The vending machine business can be either a side or main hustle. Here are some benefits of this business type.
- IF well set up, a small vending machine business can generate passive income or semi-absentee income. Notice that this is a big 'if' because a business with poorly functioning machines, inadequate locations and your inability to service the machines can translate into a more time consuming job than otherwise.
- It is recession proof.
- It is ideal for involving children and young people as their first exposure to business.
- It offers various options on which to focus in the vending business; selling products, selling services finding locations for others, basic or advanced machine repairs, selling parts.
The main purpose of this entry is to give steps to profitably start or run a vending business. However, before starting those steps, I will quickly touch on a noteworthy observation that has been echoed by many others in the industry in some way or other. According to Hill Vending, there are 4 predictors of success in the vending machine business, ie: location, machines, service and pricing. However, most have also specifically cited efficiency. On that basis, I will pay special attention to these variables throughout this post.
Vending Location
Many business owners suggest that location is the single most important variable. This is because locations with high foot traffic usually generate more revenue. However, the concept of a vending location is multifaceted. Specifically, as with anything else in marketing, After you consider the demographics and psychographics of this foot traffic, figure out appropriate solutions and all other marketing mix elements required to properly serve the location. In addition to the marketing mix, have a risk management plan for risks inherent in some locations. See a list of location ideas and location-specific risk management considerations (below).
Machines
Machines with the latest payment technology are usually better purchases for several reasons. For instance, credit card payment options have been shown to drastically increase sales overall and also allow you to do inventory management on your phone. More reliable and durable machines can improve your service quality. Additionally, replacing parts on modern machines is often very easy and does not even require technical know-how because of a plug-in design that allows entire components to be pulled out of slots and replaced with new ones within seconds, ie without the need for technical skill. Besides, old machines are difficult to deal with because getting new parts can be difficult or impossible and upgrading can be as costly as buying a better model from the start.
Services
Services are cited as a leading reason why location managers call on new vending machine businesses. It is therefore necessary to ensure that you can offer good service, like ensuring that your machines are always adequately stocked, working, clean and so on. Fully exploiting the fact that, as a small vender, you can be more readily available than huge vendors and even personally.
Pricing
The rule of thumb is that vending companies aim to make at least 100% of their price. In other words, if you bought drinks with a unit price of $0.50, your ideal selling price should be $1.00.
However, pricing can vary considerably according to location. For instance, luxury resort locations can usually fetch higher prices than a workplace, say in a factory or blue collar environment.
Options for entering into the business
The options are similar for any type of machine business (including ice making or ATM businesses).
- Buy existing routes (ie buy machines and the rights to locations where they are operating)
- Start an ATM business from scratch
- Buy ATM franchises
The easiest option is buying existing routes if the contracts have a lot of remaining time. The market usually involves a wide range of circumstances; from hundreds of machines to just one.
Steps for setting up a vending business
- Set up a business that can get respect from location managers.
- Create a name with the word 'vending' like 'Buchannan Upstate Vending'. The name should cater to your customers, ie location managers and NOT final consumers.
- Limited liability businesses are worth considering because vending machines can fall onto and hurt people.
- Figure your niche, especially at first. A common mistake is trying to spread yourself too thin, like selling drinks, coffee machines, pizza making machines, etc. Master a niche before moving on. On that basis, start with one that is easiest to enter like drinks and snacks.
- Understand market trends.
- Cold drinks are the #1 seller in the US. Not surprisingly, sales get sluggish during colder months.
- Canned drinks (ie versus bottled) generally have higher profit margins.
- Peanut M&Ms are among the best selling snacks.
- Pepsi often sells better than any other drink.
- Establish your cheapest supply options that can provide the best option for pricing and profit margins. Beware! Buying directly from manufacturers is not always the cheapest option. You should therefore explore as many options as possible.
- Example: Rayzo Vending suggests getting wholesale accounts at wholesale restaurant warehouse. They sell food and kitchen supplies to restaurant owners at competitive prices. These warehouses offer a wide range of snacks and drinks. She buys bottled water for as little as USD 0.07 but can sell much more, likely over USD 1.00. Her usual markup is +100%.
- Example(s): Hill Vending buys most of their drinks from Sam's Club (a WalMart company) because each unit is cheaper than from manufacturers like Coca Cola. Drinks like Coca Cola can often offer a 100% markup if you buy cheaply enough. However, profit margins may vary by product. Ultimately, ensure that your products will provide sufficient profit to justify your overall business operation. As a benchmark, Hill Vending has established what he calls his 50-30-20 rule, ie that 50% of income gets re-invested in buying more products, 30% in salaries and the remainder in miscellaneous expenses.
- Have at least some storage.
- Some people start in their living rooms, garages and so on. The key is to start storing the products you know are sure best sellers, like Coke for drinks.
- Establish the best vending machine brand options. At this stage, you do NOT want to buy as yet. Rather, at this stage, you are ensuring the availability of machines when you propose the machine to locations. That way, if locations are disinterested in the machine type, you will not be stuck with machines. Conversely, once the location approves your proposal based on a machine, you can then buy the machine. BTW, remember to check on dimensions (like width, height and so on) to ensure that your machine can fit into its destination location. The large size of machines has often created major problems in this regard. BTW, Refurbishing companies can often provide good information regarding people to manage repairs.
- Top brands
- Vendo for drinks. Example the Vendo 21 series is the best for 2023 for reliability, durability and slim design.
- AMS or USI for snacks
- AMS for cold food
Avoid going into your first business with defective machines that stop working. They can give you a bad reputation of offering poor service and put at risk of losing good locations. New machines with the latest technology are usually best. However, a close second are refurbished machines. Refurbished machines are those that are used but some of whose older or faulty components have been removed. Some cases even offer all of the after sale warranties and services available for new machines. Be sure to check any type of second hand machine. See an illustration by Jaime Ibanez of how he checks old machines. (He checks on its ability to turn on correctly, payment mechanisms, gets cold if designed for cold drinks, dimensions to ensure that the machine can fit into its new location)
Once financially possible, use machines that are dedicated to either drinks or snacks. This is useful to improve the efficiency of your business, ie to keep you from needing to return to replenish products too quickly. If you can afford only one type, consider cold drinks because they tend to perform better than snacks. Also consider the geography of your location because drinks tend to perform slower during colder months.
Below, Hill Vending discusses the fact that credit card readers are not always essential. Readers are ideal for only those locations with high levels of foot traffic that generate enough card sales to justify to the fixed monthly fees associated with running the readers. Readers alone can not increase sales with a very low traffic environment.
- Establish best brands for add-on components. For instance, card reading machines tend to require an internet modem that sits on top of the machine.
- Ensure that you have good options for repairs, maintenance and replacements for machines and components.
- Learn cheap and easy maintenance like buying the special strips online that are used for cleaning bill receptors. Keeping on top of cleaning away debris from bill receptors can extend your replacement cycle to several years, well beyond 2 years for instance.
- Get insurance
- basic business insurance to cover machines and inventory from risks like theft, natural disaster or vandalism.
- commercial liability insurance. Many vending locations will require you to provide proof of coverage to a certain level. In the US, this level is usually USD 1 million. This is to protect against issues in which anyone (worker or consumer) gets hurt because of your machine.
- commercial auto insurance.
- Establish criteria for selecting vending locations. As a rule of thumb, the same products can be sold at vastly different prices according to the location. The prices can rise by moving a single machine from barbershops to hotels to airports. Example(s)
- Hill Vending's
- '30-30 efficiency rule' is that locations qualify only if they can be reached by driving within 30 minutes or 30 miles from the warehouse. This rule helps to ensure good service that will prevent you needing to travel far and causing long delays just because a coin has jammed a machine.
- Hill's Vending 'prospect pyramid' is a guide based on industry standards. It helps businesses to know what to expect as a yardstick and how to invest regarding machines.
- High zone (for more experienced vending business owners who will not run the risk of biting off more than they can chew):
- foot traffic: 200+ daily
- monthly sales $2k+
- Your best fit machine condition: new / used /refurbished
- Medium zone
- foot traffic: 100 to 199 daily
- monthly sales $1,000 - $2,000
- Your best fit machine condition: new / refurbished
- Low zone (for first time vending business owners)
- foot traffic: 51 - 100 daily
- monthly sales $300 - $1,000
- Machine condition: used /medium grade
- Danger zone (absolute minimum viable location)
- foot traffic: 0 to 50 daily
- monthly sales 0 to $300
- Machine condition: Used /old / outdated
- Find suitable locations that meet your criteria. Beware, this step is cited as the most difficult and time consuming aspect of this business. For this reason, many people seek professional help in finding locations. However, notice the different options.
- Create a website through which location managers can call upon you for your vending services. This website should focus on building trust. After all, these prospects are already sold on the need for vending services. Because these prospects call on you, they often do not ask for a commission (because of the value you add in resolving their problem).
- Contact vending machine owners with machines in good locations but whose machines suggest poor service. Tell tale signs of poor service include emptiness or dirty machines. Use contact details (on some part of the machines) to ask if you can buy out that location. These are good opportunities because you can likely improve on the performance of that vendor (perhaps the product assortment, price, services, etc)
- Outbound sales, ie actively approaching and selling your service to location managers. Do NOT waste time negotiating with gatekeeping receptionists that often try to limit access to management. However, ask to speak with management, on the basis of offering services and the way in which the services can benefit the business. If you can get employees excited beforehand, that could be a useful part of your pitch.
LetsJazzItUp's YouTube video 'Finding vending machine locations: vending machine cold business calling techniques'
- Establish the size and occupancy of parking lots. Do this via word of mouth and even Google maps.
- Qualify vending locations. Do NOT jump on every possible location without qualifying them first. See why Hill Vending Services rejected a call.
- Preliminary customer - vendor qualification meeting. Your primary focus should be to establish solutions you can provide. Consider that vending machines often add value to the location. For instance, hotels and apartment buildings may benefit from being able to say that they offer amenities. Vending machines have been used to resolve complaints over not having snacks at these lodging locations. Employers that seek out vending business services that offer free mode machines can boast free beverages for staff that keeps the staff in the building versus going out to buy these supplies. Some locations want to deal with small vending businesses because they feel like they can reach customer services better than they can with large vendors (like Coca Cola, etc). If possible, save time by doing this over the phone as a preliminary step. Your introduction can sound something like this. "I am __, from a local vending company. I can install free drinks machine services in your lobby at __ for you and your clients. (There are no hidden costs or strings attached). You can select any type of drinks and snacks you prefer and multiple payment options that include card readers. ........ What do you propose for our next contact point?" Here are some important discussion points.
- Type of location (academic, corporate office, medical, manufacturing, event spaces, long waiting room spaces, casinos, etc)
- Foot traffic: How many people daily / weekly?
- Their opening hours. This helps to establish the foot traffic. Typically, places will longer hours, like hotels that never close, have better foot traffic. This also helps you to determine your service schedule.
- Buying stage of the location manager: Problem you can solve.
- Are pre-existing machines modern with card readers?
- Do they use a standard contract or will use yours?
- Number of other machines (and their make) already in the location? Are they manufacturer owned?
- Prices of merchandise in the location?
- Can you send images of your machine?
- Why are they giving up the previous vendor?
- Will you warranty the machine for 30 days?????
- Product types (for which you have permits to sell)? Some products like alcohol and cigarettes usually require special permits. If location managers want to sell these items and already have the permits, you can lease the machine to him rather than servicing the machine yourself.
- Entrance dimensions to ensure that your machines can get inside of the location.
- Demographics of the consumers (that can influence product types)
- Why people in the location use vending machines?
- to avoid having to go outside of the building during the cold night, hot day, etc
- go into establishment, just to use machines and therefore a way of drawing people into a business
- (If your contact like a location manager says yes, are there other more influential people like a franchise owner, corporate head, etc that can say no)
- Prepare for the first meeting with location managers
- brochures or booklet with images and specifications of machines, list with images of products, survey for their selection of products, product order lists (with location details)
- sample contracts (see a sample). Be prepared with different types that are based on your location. Regardless of your contract type, consider starting with a short period if you are unsure of whether a location will work. Show your portfolio which may include images at important statistics for your other current locations and machines. See a simple example of Rayzo Vending talking to location owners.
- Wealthy companies sometimes seek out contracts for free mode machines (like for coffee and snacks). These machines offer the products freely to employees. However, the vending business takes inventory at the end of each cycle and bills the account accordingly.
- Commissions in the US are usually 0% to 10% of gross or net profit. However, this varies widely based on circumstances. The lower rates occur when the location managers call vending businesses for help. Most office buildings do not charge commissions. However, larger accounts like major hospitals and airports generally expect to be paid a commission. Fixed amounts are also possible. Some vending businesses prefer to offer at least some small amount for the sake of motivating concern for the security of the machine. BTW, the cost of using the location's electricity has never come up as an issue, likely because it is negligible.
- To establish commissions that are based on a percentage of revenue, vending machine owners establish a system to allow location owners to know the revenues. For instance, you may agree to empty cash receptors only once monthly. This involves counting the funds at the location.
- Mystery selections. This involves having black, unlabeled packages with mystery contents like money, gift cards and so on. See example.
- list of types of vending machines and benefits.
- handicap accessible
- laser beam technology ensures that consumers receive their purchases)
- Mention the dimensions of your machines since machines do not easily fit into many locations and may require special provision to get inside of locations.
- types and samples of products you can carry. If you did marketing research that can demonstrate that you understand the location, show that off.
- Look for vending routes. A 'route' refers to the machine and location. Verify whether routes you are considering fall within your vending location criteria. Here are ideas for finding 'vending routes'.
- Check advertisements on
- Facebook, Craigslist, business listing websites (like BizBuySell.com and routesforsale.net)
- Subscribe to vending exchange alerts. Some cities offer subscriptions that send text messages to announce vending locations and their needs.
- US example: https://vendingexchange.com/
- Check groups. It is ideal to become part of vending groups.
- local product distributors. local vending groups.
- Ask people in your network at school, work, church and so on about the potential of places they frequent for work, to socialize and so on.
- Get a machine AFTER you have found a location for first time vending businesses.
- Your own funds. Buy a machine. See notes above about machines.
- Investor funds. Many people seek help from family and friends.
- Manufacture financing. Get a free machine from product manufacturers. However, these arrangements usually carry higher product prices, minimum order values, restrictions to selling the manufacturer's products and substandard repair services. Not ideal if you want to run a vending business. This is a better fit for schools or organizations that happen to want vending machines but do not have a dedicated vending business to offer the service.
- Be picky regarding which products you should stock pile, especially as a first time vending business. They should be those that are sure to get sold and items with a long shelf life. Consider the consumers and foot traffic levels. Consider asking the location manager what products may sell. Also consider suggestion boxes and other types of surveys. Pay special attention to expiration dates because spoilage is a common problem, especially among newbies. Have all of your products in categories in the catalog you carry to your meeting with prospects.
- Coca Cola and water are sure sellers. Especially at first, avoid stock piling products whose performance you can not predict. Water is particularly profitable with margins that can sometimes be several hundred percentages. Additionally cans (ie versus bottles) generally have higher profit margins.
- The issue of healthy food options comes up frequently. In reality, vendors who tried to switch to only healthy options got poor results. However, they did very well when they made healthy foods only one of several options within their machines.
- Fresh foods like sandwiches are suitable only for very high traffic locations.
- Favorites for venders.
- crackers. They usually have long shelf lives and large margins.
- pastries. These sell well. Examples include honey buns because people often see these are generally healthy and useful as breakfast substitutes.
- snacks with heat.
- Raman noodles
- Electronics like phone chargers might be useful for travelers at airports
- Odd items that the demographic will appreciate: t-shirts or other souvenirs (tourists); socks (at airports); lip gloss
- Specialalty categories can be filled with surprising ease. For instance, many vegan options are already popular and well known.
- BelVita breakfast: blueberry
- Bomb pops
- Dorito's: spicy sweet chili
- Frito's: classic
- Great Value: chewy chippers
- Lay's chips: BBQ; original
- Mott's fruit snacks
- Oreo's cookies: classic
- Ritz: original
- Skinny pop popcorn: white cheddar
- Sour patch kids (gelatin free)
- Takis: fuego
- Shop for the lowest priced products.
- Online purchases at wholesale clubs like Sam's Club offer good options that often rival prices of most distributors. In some cases, they will even offer free shipping if you have the right type of membership. Membership cards with some of these clubs can translate into hundreds of dollars in savings because of cash back plans they offer sometimes. Check to see what types of memberships upgrades can help you to earn better discounts.
- This even includes keeping your ears to the ground for dollar store special offers of your products.
- Have a means of transporting the merchandise. When starting, people use their trunk of their cars and jeeps. However, consider always carrying trollies, repair tools and cleaning supplies.
- Establish a machine placement within your vending location. Here are a few tips.
- visible spaces, like lobbies. NOT hidden in the back and NOT somewhere that gives good view to competition like in the back with view of a gas station or supermarket.
- waiting rooms, reception areas, employee break rooms
- Have at least 3 feet of clearance in front of the machine.
- Ensure the machine does not encourage people to block the flow of foot traffic.
- For hotels, every floor next to ice machines.
- For gyms, locker rooms, lobbies
For shopping malls and casinos, look at hallways outside of bathrooms. These machines regularly do well because people buy snacks or drinks while waiting for their friends.
- Get professional help to transport the vending machines. They should have experience with moving vending machines in particular. If you have trouble figuring this out, ask current vending businesses in your area about their movers. In some cases, machine manufacturers offer shipping services of your newly bought machine to vending locations. Moving machines is challenging because they are very heavy and tall. Furthermore, they should not be tipped because they can sustain considerable damage if they start leaking liquids into the electronics or if they fall. The average person does not know these facts.
- Servicing machines.
- Consider how to stack your products effectively. For instance, specific niches like healthy snacks, gourmet or cheap snacks can be placed in specific locations that frequent consumers and your staff learn. That way, when a product is out of stock, you can place substitutes meeting the same criteria in the same place. This may require testing with the target market until your ideal methodology becomes clear.
- Teach your team tricks
- ensure that snacks never get stuck
- ensure that drinks never get stuck
- pest control. Prevent the common problem of rat infestations from squeezing into machines. Stuff a steel wool around cords in the hole through which they run in and out of the machine.
- Have inventory management systems.
- Restocking. Some vendors use software that could track real time the individual rows and products sold. However, others use methods like taking photos of the trays. One trick is to place a product at the back of each row where it can not advance forward as the product is being used. That way, the vendor can count the number of empty slots between that one package and the others that have moved forward. This might be useful for double checking that all figures balance when others are tasked with servicing your machines. See one YouTuber discuss this method.
- Consider vendor business consultants and other vending businesses. Some include
- Facebook groups of vending businesses
- Hill Vending for a course with a very corporate strategic style approach
- YouTuber Jaime Ibanez
- Follow up with location managers to see if all is well, especially at first until it is no longer necessary to do so.
- Ask for a location contact person at the location who can call if a problem occurs.
- Establish a fixed service schedule. Alternatively, you use the credit card systems to remotely monitor stock levels to know what to carry to a location.
- Service schedules may be weekly or bi-weekly, especially at first.
- Pay special attention to hectic environments like schools. People on the ground are often so busy with students that they are unlikely to call to tell you if students have shaken the machines and dislodged something as a consequence.
- Give back to location owners as a 'thank you' for allowing you to offer the service. From time to time, especially during festive seasons, consider leaving free snacks for the team of the location manager.
- Design your operation to be able to scale your business later.
- Design your operation with an exit plan in mind. Specifically, design a route that can be sold as a turn key business for someone else. That 'route' will include machines, contracts, inventory and everything else.
- Example(s). $120,000 was the total cost of a route. 50% was payable upfront while the remainder was payable in parts over a 3-year period.
UpFlip's YouTube video '2-Day Workweek Earns $700K - Vending Machine Business'
The Business Guy's YouTube video 'How to Start a Vending Machine Business, Cost, Tips, How Much You Make'
YouTuber Social Proof's video 'How much money can you make from a vending machine - episode #197 w Kashief Edwards'
Location, different facets of ~
To extend the earlier discussion on location, this section provides an alphabetized list of preferred locations and risks.
- Airports (to sell snacks, toiletries)
- Amusement parts. Near benches and washrooms.
- Apartment complexes, including luxury ones
- Banks.
- Barbershop (snacks)
- Beachfront locations
- Bus stations
- Car dealerships.
- Casinos
- Church lobbies
- Conference centers
- Dormitories at university or other types of campuses.
- Fire stations. Keep in mind that they also have dormitories.
- Gas stations whose minimarts are closed at night.
- Golfing lounge
- Government offices
- Gyms
- Hair salon (snacks)
- Hospitals. They never close. They cater to frequent, visitors and guests.
- Hotels and motels. Even hotels that have restaurants are good targets because not all guests are keen on paying for entire meals. Ideal spots are lobbies and near activity areas like pools.
- Laundromats, standalone or those inside of other businesses (detergent, snacks)
- Manufacturing or other industrial work places. These places usually hire many people who can not leave easily for break times.
- Nursing homes. These are similar to hospitals.
- Office work spaces. This is usually a free option to vending businesses.
- Malls. Near the entrance of food courts.
- Museums
- Parks
- RV parks
- Pharmacies.
- Schools that are unlikely to have vandalizers (snacks)
- Sea ports
- Sports complexes / stadiums
- Train stations
- Universities (snacks)
Location-related Risks
- Vandalism
- Vandalism often happens when people get frustrated because the machine robbed them. Best responses are to
- provide QR codes with survey information re product that got stuck, etc so that you know which slots to fix and can arrange to reimburse customers. If possible, you can quickly send funds electronically using phone payment applications.
- provide toll free contact details that consumers can use to report incidents, install cameras, build a cage, place the machine in a high visibility area or strap the machine to the wall.
- provide 'petty cash' to someone at the location who can return lost funds to customers. Tread lightly with this because, in some cases, this might be seen as a nuisance to the location managers. Additionally, this means that the location managers might become weary of your machines and perceive your service to be poor.
- Attacks. I have not yet heard of people being mugged when removing cash from machines. However, consider your security. Conceal the money as much as possible and select service schedules during the low foot traffic periods.
- Scalability problems
- Difficulty getting enough products
CONTENT RELATED TO VENDING MACHINES AS A BUSINESS IDEA
- Passive income business ideas
- Vending machine
- Ice vending machine
- Real estate arbitrage
- Low content book publishing
ATM- ...
