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Starting a vending machine business is the perfect side hustle. But there’s so much more to this business than simply buying vending machines and placing them anywhere.
You have to evaluate vending product options, scout for appropriate locations, decide on investment and profit margins, and more. There are a lot of in-between steps to ensure your vending machine venture’s success.
Today, we’ll help you understand how to start a vending machine business and set yourself up for success.
Why Starting a Vending Machine Business is Worth It
In this business, you make money selling snacks, beverages, sandwiches, hygiene products, toys, and other types of products to customers through a vending machine.
Vending machines appeal to a large audience. After all, everyone gets hungry or thirsty—or wants a toy—at some point. This makes vending machines universally appealing, expanding your target market.
Your profit markup here is also higher. For instance, you can sell gumballs, which cost two to five cents, for 25 or 50 cents each. Snacks and sodas can give around $1 or more per sale in profits.
Admittedly, you won’t likely become a millionaire anytime soon, but you can scale the business to the point that you can replace the income from your full-time job.
The flexibility you have when running your vending machine business is the biggest pro of them all.
You can set your hours, and there is tons of flexibility. Plus, you’ll make a decent sum of money while you’re at it.
You’re your own boss, and you get to own it.
The Investment Needed to Start a Vending Machine Business
Most of the expenses to start a vending machine business come from the vending machine itself and the stock items.
You can start with as little as $2,000, which will get you a basic vending machine–enough to get your business up and running. According to VendSoft, smaller machines that sell candy and gumballs cost between $150 and $450 each.
But generally, vending machines can cost anywhere between $3000 and $10,000, depending on their size and features. For example, you might want one that takes credit and debit cards.
Snack and soda machines, on the other hand, will set you back $1,500 to $8,500.
If you want to reduce your costs, consider buying used or refurbished machines, which cost anywhere from $1,200-$3,000. It’s even better if you know how to repair the machines or get someone to do it for you at an affordable price. Then you won’t have to worry about warranties.
Entering into contracts with suppliers to get free machines is another option. Some suppliers will furnish and maintain a machine as long as you agree to purchase all of your supplies from them.
What’s more, vending machine supplies don’t cost much because they are nearly always purchased wholesale. Gumballs and small toys are very inexpensive when purchased wholesale, and while snacks and sodas cost more, they are still very affordable.
You’ll also have to pay a nominal fee to register your business, which varies from one state to another. You can find out more details by visiting your state government website or asking your lawyer.
8 Steps to Start a Vending Machine Business
Let’s get to business! Here’s a step-by-step guide to launch a vending machine business in the US.
Step 1: Decide What Kind of Vending Machine You Want
Gone are the days when vending machines were rusty-looking things that only took dollar bills and looked like everything was expired. Today, you have a diverse range of options to choose from.
- Food and Beverage Vending: Most of the vending machines you see are food and beverage vending machines that serve sodas and snacks. If you plan to purchase two or more machines and place them in different locations, you may want to consider stocking different items in each, depending on the traffic in the area.
- Bulk Vending: These are the smaller machines you see at the front of restaurants and grocery stores. Bulk vending machines contain toys, rubber balls, gumballs, or similar items. These products are generally the cheapest, and as they’re manually operated, they also carry the least overhead. But when placed in the right setting, these machines can be an excellent source of passive income and are perfect for budding entrepreneurs.
- Specialty Vending: Specialty vending machines are the new age machines that offer premium products completely different from your typical run-of-the-mill items. You can dispense almost anything, from electronics to hot beverages to ice cream. Also, depending on the type of specialty products you have in these machines, you’ll earn a considerably higher income than from offering standard food and beverage items. That said, the higher mark-up also means fewer people will take advantage of your machine.
Regardless of the vending machine type you choose, your main priority should be to tailor your vending machine offerings to your target audience.
Step 2: Scout Good Locations for Your Machines
If anything is as important as the products you sell in your vending machines, it’s their location. Strategic placement is critical to ensure your vending machine business’s success.
Research and think critically about the people you’re targeting. What are their requirements, and what kind of crowd frequents the location?
For instance, if you place a food and beverage vending machine next to the local gym, you would want to offer protein bars, electrolyte-infused drinks, pre-mixed shakes, and other items that would provide value to gym-goers.
On the other hand, if you have a specialty vending machine in a local laundromat, fabric softener and individual detergent packs would make more sense.
Here’s a list of potential locations for your vending machines:
- Bus stations
- Manufacturing facilities
- Apartment complexes
- Grocery stores
- Malls and shopping centers
- Train stations
- Hotels and motels
- Hospitals and health centers
You can’t just stick a vending machine anywhere you want. You need to have conversations with the property owners or managers. They may not want to give you floor space or have their own vending machines in place and not want to compete. Once you’ve identified several areas you want to place your machine, start making calls to find out if those locations are open to having your machine on their property.
Keep in mind you’ll also have to pay a commission to utilize any location since it is likely owned by someone else. This is typically 10% to 25% of your total revenue, but you can always negotiate that before signing a contract.
Step 3: Name Your Business
Your business name is one of your most critical brand assets. It’s how your customers will identify you from its competition. Here are a few tips to help you finalize a business name:
- Keep it simple and catchy
- Be creative
- Be original and unique
- Ensure it’s easy to remember
Additionally, your potential business name shouldn’t be taken by any other business. To ensure this, run a search with the U.S. Patent and Trademark office.
Step 4: Finalize Your Business Structure
Your choice of business structure will have legal and tax implications. It’ll also affect the total time and costs involved to ensure compliance and maintain good standing with the state. You can register your business as one of the following legal structures:
- Sole proprietorship
- General partnership
- Limited liability company (LLC)
If you choose to be an LLC, S Corporation, or C Corporation, you may have to appoint a registered agent who will act as your company’s point of contact with the business.
Keeping in mind the legal obligations and consequences, it’s better to consult an attorney to determine which would make the best fit for your business and operate based on their advice.
Step 5: Register Your New Vending Machine Business With the State
Filing registration paperwork with your state is mandatory to form an LLC or incorporate a vending machine business. The only difference is that while you have to file Articles of Organization in the case of LLC, you must file Articles of Incorporation for a corporation.
Generally, states don’t require proprietorships and partnerships to submit formation paperwork. However, if you use a name other than one that includes your first and last name, you’ll have to file a DBA (Doing Business As). It’ll be the fictitious name of your business.
While you’re at it, find out and obtain the necessary business licenses and permits you’ll need for your business.
You can also consider hiring an online legal service like Rocket Lawyer to take over the registration process.
Rocket Lawyer offers top-notch legal expertise and files all necessary legal paperwork to ensure all your legal formalities are properly completed to make your business official in the eyes of the law.
Step 6: Develop a Business Plan to Secure Financing
A business plan is also a formal document that you can use to obtain funds for your business.
While the vending machine industry has a much lower barrier to entry than other industries, you’ll still need a few thousand dollars to start your business. If you don’t want to dig into your savings or lack sufficient funding, you can look into other financing options.
Start by calculating how much you need to purchase the kind of machines you want and the items in them. Remember to account for other costs, like trucks for transporting machines, if required.
Then decide whether you wish to apply for short-term loans or an equipment financing loan.
Short-term loans have a shorter payback period with higher interest rates than long-term loans, but they are easier to qualify for. On the other hand, equipment financing loans offer a fixed interest rate and use the equipment itself as collateral in case of default. However, qualifying for this loan won’t be easy if your credit score and business tax returns aren’t good.
A business plan is a series of intentions about how you’ll run your business. Here’s what it should include:
- An overview of what your business is
- All the products and services you are selling
- How your business will generate revenue
- All your employees and executive staff
- From where you are getting funds
- Your operations model
Once you get the money, use it to buy your vending machines and supplies.
Step 7: Sign Contracts With Property Owners at Vending Sites
As mentioned, businesses and property owners will want compensation for permitting you to install your vending machines on their premises. You’ll have to pay a percentage of your total revenue as commission, which is why it’s crucial to spell out the rates, terms, and conditions in a formal agreement.
Try to reach a reasonable commission percentage that satisfies the party providing you location while leaving you with an acceptable profit margin. So don’t forget to run the math before agreeing to a number and signing the contract.
Here is a list of pointers to include in your contract with the property owner:
- Names of the parties entering into the agreement
- Agreement length
- The type of machine(s) and products sold
- Location(s) of the machine(s)
- Responsibilities related to machine damage, maintenance, and service for each party
- Notifications about machine failure or damage
- Exclusivity provision, if applicable
- Rights to add, remove, or replace machines
- A termination clause
As with any legal document, it’s always better to have a legal expert by your side when creating the contract, or at the very least, reviewing it to ensure it serves your needs. The team over at Rocket Lawyer can assist with this.
Step 8: Optimize your vending machine business’s performance
Once your vending machine business is set up and operating, you should begin to see profits coming in. However, your work isn’t done.
Your next focus should be on optimizing your profits. Here are a few options to consider:
- Optimize Your Inventory Management: Many vending machines will require you to track your inventory manually. So if you have several machines of a similar model, you should consider investing in inventory management software that can streamline or automate the process.
- Improve Customer Service: Offering top-notch customer service is an effective way to differentiate yourself from your competitors. This includes ensuring your machines are always functional, user-friendly, and fully stocked.
There you have it—that’s how you start a successful vending machine business.
Start by looking into the different items you can offer and determine where you’ll buy or lease your machines. We also recommend hiring an LLC service to take care of your registration, licensing, and EIN.
Once your business is up and running, shift your focus on optimizing its performance and boosting your income. Eventually, you’ll earn enough money to replace your full-time income.