2020-11-23 21:40:28Business PlanningEnglishhttps://quickbooks.intuit.com/global/resources/row_qrc/uploads/2020/11/vending-machine-business.pnghttps://quickbooks.intuit.com/global/resources/business-planning/vending-machine-business/How To Start A Profitable Vending Machine Business?

How To Start A Profitable Vending Machine Business?

18 min read

Are you seeking to start a small business to gain time, flexibility, and financial control? Have you been looking for business opportunities that can give you passive income? If so, think of starting a small business as a vending machine operator.

Vending Machine Business not only generates income but also allows you to reap the benefits of a small business owner. All of this without the drawbacks of opening a store, franchise, or a restaurant.

The global Vending Machines market size was estimated to be USD 30.20 Billion in 2018 and is expected to have a compound annual growth of 9.4% from 2019-2025.

Furthermore, there are a number of factors that make the vending machine business a lucrative investment. These include:

  • Low startup costs
  • Involvement of family in business
  • Multi-Billion Dollar industry
  • Higher profitability, etc.

In this article, we will explain how to start a vending machine business, how much does a vending machine cost, and the advantages and disadvantages of starting a vending machine business.

How to Start a Vending Machine Business in 6 Steps

Vending Machine Business requires minimum maintenance and little storage. It is quick and easy to start as a vending machine operator, provided you have the right product to sell to your target market.

In addition to this, vending machines give you a low-cost entry into the business, and can generate revenues 24×7, given the right location and the right product.

However, there are certain downsides that you must consider when investing in a vending machine business. These include theft and vandalism.

Thus, before you buy a vending machine, consider the following steps to start your own vending machine business.

Consider All Of Your Vending Machine Options

Planning and market research is the foundation for undertaking any type of business. Vending Machine Business is no different.

There are three ways in which you can get started within your vending machine business.

The way you choose to undertake vending machine business depends on the available capital, your goal to either set up a vending machine business or do it as a side gig, and to take it up as full-time or part-time.

Start Your Own Vending Machine Business

It may be most suitable to start your own vending business if you are the one who has sound business and sales experience.

This is because, when on your own, you would be responsible for searching for a reliable and credible machine vendor, training yourself, and finding the right locations for your vending machine business.

All of this would take a lot of time if you don’t have prior experience in the vending machine business. That is to say, such a process is time-consuming and risky for a person who is a novice.

Thus, starting your own vending machine business is for people who can negotiate fearlessly to find optimal locations and invest a lot of time initially to get the business started.

Advantages

  • It is the cheapest way to start a vending machine business.

Disadvantages

Vending machine business:

  • Is Time-consuming
  • Requires good selling and negotiation skills on the part of the business owner
  • Buying A Vending Machine Franchise

    The other way to undertake a Vending Machine Business is to buy a franchise.

    The advantage of buying into the franchise is that you get to partner with an established brand having a proven business model and proper sales team to help you zero down on vending locations.

    In addition to this, such brands also provide you with machine training and give you the necessary assistance throughout the process of location acquisition.

    Therefore, buying into a franchise is a suitable option in case you seek to start a vending machine business with proper support.

    Advantages

    • Franchise brand provides you with expert location acquisition services.
    • Ready-to-go startup model
    • Strong marketing support

    Disadvantages

    • Higher capital investment needed as compared to starting your own vending machine business.
    • Royalty to be paid to the brand for the franchise taken.
  • Buying an Existing Vending Machine Business or Route

    You may find other vending machine owners who are seeking to sell their vending business.

    Thus, you can search through local newspapers or platforms like Craigslist to see if such an opportunity exists.

    Such a route requires less time. However, it can prove to be the most expensive way of undertaking the vending machine business on account of the location at which the vending machines are placed.

    Before undertaking an existing vending machine business, do proper homework of understanding the sales figures and studying the business thoroughly so that it is worth your buck.

    In addition to this, check how much time is left in the expiry of the existing contracts.

    Thus, such a vending machine business route is suitable for those who can invest higher capital and possess sound business skills.

    Advantages

    • You don’t need to buy vending machines.
    • You don’t need to search for locations

    Disadvantages

    • The possibility of buying into older equipment that can be obsolete.
    • The possibility of getting into a business that is reaching the expiry of its contracts or does not have contracts at all.

    Find The Right Location For Your Vending Machine

    What you plan to sell is one of the critical factors responsible for a successful vending machine business. However, where you plan to sell is also important.

    This is because you may not go very far if you are selling the right product but at the wrong location. Thus, it is extremely important for you to find the best locations for your vending machine business.

    Where Should Your Vending Machines Be Located?

    Typically, you want vending machines in areas with high foot traffic like malls, multi-business office parks, schools, universities, airports, etc.

    In fact, you need to place your vending machines in locations that do not have vending machines selling the products that you intend to sell.

    You must remember that even the best of locations fail to generate profits for your vending machine business . This is because there is a mismatch between your target market and product selection.

    For example, selling protein bars and healthy snacks outside a strip of restaurants can do no good for your vending machine business.

    However, your vending machines selling healthy diet snacks in front of a gym can generate the requisite revenues for your business.

    In addition to this, make sure that you avoid areas having a history of cases of theft and vandalism. The location you choose should be safe and visible.

    Some of the locations where you can place your vending machines include:

    • Malls, entertainment or residential complexes
    • Multi-Business office parks
    • Large offices or manufacturing plants
    • Schools and universities
    • Parks, gas stations, service businesses
    • Airports, bus and train stations, hospitals, etc.

    How To Secure The Location For Vending Machine Business?

    Now, the next step is to secure the location once you have finalized the same.

    You would need to approach the property owner via a phone call or a personal visit to talk about placing your vending machine at that location.

    Furthermore, you can explain to the property owner why his premises would be the best choice for the vending machine that you are planning to install.

    You can explain to him the benefits or the advantages of having such a vending machine for the people who would pass by.

    Knowing The State Laws For Vending Machine Operators

    Various states have various requirements for the vending machine operators. This could include laws regarding requirements for vending machines, requirements for sale of products like milk and milk products, meat, fish, etc.

    For instance, Department of Public Health (DPH) regulation and Department of Consumer Protection (DCP) Statute applies to food and beverage vending machine operations.

    DPH lays down requirements for machine operators, vending machines, and Food and Beverages being sold by the vending machine operators. Likewise, DCP statutes make it necessary for the vending machine operators to obtain a license from the Department.

    The requirements laid down by the DCP for the vending machines and their operations are similar to the ones laid down by DPH regulation.

    Know The Commission And Prepare A Contract

    Since you would be using the premises of mall owners, departmental stores, etc to install your vending machines, you would have to compensate the property owners for using their premise as well as their electricity.

    Usually, you pay the property owner a percentage of Net Sales which you can negotiate with the establishment’s owner.

    The percentage of commission paid to the property owner varies depending on the number and the size of the vending machines installed.

    In addition to this, you as a vending machine operator would also be bound by your contract to share a statement of sales and commission with the property owner.

    Also, make sure that you mention the following details when preparing the contract:

    • Time period of the contract
    • Contract termination terms in case of breach of contract or vending machines generating no profits
    • Types of vending machines and the products sold
    • Rights in respect of replacing, increasing or decreasing the number of machines

    Find Your Vending Machine

    Typically, one thinks of a vending machine dispensing only snacks and beverages. However, there are a number of options when it comes to the type of vending machines available.

    You can consider the following vending machine types for starting your vending machine business.

    Bulk Vending

    As the name suggests, Bulk vending machines are devices that house and dispense unsorted small items like gumballs, toys, nuts, etc.

    These vending machines dispense items followed by the balance amount once the customers insert the requisite payment.

    Also, the average price of an item falls between 25 cents to $1 since these machines offer small items.

    Thus, starting a vending machine business calls for less investment, does not require any prior experience, and is easier to operate and maintain.

    Here are some quick facts about Bulk Vending:

    Benefits of Bulk Vending machines

    Relatively cheap, low investment, low maintenance, less training, do not require electricity. Hence, low operating costs.

    Disadvantages of Bulk Vending Machines

    Low cost items bring lower profits on each item sold.

    Possible Items That Can Be Sold

    Trinkets, gumballs, stickers, etc.

    Food and Beverage Vending

    Beverage Vending Machines dominate the overall vending machine market when it comes to revenue generation.

    These vending machines have higher operating costs relative to the Bulk Vending. But the items dispensed by such machines experience a high customer demand.

    Make sure that you do proper research to understand the kind of products you can sell via Food and Beverage Vending Machines.

    This is because selling the right products to your target market can help you cover your operating costs.

    Here are some quick facts about Food and Beverage Vending:

    Benefits of Food and Beverage Vending machines

    Possibility of higher foot traffic resulting in higher product sales, more profits for your business.

    Disadvantages of Food and Beverage Vending Machines

    High operational and maintenance costs such as electricity, repair charges, etc.

    Possible Items That Can Be Sold

    Water, healthy diet snacks, candy bars, protein bars, etc. and beverages like energy drinks.

    Specialty Vending

    These vending machines cater to specific target markets and allow you to sell specialized products like special food and beverages, makeup items, diet snacks, etc.

    These machines use advanced technology to manage payments and balance amounts. Hence, they are relatively safe.

    Furthermore, they have specialized sections that are custom made for specific products. Hence, they are expensive compared to other vending machines and do not have the option to overhaul.

    Here are some quick facts about Speciality Vending:

    Benefits of Speciality Vending machines

    Higher selling price items, easy to use.

    Disadvantages of SpecialityVending Machines

    Limited product options owing to specialized items, expensive maintenance.

    Possible Items That Can Be Sold

    Office supplies, laundry items, electronics, etc.

    Also consider the various features you would want to have in your vending machines once you have decided on the type of vending machine. This could include payment options using cards, face recognition, custom branding, refrigeration, etc.

    Stock Your Vending Machine With Inventory

    The next step is to install the vending machine at the selected location and stock it with the requisite inventory once you have finalized on the type of vending machine.

    Make sure that you keep your vending machine full of stock with the inventory items so selected.

    Furthermore, keep changing the products to understand which products best resonate with your target market.

    Points to Remember

    • Stocking items demanded by your target market or the location where your vending machine is installed can help you generate higher profits. For example, you can experiment with different types of office supplies like markers, pens, correction tapes, etc if your machine provides office supplies. Keep track of inventory and see which items are bestsellers.
    • Ensure that you do not overstock when getting started. If the product does not resonate with the audience, it means a revenue loss for your business.
    • Locate suppliers that offer inventory at a lower cost. You can even go for bulk inventory to get huge discounts.

    Inventory Financing Options

    You need capital to make purchases for inventory. Some of the inventory financing options include:

    Business Credit Cards

    This is much like your personal credit card. The issuing authority sets a limit. Thus, you can purchase inventory up to the credit limit so sanctioned from vendors who accept credit card payments.

    You are required to pay a monthly amount along with the interest to the lender. These monthly repayments allow you to use funds again for purchases.

    Business Line of Credit

    This is also like the business credit card. Here too, the lender sanctions a credit limit based on the performance of your business.

    Interest is charged on the amount of funds you withdraw. As you repay the used amount, it reduces your outstanding balance and makes funds available for use.

    Explore Your Financing Options

    It does not matter whether you go for a basic, an advanced, a new, or an old vending machine. The fact is that you need capital to buy a vending machine for your business.

    There are a number of financing options available through which you can buy a vending machine.

    Equipment Financing

    Equipment Financing is nothing but a way through which you can fund your equipment purchase.

    It is a small business loan used to buy a vending machine by dividing the lump sum amount into smaller payments.

    You have two options when it comes to Equipment Financing:

    Equipment Loans

    Under Equipment Loans, you pay a down payment upfront which is 10 to 15 per cent of the total cost of the equipment.

    On making the down payment, you get the possession of the equipment and pay the balance amount in instalments with interest. Thus, on the repayment of the loan, you own the equipment.

    Equipment Leases

    An Equipment Lease works much like an Equipment Loan. Here too, you make the down payment and take the possession of the vending machine.

    However, the lease period is for a short period of time, typically 2 to 3 years. As with loans, you make regular payments to the lessor. Thus, the contract ends and you can sign a lease for another equipment once the lease period is over.

    Personal Loans For Business

    One of the challenges that you can face with the Equipment Financing is that you need to fulfill certain requirements. These include annual revenue limit, credit score, and the condition of being in business for some period of time.

    Thus, Equipment Financing would be a difficult route to take If you do not fulfill these requirements. In that case, Personal Loan for Business can be taken to buy a vending machine.

    The Personal Loan providers do not take into account the time period for which you have been into the business. Rather, they check your personal credit worthiness and income.

    Make The Right Investments

    It’s now time to make correct investments since you are now all set with the vending machine location, installation, terms and conditions. This will help you to make your vending machine business profitable.

    Install Vending Machine Management System

    A business-driven by technology always helps you to stay ahead of your competition. Some Vending Machines come preprogrammed with the Vending Machine Management System (VNS).

    This provides you with real-time operational data, thus increasing your vending machine service efficiency as well as sales.

    You can track stock levels and have complete control over your cash. Furthermore, most of the vending machines require you to manage your inventory manually.

    This is feasible when you have less number of vending machines to operate. However, it is advised to invest in VNS once you manage a good number of vending machines.

    A good cloud-based VNS software allows you to manage inventory remotely. The real-time inventory data and reporting tools help you save cost and decrease vending machine downtime.

    Offer High-End Customer Service

    Your vending machines represent your business since you are not present. Thus, make sure that your vending machines are stocked and serviced at regular intervals.

    Also, make sure that your vending machines have the best of technology thereby ensuring a good user experience and minimum machine downtimes.

    Advantages And Disadvantages Of Starting A Vending Machine Business

    No doubt a vending machine business does not require a huge initial investment. But undertaking it is not easy.

    Much like any other business, it has its own advantages and disadvantages that you must keep in mind.

    Advantages

    Low Startup Cost

    Unlike other businesses, you can start off with your vending machine business with a little investment.

    You don’t need to purchase office space to start a vending machine business. All you need is a vending machine and a vehicle to service your route.

    Furthermore, you can simply buy a vending machine that is old for just a few dollars and see if such a business can work for you.

    Scalability

    You can start a vending machine business with just a few vending machines at your disposal. Further, you can expand your business anytime depending upon the available capital and time.

    No Credit Purchases

    A Vending Machine business is a cash-based business. That is, the customers can buy items through a vending machine only if they make payment either in cash or via a credit card.

    Disadvantages

    Theft and Vandalism

    You have to be very careful of the locations where your vending machines are installed. The Vending Machines are prone to theft and intentional damage.

    Therefore, make sure that your vending machines are located in a safe location to avoid such losses.

    Time Investment

    You will have to invest some amount of time and effort into various aspects of your vending machine business. These include collecting and stocking inventory, machine repair and servicing, collecting cash from machines at regular intervals, etc.

    How Much Does a Vending Machine Cost?

    You might be wondering how much does a vending machine cost? Well, there are two things that contribute to the major cost of starting a vending machine business: cost to buy a vending machine and cost of purchasing inventory.

    A basic vending machine can cost you around $1,800 to $2,000. Thus, with as small an amount as $2,000, you can start with your vending machine business.

    In case you do not want to buy a vending machine, you can purchase a refurbished machine that can cost you between $1,200 to $3,000.

    A new vending machine is priced between $3,000 to $10,000. This is based on the size and the features that a vending machine offers.

    FAQ’s:

    Are Vending Machines Profitable?

    Usually, one vending machine may earn not more than $5 per week while other machines may make $100 or more. You need to understand that you require a couple of machines to generate considerable income from your vending machine business. The quality of location where your vending machines are installed and the type of inventory you intend to sell decide your profits. Better the location and well-stocked the vending machine, higher the profit and revenue.

    Do Vending Machine Owners Pay Rent?

    The vending machine owners are obligated to pay monthly rentals or commissions for the location where their machines are installed. These are paid as a percentage of Net Sales that usually range up to 20 percent of the Net Sales.

    Are Vending Machines Taxed?

    Food and Beverages sold from vending machines are typically taxed in the same way as the sale of such items in a department store. This means items that are taxable/exempt when sold in a department store are also taxable/exempt when sold via a vending machine. However, there are items that are taxed when sold through a departmental store but are exempt when sold through vending machines. You need to check the local tax laws to know more about such items.

    Where Can You Place Vending Machines?

    The Vending Machines are typically placed in locations keeping in mind factors like high foot traffic, competition, permission to install vending machines, etc. Based on these factors, the ideal locations for vending machines include shopping centers and malls, schools, community colleges and universities, laundromats, supermarkets, and retail stores, offices, gyms, hotels, clubs, apartment complexes, restaurants, etc.

    Do Vending Machines Make Good Money?

    Most vending machines make less than $5 per week. However, a well-placed and well-stocked vending machine can earn $100 per week or more. The earnings of your vending machines depend upon a number of factors like the products you sell, the location of your vending machines, etc.

    How Much Money Do Candy Vending Machines Make?

    The Candy Vending Machine placed at a high foot traffic location like a good retail store can earn a gross profit of $1,000 to $2,000 annually. The most important factor here is the location of the vending machine. Likewise, you can scale your profits by adding more candy vending machines in high foot traffic areas to earn higher returns.

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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