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..
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.
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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.
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.
- 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.
- 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.
- 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.
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
Forming an LLC sounds complicated and expensive, but using an entity formation service guides you through the process so you know it was done right.
Some popular LLC formation services include:
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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.
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.
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).
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.
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.
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.
Bank account: A separate bank account for your business helps keep your personal and business finances separate, simplifying bookkeeping and tax preparation
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.
Common Questions When Starting A Vending Machine Business
How much does it cost to start a vending machine business?
The cost to start a vending machine business can vary greatly depending on a range of factors like location, the number of machines, and types of products, but a ballpark figure would be between $6,000 and $20,000. This includes purchasing the vending machine, inventory, insurance, and initial marketing costs. Let’s break down the typical costs:
Vending machines: Figure on $1,000 to $5,000 per machine.
Inventory: You’ll need to stock your machine with products to sell. Initial inventory costs can range from $200 to $500 per machine, depending on what you’re selling.
Location lease: Some property owners may charge a monthly rental fee for housing your vending machine, which could be around $100 to $500 a month. Others may ask for a percentage of the sales instead.
Vehicle: A used delivery van or truck can run $5,000 to $15,000. Reliable transportation is crucial.
Business registration and licensing: Registering your business can cost around $100 to $500, depending on your state and business structure. Licensing fees for vending machines also differ from state to state, ranging from $50 to $500.
Insurance: The initial insurance cost to cover your business and machines could be around $500 to $1,000.
Things like transportation for initial setup, tools for maintenance, and initial cleaning supplies can add another $200 to $500 to your start-up costs.
Is a vending machine business profitable?
Many variables affect how much your business will earn, and these variables can also affect the performance of individual machines. Factors like mending machine location, the inventory offered within a machine, how reliable the machine performs, and even the pricing of items will affect sales and profits.
Revenue for a vending machine is typically calculated as the number of sales per machine multiplied by the average price of the product. For instance, if each machine averages 30 sales a day at $1.50 per sale, the daily revenue per machine would be $45. Multiply that by 30 days, and you’re looking at $1,350 in monthly revenue per machine.
Deducting expenses gives a profit estimate. Using industry averages, product costs generally claim 50-60% of sales, while other overhead like insurance, maintenance, accounting fees, and supplies take another 20-30%. That leaves a potential profit margin of 10-30%.
So, in this example, for a machine that makes $1,350 per month and averages a profit margin of 20%, the take home per machine is $270 per month.
This is just an example to illustrate the math, and your mileage may vary depending on several factors, like the ones mentioned earlier. Understanding how to crunch these numbers can give you a solid foundation for estimating your business’s earning potential.
Keep in mind that one of the advantages of the vending machine industry is that nothing is permanent. You can relocate machines to better locations and change your inventory until you find a setup that maximizes profit.
What skills are needed to run a vending machine business?
Starting a vending machine business doesn’t require a business degree, but certain skills and experiences can increase the chances of your business being a success.
Technology repair background: Vending equipment will only bring income while it’s functional, so if a machine breaks, being able to promptly repair it is important. A business owner who can do at least some of their own repair work can save on the expense of calling in a professional repair person and getting the machine up and running quickly to continue bringing in money.
Customer service: Even though a business with vending machines rarely sees its customers, it’s important that vending machine operators have good customer service to secure and keep prime locations. Vending machines in key locations will make far more sales than those that don’t receive much foot traffic.
Retail trend knowledge: Being able to keep up with vending machine retail trends is key to stocking machines with inventory that will sell. A vending machine business owner needs to stay aware of what products are becoming popular and constantly adjust their inventory to reflect those most popular products.
Networking skills: Networking is a particularly important skill in this industry. Business owners will need to establish relationships with store and property owners and then negotiate an agreement that allows them to place their vending machines on the property.
Organizational skills: When a business is responsible for multiple vending machines, keeping each machine stocked and service will require an organized approach. These organizational skills are also important in managing inventory.
Attention to detail: A business owner needs to focus on the details of their business, from product pricing to monitoring the expiration dates of inventory.
What is the NAICS code for a vending machine business?
The NAICS code for a vending machine business is 454210.
The NAICS code (North American Industry Classification System) is a federal system to classify different types of businesses for the collection and reporting of statistical data.
Related: What is a NAICS code?
National Automatic Merchandising Association