Vending machine business can be the best business to start on a part-time basis. It can provide you with better scheduling choices and improved location flexibility when compared to any other retail business.
When it’s structured the right way, a vending machine business can be a highly profitable venture. In this post, we’ll provide you with all the essential information on how to start a vending machine business.
1. Do Your Research
While there’s no need for comprehensive training or prior experience required, some market research is necessary if you want to figure out how to start a vending machine business.
Research is essential to update yourself on the recent market trends in the vending machine industry. You should know exactly what will add to your USP. It also helps you estimate the initial investment required and when you’ll see a return on your investment.
You can also contact other successful vending machine business owners for advice on a profitable vending machine and other vending equipment based on their views.
2. Choose the Type of Vending Machine You Want
Hopefully, by this point, you’ve decided on the types of products you’ll be selling. If not, research consumer trends to help you make a profitable choice.
There are different types of vending machines in the market. You need to pick one that suits your business and the type of products you want to sell.
Some entrepreneurs purchase one type of machine for various locations while others place different types of machines in one location.
There are three primary categories of vending machines. They are as follows:
Food and Beverage Vending
Though beverages like juice, soda, and water make up for more than 30% of all vending machine sales, there is a rising demand for vending machines offering organic and healthy snack options.
Regardless, pick a food niche that suits your location. For example, sell healthy protein bars or workout recovery shakes in gyms. Or follow in the footsteps of Benleigh Vending Systems by selling fresh food, healthy snacks, and granola bars in schools.
Bulk vending machines sell stickers, gumballs, and rubber balls. They are very low maintenance and require a low initial investment. If placed in the right location (like amusement parks or schools), they can make for a great passive income source.
Since most of these machines don’t require electricity or battery power to operate, the operations costs are next to none.
The type of machines in the vending industry is not limited to food and drinks alone. As you may have noticed in malls and airports, some vending machines like Benleigh Vending Systems sell items like beauty products, tech accessories, and health items.
Some specialty vending items are:
- Hot beverages (like tea and coffee in office buildings)
- Essential travel items (like neck pillows)
- Electronic items (like phone chargers and headphones)
- Luxury skincare products and feminine hygiene products
- Laundry products (like dryer sheets, detergents, and fabric softener)
Even if you hope to expand and sell different kinds of products, start with one or two. Focus on your target audience and gradually expand your customer base depending on key indicators and consumer trends.
You can choose a profitable vending machine product based on the market share and vending sales. Apart from this, there’s also an opportunity to start a vending machine franchise.
3. Pick a Location
When you’re considering how to start a vending machine business, remember this: “Location, location, location!”
For a successful business, the location is crucial because it deeply impacts sales and profits. If you pick a location that’s over-saturated with vending machines, your venture will likely sink.
Here are locations you could launch your business:
- Office complexes
- Shopping malls
- Public transport stations
- Event venues
- Places with no nearby food and drinks
- Apartment buildings
- Hospitals or medical centers
- Grocery stores
- Manufacturing plants
4. Sign a Contract
You will need to compensate property and business owners for setting up machines on their premises and for using their electricity. This fee is usually a percentage of your gross sales.
Seven percent is the average commission, but it can differ based on the size and number of machines. Per contract agreements, plan to provide sales and commission statements to the location owners periodically.
Your contract should also specify:
- Type of machine and the product selection
- Contract length
- Termination clauses in case of unprofitability or breach of contract
- Rights to increase, decrease, or replace the machines
It’s advisable to have your contract drafted and reviewed by a lawyer.
5. Stock Your Vending Machine
After finalizing the type of vending machine you want, be sure to stock it with the right kind of products. Though it might seem like an easy job, different locations need different inventory for maximum profit.
Assess each location carefully and understand your customer’s needs before stocking up. Candies, snack foods, and beverages are always a top choice. However, there’s also a rising demand for healthier alternatives.
You can periodically switch out the products to assess which ones resonate best with your target market. Avoid overstocking in the beginning as it can mean an income loss if the products don’t sell well.
6. Determine Startup Expenses
Before diving into the vending machine industry, assess the startup costs compared to your budget. Common expenses include:
- Vending machine: The price can range from $2000 to $5000 depending on how new it is.
- Maintenance: Account for repair and replacement expenses into your budget.
- Taxes and Insurance: Don’t forget about these pesky financial obligations.
- Other Costs: Account for staff salary, monthly rent, electric bills, etc.
Thoroughly explore all these costs before deciding if you’re ready to invest in this venture.
7. Provide Maintenance and Customer Service
Excellent customer service is important in any business venture. In the case of a vending machine business, you should:
- Schedule periodic visits to the locations and make sure to stock up on inventory
- Ensure that machines are clean and in good condition
- Provide contact details on the machines to help consumers report any issues
- Rotate products by their expiry date so that the oldest ones sell first
- Regularly analyze sales and check with other vending machine owners to see what customers want
- Take consumer trends into account and offer products accordingly
- Maintain good relationships with the contact people at machine locations
- Keep a professional attitude at all times
Excellent customer service is usually the key to increase sales and improve your business reputation, which is vital if you plan to expand your business.
How to Choose the Right Vending Machine Equipment
The types of products that sell in vending machines change over time. Accessories and healthy items, fresh-food dispensing machines are now common. That said, it’s better to purchase one quality vending machine at one location instead of many older ones.
Many vending machines come with a variety of features. Choose the best one for your business, depending on your location and the products you wish to sell.
Here are some of the common features:
Debit and Credit Card Reader
As most people don’t carry cash and prefer other payments methods, card readers are convenient for customers. They help grow and optimize your business while increasing sales.
There are also machines with other forms of payment like the option to pay through mobile phones and mobile wallets too.
LED and LCD Screens
Digitization can make your machines stand out and also offer you extra income opportunities by displaying ads. Voice-activated screens and interactive touch can be an added feature.
Just like card readers, remote inventory management is no longer an elective feature. It’s vital for enhancing business growth as the software remotely monitors product stock levels.
Some vending machines have product mix features, such as a food and beverage dispenser combined in one machine.
Will I Need to Finance a Vending Machine Business?
This is one of the key questions to ask before you start this venture. Whether you decide to stick with a basic, advanced, new, or old vending machine isn’t as important as having the capital to buy one in the first place.
Though the initial investment and startup costs are low in this business, a few thousand dollars is no small number to most people. If you require a loan to buy your vending machines, you can consider these financing choices:
This might be the best choice if you already own a business and have a business financial history on record. A short-term loan involves borrowing cash from a lender and repaying them over a predetermined amount of time. They are easier to acquire than long-term loans.
However, you may have to provide a good business revenue and credit history to prove your candidature.
Equipment financing is funding that helps small businesses purchase business-related equipment, such as a vending machine.
In this type of financing, your equipment is collateral, and the loan terms depend on your equipment value. Usually, the lump sum is divided into small payments. This can be the best method for entrepreneurs.
There are two methods of Equipment Financing:
A. Equipment Loans
Equipment loans require an upfront down payment, which is usually ten to fifteen percent of the total equipment cost.
After the down payment, you get ownership of the equipment by paying the remaining amount in installments with interest. After the entire repayment, you own the equipment.
B. Equipment Leases
Equipment leases are very similar to equipment loans, but the lease period is shorter. Once the contract and lease period ends, you can sign for another equipment lease term.
Personal Business Loans
One of the challenges of equipment financing is that you need to satisfy some criteria, such as business credit score and annual revenue limit. Personal loan providers don’t take your business time into account; they only check your income and personal creditworthiness.
If you are a prospective vending machine business owner with no previous business experience, this can be the best way to start your business from scratch.
You require capital to make inventory purchases. Here are a few financing options:
A. Business Credit Cards
Similar to personal credit cards, the provider sets an upper limit. You can purchase till the credit limit. You will have to pay the lenders monthly charges with interest to use the funds again for future purchases.
B. Business Line of Credit
Similar to the business credit card, the provider approves a credit limit based on your business performance. Interest is placed on the funds you extract, and as you reimburse them, it decreases your unpaid balance and makes funds accessible.
How Much Does the Average Vending Machine Earn?
This is one of the most popular questions asked by prospective vending machine owners. The average earnings from a vending machine depend on many factors.
One type of vending machine may earn less than $5 per week, while others make more than $100. You will need at least a couple of machines to generate significant income from your vending machine business.
Some of the factors affecting vending machine earnings are:
- The location of the machine(s)
- The number of machines
- Inventory type
- Frequent business expenses
The better the location and inventory items, the greater the sales and profit. To maximize a vending machine’s earnings, deduct your business expenses from the gross profit and set prices strategically.
For instance, if you sell sodas for $2 each and place them in a less-than-ideal location, you may get only 10 sales per day. That amounts to $20 per day. If each soda originally cost you $1.50, your profit is only 50 cents per bottle, and the overall profit is only $5 per day.
With all the different expenses like rent charges, driving expenses, sales tax, and self-employment taxes, the average vending machine earnings would be less than $150 per month.
However, a well-placed machine that sells products at around $4 each with around 50 sales per day, after paying 50 cents each for the product, would earn around $175 in profit per day. Profitability depends largely on the effort you put in to be successful.
What Type of Licensing, Paperwork, and Insurance Will I Need?
The Department of Consumer Protection (DCP) Statute mandates vending machine operators to obtain a license from the Department.
Depending on the location, there may be requirements for permits and licenses like Employer Identification Number, Occupancy Permit, and Sales Tax permit.
As a vending machine owner, you will need different types of insurance.
We recommend you get an umbrella insurance policy for your business that covers theft, fire, and vandalism. Some types of insurance policies are:
General Liability Insurance
General Liability insurance protects your business from a lawsuit if customers sustain injuries due to your machine or products sold in your machine.
For example, if you keep expired products in the machines and customers consume them, it may cause food poisoning and result in lawsuits.
Commercial Property Insurance
Commercial property insurance protects your business from financial loss occurring due to equipment damage in the event of a fire or other disasters.
Commercial Auto Insurance
If your company-owned vehicle is involved in an accident, commercial auto insurance pays for medical bills, provides coverage to vehicle damages, and compensates for bodily injuries.
Worker’s Compensation Insurance
This type of policy pays for medical bills, lost wages, and rehabilitation costs to an employee who sustains injuries while on the job.
Pros and Cons of a Vending Machine Business
Let’s now take a look at some of the pros and cons of this business:
Low Startup Cost
Unlike other businesses, you can start this business with minimal investment. There’s no need for a separate office space. All you need is a machine and a vehicle to cater to the business requirements. Also, upfront cost and overhead costs are less than traditional business models.
You can also get started with an old machine for a few dollars and see if things work out or not.
You can start your venture with just a few machines and gradually expand, depending on the available finances and time.
After placing the machines in the right locations, you only need to maintain and refill the inventory as needed.
As for payment methods, there’s no credit purchase involved since customers can only buy items after making the payment either in cash or through a credit card.
This business is best for families as everyone can assist in the undertakings of the business as a business partner. There’s no location constraint related to office places.
Theft and Vandalism
When it comes to theft and vandalism, vending machines are easy targets. Make sure that your machines are located in a secure and safe location to avoid losses, and don’t skimp on insurance.
Operating this business can be time-consuming, and you’ll need to invest a considerable amount of effort into aspects of your business. These include stocking inventory, machine servicing, periodically collecting cash from the machines, etc.
Common vending machine FAQ
How Long Does It Take to Refill a Vending Machine?
The refilling frequency depends on the product type you stock in your vending machine.
If you’re selling candies or snacks, plan to restock once a month. If you’re selling healthy snacks, juices, and protein bars, you may have to stock items every 1 to 2 weeks. Beverage vending machines usually need weekly restock.
The potential location and average consumer consumption also play a huge role here. If you sell protein bars in a gym, it may need more frequent refilling as compared to selling them in apartment complexes.
Are Vending Machines Profitable?
A vending machine franchise can be very profitable. However, the profitability depends on the location of your machines along with the amount of work you put into your new business.
An average vending machine can earn $35 a week, while a well-stocked and well-placed vending machine can generate over $400 a month.
Do Vending Machine Owners Pay Rent?
The vending machine owners need to pay monthly commission or rents to the property owners where their vending machines are located. The commission is usually twenty percent of the net revenue.
Are Vending Machines Taxed?
The products like snacks and beverages that are sold through a vending machine franchise are taxed in the same way as stores. Hence, the products that are exempted or taxable while on sale in a department store are the same when sold in a vending machine.
However, some items are exempted when sold in a vending machine but taxed when sold in a departmental store. Review local tax laws to find out about such products.
Where Can You Place Vending Machines?
Vending machines can be placed in various locations. Some of the factors to take into consideration are foot traffic, traffic patterns, competition, and location permits.
Some ideal locations include malls, gyms, restaurants, and micro-markets in places like retail stores, supermarkets, hotels, and office spaces.
What Are the Best Types of Locations?
You should place your vending machine(s) in high foot traffic places like airports, schools, and malls. Make sure that there are no other machines where you plan to place yours.
However, if there’s a mismatch between your target audience and product selection, even the best locations can fail to make profits. For instance, if you sell healthy snacks and protein bars outside a line of restaurants, it can be no good for your business.
You can contact your Chamber of Commerce regarding the most profitable locations for placing your machine. The following are some of the locations where you can place your vending machines:
- Malls or residential buildings
- Multi-Business office spaces
- Airports, hospitals, train and bus stations
- Amusement parks
- Manufacturing plants
- Schools and universities
There’s a lot to consider when creating a vending machine business, and we hope this guide will help you find success in your new venture.