Posted on: May 6, 2020 | Investing
A vending machine business can be very lucrative and it requires relatively little time and upkeep. Though this is a great opportunity, a vending machine business, like any business, must be set up properly to be successful. Here’s what you need to know about how to start a vending machine business.
How to Start a Vending Machine Business in 5 Steps
- Step 1: Choose a Location
- Step 2: Choose Your Vending Machine and Products
- Step 3: Understand the Rules and Regulations
- Step 4: Create a Business Plan
- Step 5: Financing and Purchase
Step 1: Choose a Location
Choosing the right location is the most important part of starting a vending machine business. Since vending machines aren’t widely advertised like other businesses, the location must provide enough customers to stay profitable. Researching your location in detail is one of the best ways that you can start a vending machine business off right.
Here are a few considerations as you pick out your location:
- Is there enough traffic? Do research to see approximately how many people pass the location and how many are likely to use a vending machine.
- Will your vending machine product make sense in that location? For example, an expensive health food vending machine might make sense outside an upscale gym, but less sense at a bus station.
- Is the location safe? Repeated graffiti or vandalism will put strain on your business.
- Are your products legal in that area? Laws forbid vending machines for products like cigarettes and alcohol in America. In some states or cities, ordinances also limit unhealthy foods.
- What would it cost to place a machine there? Renting a spot on a vacant lot will probably cost less than a spot at a mall, airport, or another operating business.
In step 2, we’ll discuss the type of products you want to sell, but it’s a good idea to consider step 1 and step 2 at the same time. Knowing how to start a vending machine business successfully means choosing products and locations that complement each other. For example, ice vending machine differs from snack vending when it comes to location. With snack vending, it’s ideal to look for a location where people are congregating or waiting, such as airports, bus stations, or apartment lobbies. Unless these locations are brand new, they probably already have vending machines placed there. Ice vending is different. Since the purpose of ice is to keep food or drinks cold, the ideal placement is along a route where people are traveling, usually to work. Since you won’t be competing with snack vendors, it will be easier to find the right location.
Research a location for a low-maintenance vending machine with no need to restock. Learn more about ice and water vending locations.
Step 2: Choose Your Vending Machine and Products
Vending Market Watch’s annual report shows that vending is a $23.5 billion industry, and this encompasses more types of products than you might think. Most people think of candy and snack food when they think of vending, but healthy foods actually make up a larger share of the industry than snacks and candy. There are vending machines all over the world with all types of products, and choosing the right one is essential to start a vending machine business successfully.
Here are a few questions to keep in mind as you consider what type of vending machine you want to start with:
- How often will you have to refill the machine? Do you have enough time to restock? If not, an ice and water vending machine might be a good choice, since there’s no need to restock.
- How expensive is your machine? Some machines, like candy dispensers, use very simple mechanics and don’t require much upfront investment, but they don’t provide much payoff either. Refrigerated machines or those with more features will be more expensive, but will generate more revenue.
- What features does the machine have? Features like credit card usability, electronic monitoring or remote access can generate more sales and make the machine easier to manage.
- Does the product make sense with the location? As previously mentioned, make sure that customers in your location really want the product you’re selling.
- Does the machine have a service guarantee or warranty? Buying a used machine will be more affordable, but it will require more maintenance and provide no service assistance. Make sure you can take on the job, or you can get help when you need it.
Step 3: Understand the Rules and Regulations
Understanding business rules and regulations is an important part of learning how to start a vending machine business. You may need a business license or a particular permit according to your state’s rules. Some states have set limitations or extra taxes on snack foods, candy and sugary drinks in an effort to fight obesity. There may be other limitations on location, such as rules against sugary drinks or candy in school vending machines.
It is also important to understand contracts as you start a vending machine business. Unless you already own the land that you’re using, you’ll have to enter into a contract with a landowner to rent a space. Even if this person is a friend or acquaintance, it is a good idea to sign a contract, be sure that everyone understands the contract, and to have a lawyer look it over. This way, any disputes can be settled by the contract.
At this step, research the following:
- State rules and regulations for businesses and vending machines
- Business and vending rules and regulations in your town or city
- Business taxes and how to keep your books
- Legal contracts and arbitration
Step 4: Create a Business Plan
Now that you have a good idea of where you want to put your vending machine and what type you will have, this is a good time to create a business plan. This will help you organize the information you gathered in previous steps, obtain financing in the next step, and keep your business on track into the future.
A great business plan should explain your business and it should give you room to grow. Your plan should contain the following information in an organized format:
- Your business, products, and location
- Market analysis including expected sales, traffic, and competition
- Employees or partners
- Advertising and marketing
- Financing needs and strategies
Step 5: Financing and Purchase
The final step of how to start a vending machine business is obtaining financing and then buying and setting up your machines. How you obtain financing will partially depend on what type of vending machines you are buying.
Some business owners buy new machines, others buy used machines, and others might purchase a complete vending machine business that is already set up. If your location and products would work best with a high-tech machine that is equipped with a touchscreen and credit card readers, or you are looking for a less common vending option with less competition in your area, you will probably want to buy a new machine. If you are looking for a snack machine with common capabilities, you may be able to buy or refurbish a machine. If someone you know has already set up a business and can show that it is successful, you might purchase it from them, but this will require significantly more investment.
Whatever option you choose, compare prices to get an approximate range. Once you have a price in mind, consider your financing options:
- Business loan: A business loan from a reliable lender may provide a good interest rate and payback period. You will need to have a solid business plan and most likely some collateral.
- Personal loan: If friends or family members are willing to invest in your business, this can be a good route. To avoid problems down the line, write up a contract and stick to it.
- Retirement: If you’re confident in your investment and you don’t want to work with a lender, you might start your business by borrowing against your retirement fund.
- Savings: Your money may be safe in a savings account, but it isn’t accruing interest there either. Investing in your own business can help you put your money to work.
With these steps completed, you’re ready to start your vending machine business. Before you buy, make sure that you have everything you need to install and set up your machines, or that the manufacturer will help where necessary. If you’re looking to start a vending machine business with low maintenance and no inventory, consider an ice vending machine.
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