Recommended: Read our guide to the top 30 Net 30 providers so you can start creating business loans right now so you don`t have to worry about cash flow in the future. Keep in mind that poor cash flow is the #1 reason why businesses fail! Learn how to start your own vending machine business and if it`s right for you. The start-up costs of an automatic distribution business are manageable. It`s possible to start a business for a few thousand dollars, and a small business could start with less than $1,000. Business owners must purchase a vehicle, equipment (vending machines) and accessories (items that sell vending machines). The cost of vending machines ranges from a few hundred dollars to several thousand. VendSoft reports that bulk machines that sell candy and chewing gum balls cost between $150 and $450 each. Snack and soda machines cost from $1,500 to $8,500. Most businesses are required to collect VAT on the goods or services they offer. To learn more about how sales tax affects your business, see our article on small business sales tax.
The success of a vending machine business depends largely on where the company`s vending machines are placed. Busy places such as transportation hubs, large office buildings, schools, and grocery stores generate more revenue than areas with low foot traffic. The secret formula for getting high-traffic sales locations includes suggestions on how to find and secure accounts in high-traffic areas. Anyone who likes to work alone and is mechanically inclined likes to run a vending machine business. Entrepreneurs are often alone when filling and maintaining machines, so it`s important to get motivated. A mechanical tilt is useful when machines need to be repaired. However, Gundersen advises against hiring employees. He explains that taxes, salaries and training costs reduce the company`s profits too much. Gundersen himself made the most money when he ran his business alone. Failure to obtain the necessary permits and licenses can result in hefty fines or even lead to the closure of your business. Another notable insurance policy that many companies need is workers` compensation insurance. If your company has employees, chances are your state will require you to pay workers` compensation coverage.
Veneration machinery companies should consider requiring customers to sign a service contract before starting a new project. This agreement should clarify customer expectations and minimize the risk of litigation by establishing payment terms, service level expectations and intellectual property. The following is an example of a service contract. Plus, learning how to set up business loans can help you get credit cards and other financing on behalf of your business (instead of your own), better interest rates, higher lines of credit, and more. The formation of a legal entity such as an LLC or corporation protects you from personal liability if your vending machine business is sued. According to the State of the Vending Industry report for June/July 2019, 2018 was a record year for VENDing machine operators with average revenue growth of seven percent compared to the previous year. When you analyze your options, you`ll find that it`s not always the more expensive selling items that get the best returns. They usually have more overhead (cost per unit, doing without machines with advanced features, etc.). You can be negligent if you don`t plan on having cheaper items issued from simple vending machines. A vending machine company can increase its profits by providing services to other companies` vending machines and selling products in larger packages through local retailers. Networking skills.
Networking is a particularly important skill in this industry. Business owners must establish relationships with store and property owners and then negotiate an agreement that allows them to install their vending machines on the property. There are many services for entrepreneurs who want to set up a professional phone system. We looked at the best companies and rated them based on price, features, and ease of use. Check out our review of the best business phone systems 2021 to find the best phone service for your small business. Money in ATMs is collected when the machines are filled. Some government taxes may apply to your business. To learn more about state sales tax and franchise taxes, check out our state sales tax guides. You`ve found the perfect business idea and are now ready to take the next step. There`s more to starting a business than just registering it with the state. We`ve put together this simple guide to starting your vending machine business.
These steps will ensure that your new business is well planned, properly registered, and compliant with the law. In addition to monitoring the trends that determine which food and beverages are in demand, vending machine entrepreneurs also need to be aware of the other trends shaping the industry. Global Industry Analysts, Inc. predicts that there will be up to 31.6 million vending machines by 2025, but these machines will not be the traditional machines we are used to. Recording your various expenses and revenue streams is essential to understanding your company`s financial performance. Maintaining accurate and detailed accounts also greatly simplifies your annual tax return. Net-30 loan terms are often used for businesses that need to get inventory quickly, but don`t have the money. Recommended: Rocket Lawyer makes it easy to create a professional service contract for your vending machine business when you sign up for a premium membership.
For $39.95 per month, members have access to hundreds of legal agreements and on-call lawyers to get free legal advice. When it comes to setting up your business loan, net 30 suppliers are considered the way to go. The term “Net-30,” which is popular with sellers, refers to a trade credit agreement in which the company pays the seller within 30 days of receiving goods or services. In an increasingly digital world, vending machines must keep pace. Machines with digital inventory management reduce the amount of work required to maintain the machine and can maximize profit margins by ensuring that there is always plenty of inventory. We can also see an increase in the number of machines equipped with credit card readers to track the decrease in the use of cash as a payment method today. If you`re looking for a business that you can start part-time, then the vending machine industry might be a path you want to explore. Starting a vending machine business gives you more planning and location flexibility than a traditional retail store. However, you still have the opportunity to grow your business, increase your profits and contribute to your own success. Whether you want to start with a single machine or are hoping to own a fleet of vending machines, starting a vending machine business could help you turn your goals as an entrepreneur into reality.
Finding the perfect business name can be difficult. The name must not only reach your customers, but also be available. As VENDing machine stores grow, they usually stay in a single city or region. Companies that operate profitable machines can place machines within a 50-mile radius. Those who use machines with lower profits often work on smaller shelves. The distance between machines is reduced to minimize travel time and fuel costs between machines. A vending machine company can manage its accounts by offering all the products that account holders want. This may require snack, soda, coffee and freezer machines to be placed in one place. Customer service. Even though a vending machine company rarely sees its customers, it is important that vending machine operators have good customer service to secure and maintain prime locations.
Vending machines in key locations will generate much more sales than those that don`t have much foot traffic. State and local governments require many industries to have permits or licenses to operate. Most businesses, including retailers and wholesalers, need a business license. A merchant`s license is required for the purchase and resale of goods. And you or the professionals you hire may need individual professional and professional licenses. It is important to check at the state and local level what licenses and permits you may need. If you already have a logo, you can also add it to a QR code using our free QR code generator. Choose from 13 types of QR codes to create a code for your business cards and publications or spread the word about your new website. As mentioned earlier, knowing how to repair the machines will keep repair costs low. To reduce the risk of vandalism and theft, business owners should look for safe and busy areas to place their machines.
Contact the Maryland State Department of Assessments and Taxation. With this department's help, you can register your business name and obtain a Trade Name Application. You can get in touch with this office by calling (410) 767-1340.
Obtain a federal Employer Identification Number (EIN). You may apply online for this on the Internal Revenue Service's website (IRS.gov).
Get in touch with the Maryland Comptroller of the Treasury. This office will help you set up business tax accounts and additional accounts for things like alcohol and motor fuel. You can call the department at (410) 767-1313 or submit the Combined Registration Online Application.
Contact the clerk of the circuit court district you plan on opening your business in. You can call the office or visit the website for business license requirements. Every county is different, so make sure you know the requirements specific to the county your business will be located in. Follow your county's instructions on obtaining a business license.
Vending machine businesses are a unique combination of product and service-based operations. They’ve stood the test of time and are marked by rapidly progressive and innovative technology. You will need to evaluate vending product options, location, investment and profit margins, and sales channels before you get started. Having a clear business plan and understanding the legal formalities around a vending machines business is important as well.
If you think you might be cut out for the high-stakes world of frozen treats and hot competition, read on to the steps of pursuing your piece of this multibillion-dollar industry.
Step 1: Evaluate Product Options
One of the benefits of starting a vending machine company is that the assortment of products to choose from and sell is vast and varied.
In fact, the nonedible (“other”) category, accounting for 17.5% of sales, has experienced the most rapid recent growth in the sector, representing the increased dynamism and diversification of revenue within the industry. Nonedible vending products include:
Before you can lock into the idea of starting a vending business, determining profit potential should be a high priority, especially after discovering the startup costs associated with your desired approach to market entry.
First, try out this handy tool from Vending.com to estimate profit for your vending machine(s). imp source can easily adjust the variables, including number of machines, sales per day, profit per product, and more.
- CBD oil
- Personal hygiene products
- Paper supplies
- First-aid products
According to an Automatic Merchandiser user poll, some of the most popular vending machine products in 2020 included:
- Salted Snack: Miss Vickie’s Jalapeno kettle-cooked potato chips
- Healthy Snack: Fieldstone Bakery Grains 2 Go Bars
- Protein and Meat Snack: Jack Link’s Cold Crafted Linkwich
- Cold Beverage: International Delight’s Iced Coffee Caramel Macchiato
- Cookie and Pastry: Sara Lee Individually Wrapped Mini Cheesecakes
- Candy: Trident VIBES 12-count
Many of these small and basic consumer goods top out at a retail price of $1–$5. The bigger ticket items, however, yield a greater margin for vendors, but represent heftier inventory investment and—if it’s food-based—more stringent legalities. It never hurts to invest in a product category you are familiar with, interested in, or passionate about. Clearly, the sky’s the limit, as long as there’s a demand.
Step 2: Evaluate the Sales Channels
In deciding whether to move forward in vending, consider the market’s two dominant sub-categories: vending machines (50% of the vending market) and micro markets (11% of the vending market). Which is the best channel for you?
This is what we typically think of when we think of the industry: self-contained, automated, stand-alone vending units. Owners of these units can choose to sell one, several, or many different types of products from one or many machines in one or many locations.
Micro markets, also sometimes known as Grab-and-Go markets, emerged in the early 2000s and, like their vending machine counterparts, have continued to grow, evolve, and thrive over time with busy, crowded, high-efficiency spaces. This model is defined by custom-designed vending markets/marts with a self-checkout kiosk meant to provide a convenience store feel with vending options and prices. Think the neat little sidelines in large airports or hospital and office building cafeterias. They do especially well among captive audiences in workspaces, hence why the average micro market is at a location with 100–150 on-site employees.
Vending Machine vs Micro Market
The main sticking point between vending and micro markets is the startup cost. Because vending machines are self-contained, automated, stand-alone units, once purchased and placed, all they require is maintenance and inventory.
Micro markets, on the other hand, are like a miniature restaurant or convenience store that require more real estate, higher inventory and build-out requirements, more advanced point-of-service purchasing technology, more food storage and display options, and sometimes even part-time or full-time employees to staff them.
Step 3: Evaluate the Investment of Time and Money
Once you identify your preferred sales channels, you’ll need to evaluate the investment of time and money associated with the options. Below are three purchasing approaches to either a vending machine or a micro market business: starting from scratch, buying a business, or investing in a franchise. Here are the costs you can expect to incur in approaching any of these options, with a special focus on vending machines (rather than micro markets), due to the lower startup costs.
Bear in mind, however, that these startup costs may only sustain the business for the first six to 12 months. Ongoing expenses include inventory and supply costs, payment processing, vehicle costs (fuel and maintenance at least), and vending machine repair, equipment, and maintenance expenses.
Expect to Invest: $3,000–$10,000
Starting a vending machine business from scratch requires the least financial investment but comes with the greatest investment of time and energy. If you want to build it, run it, and watch it grow, you might actually be cut out for a startup vending company. Also appealing about this approach is the flexibility of starting very small, building a brand and reputation, and growing as you like. Features and capacity vary, but purchasing a single new vending machine can range from $1,500 up to $10,000.
In addition to the cost of the machine, the self-start method requires inventory, branding, marketing, sales activity, and inventory management, along with all of the other back-office activities and costs of running a startup business, like accounting and legal compliance. This method permits you to start small and grow at a pace accommodating to your lifestyle and goals. Because different machines are manufactured to accommodate different products, here are a few common machine costs according to Naturals2Go:
- Soda Machines: starting at $3,600
- Snack Machines: starting at $3,000
- Candy Machines: starting at $1,500
As a baseline, the average vending machine grosses more than $75 a week ($300-plus a month). Some make less; some make more. In this industry, the money comes from volume.
A side hustle for some (defined by two or three vending machines) and a lifestyle for others (some large vending companies have hundreds of thousands of vending machines dotting the globe), the vending machine business is extremely scalable, which adds to its appeal. Starting with the smallest numbers and scaling up to determine profit potential is the easiest way to ballpark your projections for the business plan and decide if vending is the right industry for you.
As discussed earlier, a new vending machine can range from $1,500 all the way up to $10,000, depending on the desired bells and whistles. You can buy vending machines directly from sites like OnlineVending.com and Vending.com. Depending on your needs, type of product, and other criteria, companies like Naturals2Go and eVending.com will help you finance new and used machines.
DiscountVending.com is an example of a supplier that sells new, used, and refurbished vending machines. You may even be able to locate vending machine suppliers near you so that your purchases are going back to the local economy.
Depending on how many machines you have, there are a few options for securing initial and ongoing inventory. When purchasing vending machines, it’s kind of a one-and-done transaction. With inventory, however, it’s very much a long-term partnership with your supplier, so choose carefully and do your research. When choosing a supplier for your product, consider the following criteria:
- Financial: Seek out suppliers in your price range and who offer financial incentives such as loyalty programs, discounts and bonuses; quick delivery time; and generous terms of payment.
- Product: Seek out suppliers with consistency of supply, fresh product, and the characteristics and qualities you’re seeking in your inventory. See if your suppliers offer a guarantee and stand by their product.
As mentioned, your supplier selection will depend on the type, characteristics, and qualities of the inventory you want to stock your vending machines with. Because cold beverages represent nearly one quarter (23%) of vending product sales, we’ll review suppliers through that lens. Here are some examples of suppliers of cold beverages for a startup vending machine business with only a few machines:
- Membership Clubs
- Examples: BJ’s, Costco, and Sam’s Club
- Membership clubs may make more sense for new vending businesses who don’t need pallets upon pallets of inventory for their vending machines. Plus, you can enjoy the perks of a membership club as a civilian shopper! Bear in mind that not all membership clubs are created equal. We shopped each of three clubs for a 35-case of Classic Coca-Cola 12-oz cans and, in a perfect case study for shopping around, the prices ranged from $10.99 (or $0.31 per can) to $13.21 (or $0.38 per can). Even if you follow the retail keystone of 100% markup and only charge a mere $0.62 per can, you’d still be enjoying a profit of $0.31 per can. If you round up to factor in inflation, demand, overhead costs, and comparable market pricing and price each can at $0.75, your profit is now $0.44 per can, or a tidy profit margin of 58%.
- Ecommerce: Specialty Retailers, Wholesalers, and Distributors
- Examples: Vistar, Gumball, and Amazon Business
- Consider searching locally for vending machine supply and inventory retailers, distributors, and wholesalers in addition to the many shipment-based suppliers online.
Step 7: Select a Location
It’s an art and a science to secure locations that will allow a vending machine business to thrive. Aside from product mix, location is the single most important aspect of a vending machine’s business strategy and potential success. The good news is that if a location isn’t successful, vending machines can be picked up and moved in a way that many other businesses cannot. Bear the following criteria in mind when evaluating locations for your machine(s):
Overwhelmingly, vending machines in the US are located at manufacturing facilities and office buildings, meaning that captive, daytime workers are the main customers of these machines. Manufacturing and office sites similarly represent the majority of micro market locations. These kinds of locations are plentiful in many parts of the country, presenting strong market opportunities for new entrants.
With machine placement, the process involves sales, relationship management, and mutual benefit. There are usually two plans of approach for paying for location, space lease or participation location.
- Space Lease: One option for paying the owner of your machine space is to pay a fixed monthly rate, rent, or space lease. This doesn’t change, regardless of machine revenue. The going rate depends on your geographic area and cost of living, but you can expect to pay somewhere in the ballpark of $50 a month per machine. Don’t sign a lease for longer than six months; the location may not be as desirable as it initially seemed and you want the option to relocate the machine.
- Participation Location: Some vending machine operators pay the location landlord a commission on machine gross—a type of profit-share. This could mean a 60/40 split, or a 10%–25% share of vending machine revenue. The landlord may already have a plan for how they approach this opportunity, but go into the conversation with your goals and outcomes in mind.
Remember that a successful partnership represents a win for both parties, so negotiate a plan of approach that benefits both partners in the deal.
You may be interested in learning how to determine foot traffic.
Step 8: Check Formalities & Legalities
Each industry, sector, and business type comes with its own bundle of legalities to comply with. Here’s a shortlist of the formalities and legalities checklist for a vending machine business:
- Name and Legal Entity
- Research a business name, website availability, and file your business entity on your Secretary of State website.
- While not legally required, any business set up with formality as a business entity (like an LLC) is being set up for success. Abiding by our recommended legalities and formalities is strongly suggested and will ensure that you’re setting up legally, formally, and intelligently.
- Register for Taxes
- File EIN: Even for a one-machine vending machine business, taxes are obligatory. After filing your business structure, register for taxes by applying for a Tax ID or EIN (Employer Identification Number) on the IRS website.
- Process Sales Taxes: Once you have your business registration and EIN information handy, visit your state’s Department of Revenue website. Search for or select “Sales and Use Tax,” and proceed to register your business.
- Open a business bank account and/or business credit card
- Set yourself up for success by addressing this business formality early on. Keeping your business and personal financials separate will make business, taxes, and life easier, and will also allow you to build healthy business credit.
- Licenses and Permits
Start with our Business Registrations, Licenses, and Permits Guide to get your bearings, and then tackle the below sections.
- Federal: The applicable federal licensing for a vending machine business depends heavily on what is being sold.
- Food/Beverage Service License: If your micro market or vending machine deals in food and beverages, a food service license may apply to you. See the FDA Food Business guide to review the criteria that may apply.
- ADA Compliance: Since vending machines are a physical enterprise located in public spaces, access to the machines is subject to compliance with the Americans with Disabilities Act, or ADA. The ADA guide is a bit of a bear, but skim the ADA Small Business Primer to familiarize yourself with the basics.
- State: The applicable state licensing for a vending machine business depends on where it is operating. Visit the CandyMachine.com Vending Regulations by State guide to get started.
- Local: Your county or city government may require a vendor’s license, local food service license, a resale license/permit, vending location license fee, or more in order to operate vending machines; check with your county and city to find out what applies to you, as well as the local health department.
- Federal: The applicable federal licensing for a vending machine business depends heavily on what is being sold.
Contracts that apply to each individual vending machine business will vary, but a few contracts you’re likely to encounter include:
- Rental Agreement: If a business owner opts to rent or lease their vending machines, or if a business owner is paying rent for vending machine placement, a rental agreement should be instituted to protect both involved parties.
- Service Agreement: A service agreement outlines the terms of a given service between a service provider and customer. This is a valuable document to secure with suppliers, clients, and any business partners.
- Certificate of Occupancy: Depending on the nature of your business’s and machine’s occupancy, some type of certificate of occupancy (CO) is likely relevant. This document confirms that all building codes, zoning laws, and government regulations have been met by all parties.
At the very least, any and every business should invest in general liability insurance. Depending on what you sell, consider consulting with your insurance company or visit online providers like Next Insurance to protect your business and personal interests.
Step 9: Tap In
Some industries are flush with industry support, resources, news, publications, and trade associations and organizations. Vending appears to be one of them. In such a rapidly changing market, it’s important to stay on top of trends, technologies, and markets. Here are a few must-see resources for anyone considering opening or sustaining a vending machine business:
- Vending Market Watch: This is a leading source for vending, micro market, office coffee service, and convenience services industry information.
- National Automatic Merchandising Association: Trade association of the convenience services industry, including vending, micro markets, office coffee service, and foodservice management. Membership includes access to publications, industry data, trade shows, an app, and more.
- VendSoft: In addition to its proprietary Vending Management Software, VendSoft is a great resource for industry data, resources, articles, and more.
- Vending Times: This trade publication covers the US Vending and convenience services industry.
- Vending Connection: This resource provides vending news and a Vending Resource Directory.
Advantages and Disadvantages
Every industry has its pros and cons. Consider it all and decide if, for you, the pros outweigh the cons in the industry, the business, and the everyday operations. IBISWorld lays out some of the primary advantages and disadvantages of the vending machine industry.
- Low concentration
- Because 6% of the vending industry is dominated by the top four operators, the industry is otherwise highly fragmented and divided up among nonemployers and small companies.
- Relatively low startup costs and low overhead
- After starting, the main ongoing expenses in this industry are inventory, vehicle fuel and maintenance, and machine maintenance. Not to mention that anyone can start in this industry with less than $5,000, which is very low for any business.
- Positive growth outlook
- With projected annual industry revenue growth of 2.1% through the year 2025, this industry is expecting moderate but positive growth in the coming years.
- Low threat from globalization
- Many industries, sectors, and businesses are endangered due to globalization and external competition. The vending machine industry, however, is not exposed to international trade.
- One of the best features of the vending machine industry is that it’s easy to start small, operate successfully, and scale up accordingly. One can start a vending machine company with a handful of machines and scale to operate hundreds of machines in the long run.
- Lifecycle in decline
- Even though industry revenue is expected to grow modestly in the coming years, the number of operators is expected to decline modestly as well.
- Industry assistance
- This industry has no applicable tariffs or industry-specific assistance.
- High technology change
- Tech-savvy industry operators don’t necessarily see rapid technology change as a disadvantage, but it does pose a threat to more traditional business owners. It forces the hand and operations of many owners to keep up with industry change and market demand for convenience.
- High competition
- This industry not only faces medium-high threat from new entrants and increased competition there, but also from the automation implemented by external operators like convenience stores, drug stores, and grocers who remain open late and offer automatic checkout for speed and convenience.
As with any business, if you’re willing to put in the research, effort, time, and money, vending machines can be very profitable. Vending machines, though, depend on quantity for greater profit, so for a vending machine business to self-sustain, it needs to be characterized by a scaled-up fleet of machines, rather than just a few. Aim for wins on location, customer access, a healthy profit margin, product variety, and machine volume, and you could be the next kingpin of the vending industry.
- Relationship: Any business partnership is a relationship. Especially if you’re interfacing with sales and delivery people, evaluate the way the company regards its customers, credibility, and customer service.