How to Start a Vending Machine Business
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.
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 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.
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.
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.
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 for Starting a Vending Machine Business
If you’re thinking about starting a vending machine business, it’s important to do your research first. Here is a checklist to help you get started.
Step 1: Write a 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
Step 2: Form a Business Entity
A business entity (also referred to as a business structure) refers to how a business is legally organized to operate. There are four primary business structures 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.
When deciding on which business entity is best for a vending machine business, it normally comes down to the sole proprietorship and Limited Liability Company.
A partnership opens the owners up to unnecessary personal liability because if a partner does something to get the business sued, or runs off with cash from the business, the other partners are personally liable to repay.
The corporation can be a good choice to minimize liability risk because it separates the business assets from the owner’s assets. If the corporation is sued or certain business debts can’t be paid back, the owners aren’t personally responsible to repay them. The downside to the corporation is that it is more complicated than all the other entities and requires more administration than the LLC. If you plan on raising a lot of investment though, the corporation is usually the better choice.
That leaves the sole proprietorship and LLC.
The sole proprietorship is the least expensive and easiest entity to start which is appealing. The downside is that the owner is personally liable should anything happen to the business, which is an important consideration. The LLC offers the ability to operate as a sole proprietorship with the liability protection of a corporation. Depending on the state, the cost to form an LLC runs from $40 – $500, which is pretty inexpensive for protecting the owners from business-related lawsuits and certain debts.
Related: Guide to forming your LLC
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:
IncFile - $0 plus state fees & free registered agent for 1 year!
IncAuthority - $0 plus state fees & free registered agent the first year!
ZenBusiness - $49 plus state fees & free registered agent for 1 year!
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.
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.
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.
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 needed, such as a business license, sales tax permit, Employer Identification Number, and Occupancy Permit.
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.
Step 7: Open a Business Bank Account
Keeping your small business and personal finances in separate bank accounts is important to track the income and expenses of your business and identify trends.
Many banks offer free business checking accounts, so be sure to find a cost-effective option for your business.
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.
Step 9: Get Business Insurance
There are several types of insurance to consider when starting a vending machine business. A few of these include:
– Commercial auto insurance covers legal fees and medical bills that could result if a company-owned vehicle was involved in a car accident. There is a considerable amount of driving for this business because vending machines need regular maintenance and restocking. Auto insurance offers coverage for when accidents occur.
– General liability insurance protects the business if customers are injured due to the machine or a product purchased from it. This insurance helps to protect the business in the event of a lawsuit.
– Crime insurance covers expenses that come up if the property is stolen. Theft can happen by employee dishonesty or from third parties. Since vending machines hold both stock and money, theft and vandalism are common risks. This insurance helps reimburse lost money and stock.
The cost to insure a vendig machine business will vary depending on factors like the value of the vending 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.
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.
The thought of accounting can be intimidating for a lot of new entrepreneurs. There are a number of ways of handling bookkeeping, from DIY to hiring a bookkeeper. These include:
- Pen and paper - Low expense, but difficult to track.
- Spreadsheet - Low expense, but easy to make errors.
- Accounting software - Medium expense, but owner typically inputs expenses. Some great accounting software programs include Freshbooks or Wave Accounting.
- Hire a bookkeeper - Higher expense, though very affordable at $100-$200 per month in most cases. A dedicated bookkeeper will probably save money because, in addition to handling all of the bookkeeping (so you can focus on the business), they also provide personalized tax advice and ensure the business is in compliance.
Find bookkeepers in your local area or use a service like 800Accountant.
How much does it cost 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.
Some common startup costs for a vending machine business include:
– Vending machines
– Delivery vehicle, like a van or truck
– Equipment, like a hand truck
How much can a vending machine business owner make?
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.
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 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.
Are there grants to start a vending machine business?
It’s extremely rare to find a grant to start a vending machine business. If you search for business grants, you will come across a lot of scams and misinformation. Occasionally an organization will offer grants to start a business, however, be skeptical and don’t provide any sensitive personal information or pay money to get more information.
Legitimate federal grants can be found at Grants.gov, and you can check on your state’s economic development office to see if they have any grants available.
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?