Starting a vending machine business can be an exciting venture. It offers the potential for passive income and flexibility that traditional 9 to 5 jobs do not provide.

Whether you want to start with just a single machine or have hopes of owning a fleet of machines, starting a vending machine business could help you make your goals as an entrepreneur a reality.

However, like any other small business, it requires careful planning, hard work, and sound decision-making to be successful. In this guide, we will provide an overview of the business, steps to get started, and answers to common questions.

Business Overview

Vending machine business owners own, install, and manage vending machines in multiple locations. These owners establish agreements with other business or commercial property owners who generally agree to allow a vending machine to be installed in exchange for a monthly fee or a percentage of the machine’s profits.

Vending machine business owners may own just a few machines, or they may establish large routes of machines in many different locations. They are responsible for stocking the machines with inventory, ranging from gumballs, beverages, salads, sandwiches, specialty foods, and hygiene products like toothpaste, detergent, fabric softener, and other essentials.

There is a lot of misinformation online and elsewhere that a vending machine business is as easy as finding a location, and then it just makes money on its own. To be successful, there is a lot of work, not only in finding profitable locations, but also in managing relationships with the property owners, maintenance, and stocking the machines.

If you’re thinking of starting your own business but aren’t yet ready to leave full-time employment, the vending machine industry might be the right option for you. You can start (and probably should start) a vending machine company on a part-time basis with just a few machines. This way, you can learn more about the market, learn what products are popular, and get a taste of how much work is involved. By reinvesting the profits from your first machine back into the business, you can grow the operation and purchase additional machines without having to invest significant amounts of money.

Vending Industry Overview

Vending machine businesses are a part of the broader retail industry, and they’ve carved out a sizable niche. The vending industry is huge, with slightly over 2 million machines placed throughout the United States alone. In 2022, these machines generated $21.7 billion in revenue.

If the prospects of this huge market aren’t enough, the industry is also attractive due to its low startup costs, flexible working hours, and scalability. Furthermore, you’ll find vending machines in places ranging from offices and schools to airports and hotels. The industry is far-reaching, and there’s ample opportunity for innovation and differentiation.

There are a few industry trends to keep an eye out for. A few of these include:

• Technology adoption is increasing. Operators are adding cashless readers, remote monitoring, pre-kitting, and vending management software to improve operations, sales, and margins.
• Healthy vending is growing due to rising health consciousness. Operators are adding nutritious snacks, plant-based items, juices, waters, etc., to cater to customer preferences.
• Micro markets are gaining share. These unattended convenience stores are outpacing vending growth.
• Alternative locations and products are emerging. Vending machines in new places like airports, hotels, or hospitals and specialty items like electronics, flowers, and automobiles generate incremental revenue opportunities.
• There is consolidation in the industry as smaller operators are acquired. Larger players benefit from economies of scale and enhanced purchasing power.

The industry expects steady long-term growth as vending provides specialized convenience. New technology and business models will enable operators to improve customer experience, widen product selection, and operate more efficiently and profitably.

Target Market

Vending machine businesses market to different types of purchasers. For instance, a machine positioned by a gym will market to a different audience than a machine located in a shopping mall will. It’s important to understand each market’s needs and preferences to stock each machine with inventory that will be in demand.

Businesses also need to market to property owners in order to get permission to install a vending machine. Establishing and maintaining relationships with these property owners to negotiate the placement of a machine is an important part of running this type of business.

Checklist To Start A Vending Machine Business

Starting a vending machine business requires more than just having a good location for a machine. It involves understanding your market, sourcing funding, making the business legal, and more.

This guide will help you go through the steps to help you start right.

Step 1: Create a Business Plan

Creating a business plan is an important step in establishing your vending machine business and serves multiple purposes.

First, it acts as your roadmap, laying out the route from point A, the idea in your head, to point B, a fully operational business. Second, it pushes you to get your ideas out of your head and onto paper, a process that often brings clarity and structure to your vision. In the vending machine business, it can help you nail down details like ideal machine locations, types of products to offer, and logistics like restocking and maintenance.

The business plan also provides a structured format that can effectively communicate your vision to lenders if you are seeking funding.

When starting a vending machine business, there are a few sections of the business plan that I would recommend focusing on.

1. Location: The success of a vending machine business heavily depends on where the machines are located. In this section, describe your proposed locations and explain why they are ideal for your business. You might want to focus on factors such as high foot traffic, proximity to your target customers, and lack of direct competition. If possible, provide data or research to back up your claims.
   
   If you have signed agreements already in place, include details like terms and commissions.
2. Management team: When it comes to lending money, banks pay special attention to the people running the business. A skilled and experienced management team can be a major asset, so make sure to include details about each team member’s background, role, and qualifications. Since the people behind a business are often a key factor in its success, be transparent about who you are and what you bring to the table.
3. Financial projections: Not only important for lenders but projecting the potential income and expenses can help show whether your business if feasible or not before investing any money.
   
   Potential lenders will sift through this section with a fine-tooth comb. They want to see not just profitability but also reasonableness in your projections. This should include income statements, cash flow statements, and capital expenditure budgets for the first few years.

Related: How to write a business plan

Step 2: Source Funding

Before your vending machines start humming, you need to tackle a potentially challenging but essential part of starting any business: funding. Let’s take a closer look at some common ways to fund a vending business.

Personal savings: Given the affordable cost of starting a vending business, many entrepreneurs fund the business from their savings. However, if your savings can’t cover all the startup costs, you’ll need to explore additional channels.

The most common ones include:

Bank loans: Banks are a common source of funding for small businesses. To qualify for a loan, lenders typically require a good credit score, sufficient collateral, and the borrower invests at least 15% of their personal funds into the business. If a bank deems the loan too risky, they might opt for an SBA loan guarantee, which can provide the lender with a government-backed guarantee if the loan is defaulted.

Friends and family: Reaching out to friends and family can be another option, but tread carefully. Even though it’s tempting to keep things informal, having written agreements can save relationships down the road. Make sure you lay out terms, expectations, and any interest or equity arrangements in black and white.

Microloans: If your funding needs are on the lower side or if a traditional lender isn’t an option due to credit issues, consider microloans. These are smaller loans usually offered by non-profit organizations. A bonus is that some microloan providers offer business training alongside funding, which can be a helpful resource for getting your vending machine business off the ground.

Local investors: Another option to consider is local people who have an interest in the kind of business you’re starting and have the financial means to back you. However, securing an investment isn’t a walk in the park. Many investors are looking for businesses that promise high growth and scalability, criteria that a vending machine business may not necessarily meet.

Related: Finding the money to start a business

Step 3: Register the Business

After writing the business plan and you’ve squared away funding, now comes an equally important step, which is registering your business. This involves several crucial tasks, each designed to set your vending machine business on a firm legal footing. Each state has different requirements, but here is a general overview.

Choosing a business structure: First off, you need to decide on a business structure, which essentially defines how your business will operate, be taxed, and how you and any partners will share responsibilities. The four primary structures are:

• Sole proprietorship: The simplest form to start with, it offers ease of setup and lower costs. However, your personal assets aren’t separate from your business, meaning you are personally liable for any debts and legal actions against the business.
• Partnership: This structure is similar to the sole proprietorship and could make sense if you’re going into business with someone else. Be aware that each partner is responsible for the business’s debts and obligations.
• Corporation: While a corporation offers liability protection — your personal assets are separate from the business — it’s more complex and expensive to establish and maintain.
• Limited Liability Company (LLC): This offers a mix of the corporation’s liability protection and the simplicity and flexibility of a sole proprietorship or partnership.

Related: Comparison of business structures

Business name registration: After registering the business structure, you may need to register your business name. This process will vary depending on what business structure you pick. Sole proprietors and partnerships will often be required to register a “Doing Business As” (DBA), while corporations and LLCs register with the state during the formation process.

Related: Tips and ideas for naming a vending machine business

During this time, it’s also a good idea to check if the name you want is available as a web domain, even if you’re not ready to set up a website yet.

Related: Finding a domain name for your business

Vending licenses: Vending machine businesses have their unique set of licensing requirements. Many states require specific licenses for vending machine operators.

Some localities even require individual licenses for each machine you operate. Also, certain types of vending machines, such as those selling food or beverages, may have additional health and safety regulations.

Research the vending license requirements in your area before placing a machine.

Business licenses and permits: Depending on your location, there will likely be a variety of general licenses or permits needed before opening. This could include a business license, seller’s permit, and Employer Identification Number (EIN).

Related: State guides for general business licensing

Step 4: Acquire Locations & Set Up Machines

With funding secured and your business officially registered, you’re now ready to make your vending machine business a reality. This next step involves acquiring and setting up locations for your vending machines, turning your initial planning into something tangible.

Choosing the right locations for your vending machines is critical to your business’s success. High foot-traffic areas such as shopping malls, apartment complexes, office buildings, schools, and laundromats are often ideal. Approach property owners or managers in these areas to discuss the possibility of placing your vending machines on their premises.

When it comes to establishing agreements with local business owners so that you can install a vending machine, think about the benefits that you can offer the business or property owner, such as offering an added convenience to their customers or employees, and potentially earning a small commission from your profits.

This might be one of the most important elements of running your business, so carefully think about why business owners should agree to let you bring in a machine.

Related: Where are the best places to put a vending machine?

Step 5: Purchase Inventory

Managing your inventory effectively is one of the most important aspects of running a successful vending machine business. The products you stock in your machines should cater to the customers’ preferences in each location.

The key here is to find the sweet spot between customer preferences and items that offer a good return on investment. Before placing bulk orders, it’s smart to test a variety of products in smaller quantities. Monitor which items sell quickly and which linger, and adjust your inventory accordingly. Always take note of shelf life; perishable goods require a faster turnover, which can be challenging for new businesses.

Once you know what your customers want, find reliable suppliers who can provide these items at a good price. Buying in bulk often leads to discounts, but balance this against the risk of items expiring before they can be sold.

It’s also a good idea to keep track of what sells well and what doesn’t. Regularly rotating your stock and introducing new items can keep your customers interested and increase sales. Also, how you arrange items in your machine can affect sales. Put popular items at eye level and group similar items together.

Step 6: Prepare to Open!

Before you cut the ribbon on your vending machine business, there are likely some important steps left to take care of. Every business will be different, but here are some common final tasks.

Business insurance: Look into insurance options that protect you from liability and cover your assets. This is especially important for a business with physical goods and hardware.

Related: What insurance does a vending machine business need?

Bookkeeping: Regular, accurate bookkeeping is vital to managing expenses, tracking revenue, and filing taxes. Software like Wave Accounting (FREE) or Quickbooks can help streamline this.

Contracts: Having written agreements with the owners of the locations where you place your vending machines is necessary. These contracts should outline the terms of the arrangement, such as the length of the agreement, the commission (if any) paid to the location owner, and the responsibilities of each party.

RocketLawyer and Law Depot have free and inexpensive templates that may be helpful.

Bank account: A separate bank account for your business helps keep your personal and business finances separate, simplifying bookkeeping and tax preparation

Management Software: Software like VendSoft, Parlevel, or Nayax can help you manage inventory, track sales, and even remotely monitor machine health.

Pricing: Your product pricing should be competitive but still allow you room to make a profit. It’s a balance that might take some time and adjustments to get right.

Industry Associations: Consider joining the National Automatic Merchandising Association (NAMA), American Amusement Machine Association (AAMA), and the National Bulk Vendors Association (NBVA). These organizations provide valuable resources, updates, and networking opportunities.