How to Start a Vending Machine Business
The Benefits and Process for a Potentially Profitable Business
Have you ever considered the business behind your break-room snacks? If you are looking for a new business opportunity that requires no special skills or training, can be done part-time and as a home-based business, and can even involve your whole family, a vending machine business might be the perfect fit.
Consider some statistics about the vending machine industry:
- Global vending machine revenue topped $23 billion in 2018.
- The vending machine business is still largely cash-based, but 59% of vending machines now accept cashless payments such as credit cards or mobile wallets.
- There are an estimated 2.08 million vending machines in the U.S.
- Cold drinks, including soft drinks, juices, and water, make up the largest product category, at 31.2% of vending machine purchases.
Just in case you are thinking of vending machines as mere dispensers of chocolate bars and soda pop, think again:
- Healthier snack options continue to expand, accounting for 7.6% of sales in 2018. 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.
Advantages of a Vending Machine Business
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. You're either collecting cash from the machines or the credit card companies.
- Flexibility: The vending machine business is ideal for families. You can easily train your spouse and children to assist with purchasing, stocking, bank deposits, accounting, and more.
Aside from a little startup capital or financing, the only other requirement is a reasonable degree of physical fitness, as servicing the machines involves a fair amount of walking and hauling products, some of which can be heavy.
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, and each has advantages and disadvantages:
- Starting from scratch: This involves purchasing machines and sourcing locations yourself. This 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 sells machines and provides locations).
- Buying an existing vending machine business or route: This option gives you immediate cash flow from the existing business. However, it is essential to determine why the owner wishes to sell. Essential background research includes scrutinizing the accounts, inspecting the machines, examining existing contracts, and researching the existing locations for possible problems.
- Buying a franchise: This is is the easiest way to get into the vending machine business. A franchise gives you an established business model based on vending a particular product or products. Typically, however, 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 products from the franchising company.
Whatever option you choose, the next step should be to write a 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.
Find Machine Locations and Sign Contracts
As in retail and real estate, location is a critical contributor to success in the vending machine business. Ideally, you want your machines in places that have plenty of foot traffic, such as malls, large office complexes, schools, airports, and in front of stores.
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, your product selection needs to fit. A candy vending machine outside of a health food store is not set up for success. Even popular products might not sell 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 or theft will quickly eat up your profits. Preferred locations should be highly visible, patrolled, and in view of security cameras.
You will have to compensate business or property owners for installing machines on their premises and using their electricity. This is typically done as a negotiated percentage of your gross sales.
The average commission is around 7%, but they can vary widely 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 or property owner at regular intervals.
Your contract should also specify:
- The machine types and 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.
Purchase or Lease Equipment
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 (food, beverage, or specialty items) and what type of vending machines you want.
- Bulk machines: These are small and dispense handfuls of bulk snack products such as gumballs, peanuts, and M&M's. Costs might range from $50–$200 and can have the slimmest profit margins. You would need quite a few machines to generate enough revenue. On the plus side, the machines do not require refilling as often and are simple to service and repair.
- Mechanical machines: These are larger than bulk machines and can dispense multiple products. Prices may start at $2,000 per machine, but the profit margins are much higher than bulk machines.
- Electronic machines: These 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. Possible options include:
- Craigslist 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.
- Amazon and eBay or 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 business publications to find dealers in your area.
Warranty and Repairs
New vending machines typically come with at least a one- or two-year parts warranty. Used or remanufactured equipment may come with a more limited warranty.
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.
Maximize Profits With the Right Products
Talk to the business or property owners about what products they want. In some cases, the type of products will be part of the contract.
Some products sell well in most public areas whereas others are more location dependent:
- Hot drinks such as coffee, tea, and hot chocolate may sell well in most locations.
- Snack machines vending products such as sodas, water, candy, chips, and chocolate bars may also do well in most environments.
- Hot food and sandwich machines may do well in business environments, schools, and universities.
- Candy, toy, and other specialty machines may be suitable for malls, supermarkets, play parks, and other locations that are frequented by families.
- Personal items such as feminine hygiene products, toothpaste, and over-the-counter medications may be suitable for restrooms in public transit facilities, malls, and service stations.
Healthy Vending Products
Legislation in your jurisdiction may mandate healthy options. There are plenty of options available, including:
- Fresh sandwiches and salads
- Water or fruit juices instead of sodas
- Granola bars instead of candy
- Baked chips
- Sugar-free gum
- Fruit cups
Maximize your vending machine business profits by paying the lowest possible per-unit price on the items you purchase for your machines. Search out wholesale food and drink suppliers, such as Costco, in your area and compare the prices. Negotiate bulk discounts if possible.
Provide Good Maintenance and Customer Service
As with any enterprise, success in the vending machine business means providing good customer service. For a vending machine operator, this means:
- 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.
- 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 or 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 they might be on the receiving end of complaints or demands for refunds.
- Conduct yourself professionally 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 for equipment.
Starting a Vending Machine Business Is Like Any Other
A vending machine business has few barriers to entry. What you need most 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. But being your own boss and calling the shots are rewarding in themselves. And if you get enough locations going, vending machines can generate a steady income for you.