygiene products, toothpaste, over the counter medications, etc. are suitable for restrooms in public transit facilities, malls, and service stations.
Healthy Vending Products
If you are looking for healthy choices there are plenty of options:
- Fresh sandwiches and salads
- Water or fruit juices instead of sodas (or offer diet sodas)
- Granola bars instead of candy
- Baked chips
- Sugar-free gum
- Fruit cups
- Nuts (peanuts, almonds, cashews, etc.)
Maximize your vending machine business profits by paying the lowest possible per-unit price on the items you intend to stock your machines with. Search out wholesale food and drink suppliers in your area (such as Costco) and compare the prices. Negotiate bulk discounts if possible.
Maintenance and Customer Service
As with any enterprise, success in the vending machine business means providing good customer service:
- Schedule visits to your locations as needed to keep the machines fully stocked.
- Keep your machines clean and in good repair. Dirty, poorly maintained machines are a turn-off for customers. Respond promptly when repairs are required.
- Provide contact information such as an email address on the machines so customers can report any issues.
- If applicable, rotate products by "sell by" dates so that the oldest product sells first.
- Analyze sales and regularly consult with the business/property owners on which types of products are most desirable to customers. Stock the machines accordingly.
- Maintain good relations with the contact person at the machine locations, as he/she might be on the receiving end of complaints or demands for refunds.
- Conduct yourself in a professional fashion at all times.
Providing top-notch customer service is one of the best ways to increase sales and improve your business reputation, which is essential if you hope to expand your business by soliciting new locations to place equipment.
Starting a Vending Machine Business Is Like Any Other
A vending machine business has few barriers to entry—you don't need a lot of startup capital or a degree or diploma. Mostly what you need is what every startup business requires—hard work and a desire to succeed.
Keep in mind that like most small businesses you are not likely to get rich from running a vending machine business. As with most small business owners, being your own boss and calling the shots makes starting a vending business rewarding in itself. And vending machines have the potential to generate steady income even in uncertain economic times.
If you've decided to take the plunge and start your own business, vending machines can be an attractive opportunity.