How to Start a Vending Machine Business
Vending machines can be a great source of passive income.
- May 14, 2020
- Starting Your Business
- 11 min read
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If you’re looking to start a new business that requires minimal-to-no special skills, prior experience or training, a vending machine business could be a great fit. Running a vending machine business offers greater flexibility than other small businesses because it can be part-time or home-based. Few other small business ventures offer such flexibility — not to mention affordability — compared to a vending machine business. Read on to find out how to start a vending machine business and all the steps you’ll need to take to do it.
One of the greatest benefits of starting a vending machine business is affordability. Additionally, it’s one of the few small businesses in which you really don’t need any prior experience or skills in the field. However, you’ll need to take several critical steps to successfully get your vending machine business off the ground. Here’s a look at the key steps and processes you’ll encounter when starting your vending machine business.
Follow these steps to start a vending machine business:
When starting a vending machine business, you’ll have to conduct market research and draw up a business plan, just as you would for any type of business. Several options exist, such as launching a brand-new vending machine business or buying an existing one. Each option carries its own advantages and disadvantages, however. So, you’ll need to weigh the various options alongside your business objectives and the resources at your disposal.
- Starting a vending machine business from scratch: Going this route provides the most flexibility. You can begin with just a few machines and expand as opportunities emerge and finances permit. But this option also requires the most preparation. You’ll need to buy or lease vending machines and determine vending locations yourself.
- Buying an existing vending machine business: This method has similar advantages to buying any existing business instead of starting from scratch. You can get immediate cash flow from the existing business, plus much of the foundational work has already been done. What is key here, however, is finding out why the owner wants to sell. You’ll have to conduct background research, such as the state of the accounts, inspecting the machines, reviewing existing contracts and examining existing locations for any possible issues.
- Buying a vending machine franchise: Buying a vending machine franchise has the advantage of giving you an established business model based on vending certain products. However, you’ll have to account for startup franchise fees, the franchisor’s percentage of your profits or monthly fees. Plus, you’ll likely be limited to purchasing or renting machines and products from the franchising company.
No matter which vending machine option you choose, the next step you should take is writing a business plan that’s informed by market research. But don’t stop there. As your business grows and expands, you should stay abreast of changes in the marketplace, so you can change your business plan as needed.
“Location, location, location” is as relevant to starting a vending machine business as it is to retail or real estate. You’ll want your machines in places that have plenty of foot traffic, such as office complexes, schools and universities. Also, consider airports and stores that don’t compete with your business.
For the best chance of success, you’ll want to identify locations that don’t already have vending machines, which could be a challenge. Unfortunately, many of the best locations in your area will likely already be taken. What’s more, these existing vending machines could have exclusive contracts with the property owner.
A good place to start is to think about the types of places you have bought something from a vending machine. Also, consider the times people are most likely to purchase a snack, beverage or other item, such as when they are between flights at an airport or sitting in a hospital waiting room. Here are some solid location ideas for your vending machine business:
- Schools and universities
- Business complexes and office parks
- Hospitals or medical centers
- Grocery stores
- Airports, train stations or other transportation hubs
- Shopping malls
- Apartment complexes
- Theme parks, zoos and similar
In addition to choosing a good location for your vending machines, your product selection needs to fit the location’s demographic and overall market. For example, a vending machine filled with healthy, yet expensive, organic products might do poorly in a shopping center that has lower-income customers.
Various rules and regulations apply to different types of vending machines, and vending regulations change from state to state. Before you actually launch your vending machine business, find out how your state regulates vendors. Reach out to your local Chamber of Commerce or search your state’s vendor laws online. Common regulations for vending machines include meeting nutritional requirements and obtaining a business license, seller’s permit and sales tax license.
Another important consideration is compliance with the Americans with Disabilities Act. To be compliant, your vending machines must fit ADA standards, including height requirements and ranges for all buttons and switches. So, keep those features in mind when choosing vending machine options.
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The contract you work out and agree to is one of the most crucial parts of starting a vending machine business. It involves the compensation you pay the business or property owners for installing your vending machines on their premises and using their electricity. This compensation is usually determined based on a negotiated percentage of your total sales.
The average commission you pay can vary significantly — depending on the number, size and type of vending machines — but is typically around 7%. Since the commission is based on gross sales, you’ll need to provide statements of sales and commissions to the business or property owner at predetermined intervals per your contract. Some of the points that should be detailed in your contract include:
- Vending machine types
- Vending machine products sold
- Duration of contract
- Termination clauses for cases, such as breach of contract or unprofitability
- Rights to replace, increase or decrease the number of vending machines
- Exclusivity clause, if applicable
When drawing up and agreeing to contracts, it is best to have them drafted or reviewed by an attorney. You can also find tons of vending machine contract examples and templates online if you want to draft your own.
If you are not franchising or buying an existing business, you will need to obtain one or more vending machines to get your business off the ground. A big part of this step is deciding on what products you plan to sell. You can choose from food, beverages or specialty items, such as electronics. You’ll also need to determine the type of vending machines you want to sell your products. Here is a top-level overview of the different types of vending machines:
- Bulk Machines: These vending machines tend to be small, cheap and give out handfuls of bulk products like gumballs, peanuts, candy and small toys. Bulk vending machines are generally the most affordable, but also have the thinnest profit margins. It usually takes many of these bulk machines to turn a real profit. The main advantages of this option are that bulk machines are less prone to breakdown and don’t require as much refilling as other types of vending machines.
- Mechanical Machines: These vending machines are usually larger than bulk machines and can dispense a variety of products. Mechanical vending machines can be full-size, or they can be smaller, such as countertop machines. Mechanical machines are more expensive than bulk machines, but profit margins are much better. The price typically increases with the size and holding capacity of the machine, as well as attributes like refrigeration.
- Electronic Machines: These vending machines often employ touch screens and elevators to dispense items instead of dropping them and can accept multiple forms of payment, such as bills and credit cards. The main drawback of electronic machines is that they’re the most expensive in terms of upfront costs, with new electronic machines easily starting around $4,000 per machine. Used electronic vending machines are naturally cheaper, but still typically costing at least $2,000 to $3,000 for refurbished models.
Another important consideration is whether you want to buy your vending machines or lease them. With high-end models easily costing as much as $10,000, you might want to consider renting your vending machines. Doing so spreads out the usual upfront expense over a period of months or years in rental payments.
Another advantage to renting vending machines is that the costs of restocking and maintenance are typically included in the lease agreement. Lease-to-own programs are also available.
One way to seriously cut down your upfront costs is to purchase used vending machines. Used or refurbished vending machines are often discounted a lot compared to brand-new machines. Some great sources of used vending machines include:
One of the best parts of starting a vending machine business is that the startup capital isn’t nearly as much as required for other small businesses. Your startup costs can be especially low by opting for used or refurbished vending machines, which can reduce the cost per machine from the high thousands down to between $1,000 and $3,000.
Although this cost is substantially lower compared to other business enterprises, many prospective vending machine owners still need to get financing to get started. Here’s a look at some solid financing options for your vending machine business:
Short-term business loans can make a lot of sense for entrepreneurs who want to get into the vending machine business. The main caveat for securing funding this way is that you’ll likely need to have established business and financial credentials to qualify for a loan.
Lenders will typically look at things like your personal or business credit, the latter of which may necessitate that you already be a business owner before getting into vending machines. What’s more, lenders will want to see a history of revenue generation by whatever business you’re already currently running.
These stipulations could rule out short-term loans for entrepreneurs starting their vending machine business from scratch and without prior experience. But if you can qualify, short-term business loans are a great fit for this line of business.
Since vending machines qualify as equipment, equipment financing could be a sensible way for you to get funding for your business. The terms of these types of loans depend on the value of your equipment, which serves as the collateral for the loan in case you default on your payments.
One of the benefits of vending machines is that they typically last a long time when maintained properly. This long operational life can help assure lenders that they’re not taking on too much risk. As with other types of loans, you’ll need to supply a business plan, financial credentials and quotes for the equipment you need to purchase.
Compare: 7 Best Equipment Financing Options
An increasingly popular option for funding small businesses is to use a combination of personal, business or both types of credit cards. Going this route makes a lot of sense if you have no previous experience as a business owner and therefore lack the financial credentials for a term loan.
Considering how affordable buying new or used vending machines is compared to starting other kinds of small businesses, using credit cards to fund your business is very doable. Research some of the best credit cards for starting a business and see if this method of funding makes sense for you.
With the location, licenses, contract and financing out of the way, the next step is to stock your vending machines — an essential part of inventory and sales. The best approach to product selection is to choose stock items based on local and site-specific needs, rather than on broader food and beverage trends. Focusing on the local level helps you understand how much inventory to purchase, whereas looking at wide-scale trends can induce you to over-order items for your machines.
Refer to your contract when determining what products to choose to stock your machines. The business or property owners you signed with may have product stipulations, such as type, size, shape and variety of items.
If you want your vending machines to dispense different products of varying sizes, you should try to find a machine with adjustable product sizing. Machines with this capability, not surprisingly, tend to be more expensive than standard ones.
A good tip for maximizing your profits is to pay the lowest possible per-unit price on the items you buy for your machines. Compare prices on products offered at wholesale food and drink suppliers, such as Vistar or Costco. If you have several vending machines, you may also be able to negotiate bulk discounts from suppliers.
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The next step is concerned with ensuring that your vending machine business operates smoothly and provides the best service to customers. This is an ongoing process that involves maintenance and repairs, inventory management and customer service. Putting in the appropriate time and resources for these processes is essential because both can have a major impact on your business profits.
As with purchasing and operating any piece of equipment, vending machines do come with maintenance concerns. Improper use or neglect can lead to a decline in productivity and a loss of profit.
Some of the most important features to monitor include the refrigeration deck, the bill validator, coin unit tubes and the actual vending mechanism. Maintenance and repair are a must if you purchased your vending machines outright. However, if you’re leasing vending machines, maintenance and repairs may be covered in your lease agreement.
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Vending machines come in a variety of forms. Some are very basic, like bulk machines, whereas others are more complex, like electronic vending machines. In the latter case, your vending equipment could come pre-programmed with vending management software.
VMS is very convenient and allows you to streamline operations, record inventory and track revenue. However, most standard vending machines do not come with this software, requiring you to manage your inventory manually.
If you only have a couple of vending machines, then manually managing inventory might not be much of an issue. But if you have more than just a couple, it’s likely a smart move to purchase a VMS, so you can stay on top of inventory issues automatically and remotely.
It’s crucial to put an emphasis on customer service, both toward people who buy food or beverages from your machine and toward the business or property owners where your machines are located. It’s equally important to maintain good relations with your suppliers as well.
In terms of your customers, the most important concern is that you ensure your vending machines are stocked and functioning properly. You should do this on a weekly or biweekly basis, all the while providing a phone number for service requests and feedback.
As with any business, one focused on vending machines has its advantages and drawbacks.
For instance, one drawback is that the profit margins for vending machines are generally not too great. So, you’re unlikely to make a boatload of money through this venture. It also could be challenging to find prime locations for your machines.
Even so, this business has advantages worth considering. For example, running a vending machine business means you get to be your own boss. It’s also comparatively much cheaper to start than many other small businesses. Plus, a vending machine business is very scalable. And if you add more and more locations, your vending machines can eventually generate a steady income for you.
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