How to Start a Vending Machine Business

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Quick Reference

If you’re looking for a business that you can start on a part-time basis, then the vending machine industry might be a route you want to explore. Starting a vending machine business gives you more scheduling and location flexibility than a traditional retail business offers. However, you still have the opportunity to grow your business, increase your profits, and contribute to your own success. Whether you want to start up with just a single machine or have hopes of owning a fleet of machines, starting a vending machine business could help you to make your goals as an entrepreneur into a reality.

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.

Industry Summary

At first, glance, entering the vending machine industry might not appear to be a sound investment, but there are opportunities and lessons to be learned from the industry’s financial trends. According to IBIS World, from 2014 to 2019, the vending industry declined at an annualized 0.4 percent rate, and a decline of 2.5 percent was predicted for 2019 alone. During that five-year period, the number of businesses decreased to 20,809, and industry employment also declined to 50,766. In 2019, vending machine sales were predicted to bring in $8 billion in revenue.

While those figures may seem discouraging, it’s important to understand the factors driving that financial decline. Traditional vending machine products include junk foods like candy, chips, and soda, and with the increased focus on healthy snacks, demand for those foods has decreased. It’s also important to recognize that disposable income has increased during that same period, meaning that more people have the money to spend on vending machine purchases if they choose. While traditional vending machine use may have declined, creative business owners can see this shifting trend as an opportunity to offer vending machines stocked with new, exciting, and in-demand products that will sell. Even with the decline, according to Vending Market Watch’s 2019 annual report, vending machines with snacks, soda, and candy still make up the majority of the vending market share in the U.S., with beverages alone accounting for nearly a third of vending sales.

Industry Trends

In addition to monitoring the trends that dictate which foods and beverages are in demand, vending machine business owners also need to be aware of the other trends shaping the industry. Global Industry Analysts, Inc. predicts that there may be as many as 31.6 million vending machines in existence by 2025, but those machines won’t be the traditional machines we’re used to.

Corresponding with the increased demand for healthy food choices, we may see more vending machines that offer healthier snack options like organic foods. Machines that incorporate calorie counters can also complement the healthy eating trend.

With an increasingly digital world, vending machines need to keep up. Machines incorporating digital inventory management reduce the work associated with maintaining the machine and can maximize profit margins by ensuring there’s always a plentiful supply of inventory. We may also see an increase in machines equipped with credit card readers to keep pace with the decreasing use of cash as a payment method today.

 

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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.

Skills, experience, and education useful in running 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 can also get the machine up and running quickly to continue to bring in money.

Customer Service. Even though a business with vending machines rarely sees their 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 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.

Purchasing skills. Owners will need to keep on top of knowing what products sell in their various locations to stock products people are willing to pay for.

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.

 

Educational Resources

Amazon has several books that go into detail on starting and running a vending machine business:

 

Passive Income with Vending Machines: Step By Step Guide to Starting Your Own Vending Machine Empire (Free on Amazon Kindle Unlimited)
How to Start a Vending Business (Free on Amazon Kindle Unlimited)
Vending Revolution!: How To Start & Grow A Vending Empire At Any Age!
The Vending Bizz: How to Start A Successful Vending Machine Business In 6 Steps

 

Costs to Start a Vending Machine Business

One of the major benefits of starting a vending machine business is that it requires a relatively small initial investment. You can start a business with a single vending machine and then use your profits to gradually increase the number of machines you own. Plan to spend about $5,000 to start up a business with a single machine. You reduce the startup cost by purchasing a used machine from Craigslist or eBay.

Common startup costs include:

  • Vending machine purchase
  • Inventory
  • A vehicle, like a van or truck
  • Equipment, like a hand truck

 

Steps to Starting a Vending Machine Business

Step 1: Write the Business Plan

After coming up with the idea, the next step in starting your business should be to write a business plan. Not only will a bank require you to have a business plan, but multiple studies have shown that a business plan helps increase the odds of starting a successful business.

Related:
How to write a business plan
Free sample business plans

Step 2: Form a Business Entity

A business entity refers to how a business is legally organized to operate. There are four primary business entities to choose from, which include the sole proprietorship, partnership, corporation, and Limited Liability Company (LLC). Each type of entity has its own pros and cons, such as liability exposure, costs, and administrative requirements.

Related: Comparison of Business Entities

Step 3: Name the Business

Finding the perfect business name can be challenging. Not only does the name have to resonate with your customers, but it also has to be available to use.

Related: Tips and ideas for naming a vending machine business

Step 4: Select your Location

While it’s possible to start a vending machine business right out of your home, you may need additional storage for inventory as that business grows. You may need to rent a storage building or office, though this is probably an expense that you’ll only need to budget for after at least a few years in business.

You will also need to scout for locations to place the vending machines. High-traffic locations are a must for a successful vending machine business like malls, apartment complexes, motels, schools, gyms, laundromats, airports, bus stations, etc. Another consideration for your location is the safety of the machines as places with potential for theft or vandalism will be a huge inconvenience in terms of stolen goods and broken equipment.

Related: Choosing a business location

Step 5: Register for Business Licenses and Permits

Some states require vending machine businesses to be licensed. Additionally, there may be general licenses and permits depending on where the business is located, such as a sales tax permitEmployer Identification Number, and Occupancy Permit.

Related: Common business licenses, permits, and registrations by state

Step 6: Find Financing

Coming up with a good business idea and having the skills to run it are one thing, but getting the funding to start a vending machine business is another. Funding to start a Vending machine business can be difficult. In order to get a loan, the borrower(s) will need to have good credit and be able to personally invest 15-25% towards the total start-up costs.

Vending machine manufacturers will often offer equipment financing options and inventory financing.

Related: Finding the money to start a business

Step 7: Open a Business Bank Account

Keeping your business and personal finances in separate business bank and credit card accounts makes it easier to track the business’s income and expenses.

Step 8: Get your Marketing Plan in Place

While vending machine businesses typically rely on their machines to do their marketing to the public, business owners need to actively market to business and property owners to secure new locations for additional machines. This marketing can be accomplished in many different ways, including email marketing, direct mail marketing, and even online or print advertisements. The cost of marketing will depend on the type and volume of the activity that’s performed. Business owners who can do some or all of their own marketing can help to keep costs down and save on the expense of hiring a professional marketer.

Related: Low-cost ideas to market a new business

Step 9: Get Business Insurance

A vending machine business will need multiple types of insurance:

  • General liability insurance protects the business if customers are ever injured due to the machine or a product purchased from it. This insurance helps to protect the business in the event of a lawsuit.
  • Commercial property insurance protects the business against the financial loss it could face if its inventory or equipment is damaged in an event like a fire.
  • Commercial auto insurance covers legal fees and medical bills that could result if a company-owned vehicle was involved in a car accident.
  • Worker’s comp insurance covers medical bills, lost wages, and other expenses that could occur if an employee were injured while on the job.

Insurance policy cost will vary depending on factors like the value of the business’ machines and whether the business has employees. To get the most accurate idea of what to budget for insurance, request quotes from multiple providers. Then, compare those quotes while looking at factors like the premiums, deductibles, policy exclusions, and coverage.

Related: Types of insurance your business may need

Step 10: Hire Employees

At its onset, a business may be small enough that the business owner can service and maintain all of the machines on their own. As routes grow and a business expands, it may be time to hire employees. According to Payscale, vending machine route drivers make an average salary of $36,000 per year.

In addition to budgeting for employee salaries, a business that hires staff will also need to budget for expenses like worker’s compensation insurance, paid time off, and health insurance contributions.

Related: Hiring your first employee

Step 11: Set up an Accounting System

Setting up an accounting system is critical to the long-term success of your business.

Staying on top of taxes not only keeps the business out of trouble with the government, but the numbers can be used to track and monitor trends and cash flow in the business and maximize profits.

Related: Setting up accounting for your business

How much can you potentially make owning a vending machine business?

Many variables affect how much your business will earn, and these variables can also affect the performance of individual machines. Factors like location, the inventory offered within a machine, how reliable the machine performs, and even the pricing of items will affect sales and profits. A machine in a prime location could bring in as much as $1,000 per week, but rates under $100 per week are more common for high-performing machines.

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.

 

Things to consider before starting a vending machine business

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 finding profitable locations, managing relationships with the machines’ location owners, and maintaining 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 business on a part-time basis with one or two machines. This way, you can learn more about the market and learn what products are popular, and to get a taste for 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.

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. Preparing statistics on your other machines’ performance, offering an appealing percentage of your machine’s profits, or finding another creative incentive can all help to seal a contract. 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.

 

Resources: 
National Automatic Merchandising Association
National Bulk Vendors Association
Vending Market Watch

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