Starting a vending machines business is a very lucrative business venture. Millions are making money from operating vending machines businesses from all parts of the world. The vending machine business has received a lot of attention from advertisers, primarily because of the crazy profits that it promises. Others make the erroneous assumption that you can start a vending machines business that without even trying. Although the vending machine business is lucrative, it needs effort and careful planning. This article guides through the essentials for anyone that wishes to join this profitable niche.
According to NAMA (National Automatic Merchandizing Association), nearly 20% of all vending machine operators are capable of earning annual profits of up to $5 million each year. At the same time many people that have joined the vending machines business end up having to deal with lawsuits and fines for failing to comply with the rules. One of the first things that you will need to consider is the type of equipment that you will be using:
Machines, Tools and Equipment for a Vending machines business
There is a wide variety of machines that are capable of vending many items including drinks, beverages, consumables, hygiene products, videos, sweets, ice cream, snacks and cigarettes. Some entrepreneurs start off with a broad category and then narrow down to a specific niche. Others prefer to start off with a niche until they are comfortable with the business model before moving on to general vending. In any case the products that are chosen will call for highly specialized vending machines which are not only secure but also capable of keeping the products in their best shape for the market.
There is an option to buy outright or lease the vending machine as well as the associated equipment. It all depends on how long you intend to do the vending machines business, the capital that you have at hand and the purpose of the project. For example, newer machines can cost as much as $10,000 a piece whereas it is possible to get a good second hand option for $2000. The monthly lease for a basic truck is about $500. As part of your search process; it is a good idea to visit auction websites such as Craigslist, Specialty Trux and eBay. Amazon also has some great machines that are critically reviewed by industry experts and previous users.
Do not forget to have maintenance arrangements since the machine is bound to fail at some point. You also need to do regular deep cleaning. It is better to have an ongoing contract with a trusted technician rather than calling them out on an emergency since they will invariably charge much higher for non-contracted work. You are strongly advised to learn about the machines yourself so that you can intervene in emergencies instead of waiting for the contractor to arrive. Open up an account with a parts exchange company such as Vendors Exchange International so that you always have what you need from the right supplier.
Licensing and Franchises
One of the early critical decisions that you will have to make on your vending machines business is whether you are going to operate under your own brand name or whether you will take on a franchise. Each of these options will have different licensing arrangements. The state typically focuses on your ability to deliver a service that will not harm the public whilst ensuring that you pay all the taxes that are due. A case in point is the seller’s permit which requires you to have clear accounts as well as safe premises. You may be called upon to charge sales tax on the items that are dispensed by the vending machines. That is why records are so critical in the vending machines business.
Managing the Supply Chains
You will need a reliable high quality supplier because your vending machines business is only as good as the products that you sell. Some entrepreneurs choose to buy online for convenience and price discounts. Others will visit a local big box store and then resell those items at a small mark-up. Some of the leading suppliers in the industry include Candy Machines and Smart Vending. The typical mark-up for the bulk items (e.g. sweets) can be as high as 300% on the wholesale price. For the single items, the markup can be as high as 100%. The main rule of the vending machines business is to make numerous small unit profits which add up to a large pot. You can apply a loss leader strategy on certain products when you are comfortable with your customers’ purchasing patterns.
Identify a Suitable Location
Although you may want to start off with one location, it is advisable to have an alternative just in case something happens to the first. With a franchise, you could be limited to specific premises but if you are a free agent then all bets are off. Offices, shopping malls, car parks, airport terminals, waiting rooms and schools are very good for accessing high traffic numbers. However, you will need to pay ground rent and also adhere to the strict rules associated with that particular establishment. These rules can relate to the types of items that can be sold as well as the time that sales can be made. You may also have a profit share arrangement with the owners of the establishment where your vending machine is located. Regardless of the arrangement you have, it is imperative that there is a signed contract detailing all the relevant clauses.
Make sure you have a comprehensive vending machines business plan
The failure to plan is the beginning of business failure. The vending machines business plan must be clear and succinct enough to give your potential partners, clients and investors an overview of what your objectives are. At the same time, it must be detailed enough to explain the nuances of the business that you propose. At the very minimum you need to have the following included:
- The mission, vision and operational strategy
- Market Analysis And Customer Segmentation
- A business case showing that the business is financial viable and sustainable
- A marketing and customer care plan
- An organizational chart and human resource policy
- A three-year expansion outlook
- A risk and rewards Analysis
You will need to make an informed decision about the business type that you will adopt for your company. For example, you may decide to be a sole owner or may open up a Limited Liability Company (LLC) or even a Public Limited Company (PLC). Each of these options requires very specific application processes for permits and registrations. The business type you select will determine who owns, runs and supervises the operations of the company. It’s also better to have a website for your vending machines business.
Why vending machines are a lucrative business
A marketing expert has come up with interesting statistics that demonstrate why vending machines business are the go-to-startup. For example, the snack and vending industry generates an average annual profit of $64 million and attracts consumer spending to the tune of $7 billion per year in the USA alone. The average annual spend on vending machines per capita in the USA is $27. Moreover, the industry has not been negatively affected by the drive towards healthier snacks. Indeed, research shows that where vending machines switch to healthier snacks; they are capable of tripling their sales in the long run. The vending machines business is relatively straightforward to start and run as long as you follow some simple steps and exercise due diligence.