If you think vending machines are just for candy and soda, think again.
Whether you’re in need of a fresh slice of pizza, a new pair of running shoes, or refill on your glass of Moët, there are vending machines that can help with that now.
According to the National Automatic Merchandising Association (NAMA), there are over 5 million vending machines in the U.S. alone.
The vending machine industry generates over $64 million in profits each year. And three out of every four vending machine transactions are in cash.
If you’ve been searching for a side business that has low overhead, requires minimal technical skills, and will generate passive income on a steady basis, starting a vending machine business could be what you’re looking for.
The vending machine space is growing as more entrepreneurs see the advantages. For less than a few thousand dollars, you can buy your own machine and start stocking it or you can buy into an existing vending machine franchise where the business plan is laid out for you step by step.
With all kinds of options to choose from, where do you begin? Today I’m going to walk you through how to start your own vending machine business in 6 steps from scratch.
How to Start a Vending Machine Business
Step 1: Choose Your Vending Machine
When you hear the words “vending machine,” what comes to mind? If you’re like me, you imagine the vending machines from yesteryear that take a dollar in exchange for a chocolate bar or bottle of soda.
These would be classified as your traditional food and beverage vending.
Food and Beverage
Most of the current market consists of these machines. Placed in the right location, the inventory turnover can be high and depending on where you source your product, you can walk away with some fat profits.
If you decide to start with a food and beverage vending machine, consider what types of snacks and drinks your location will want.
And if your vending machine is not the only option around, consider stocking your machine with exotic beverages from overseas or some other type of snack that differentiates your machine from others.
Bulk vending machines are another type you can choose to own. These are the machines you’d gravitate to as a child, typically found in malls and play areas. They’re usually stocked with toys, gumballs, bouncy balls, and bulk candy.
These products and machines are generally some of the cheapest to own, as they carry the least amount of overhead due to being manually operated. If you can find the right location, these machines are perfect for first-timers wanting to get their feet wet in the vending machine industry.
I kid you not, in Beverly Hills they have vending machines in malls that dispense gourmet snacks like caviar, escargot, and bottarga. Specialty machines offer something different than your typical run-of-the-mill machines.
From electronics, to clothes, to hot beverages and champagne, you can find specialty machines that will dispense just about anything. Depending on the type of specialty products you carry, your take home profits can be significantly higher. The tradeoff is these machines are usually very niche, so your inventory turnover may be slow.
Whatever kind of vending machine you decide to use, it’s important to tailor your vending machine offerings to your target audience. Always think who will be interacting with your machine and how can you meet their needs.
Step 2: Find a Location
The location of your machine will be make or break. Do your research and think critically about the people you are targeting. You want to meet a specific audience’s needs in a specific place.
For example, if you place a food and beverage vending machine in your local gym, you may not want to stock it with soda and chips.
Protein bars, pre-mixed shakes, and electrolyte-infused drinks would provide more value to gym goers.
Another example would be a laundromat. You’ll have more luck placing a specialty machine stoked with fabric softener and small packages of detergent than you would with maybe candy or beverages.
Think about who your target audience will be and what type of products would satisfy their needs. On top of meeting the needs of your target market, you also need to calculate your costs.
Because you will likely be placing your vending machine in a space owned by someone else, they’ll be collecting a commission from your earnings. The average is between 10% to 25% of your revenue, but you can negotiate these terms.
Once you reach out to the owner of the location you want to use, try your best to pitch the machine as a passive income opportunity for both parties. If the owner is sold, draw up a contract with the terms and conditions, as well as the quoted commission fees. Ideally, you should have a lawyer look over the contract before signing.
One last thing to consider about your location are your state laws. Do some research into local regulations online or ask someone at your local Chamber of Commerce. Some states restrict the type of snacks and beverages you can offer based on location.
Step 3: Financing
While the vending machine industry has much lower overhead than most businesses, you still need a few thousand dollars to get your business off the ground. If you’re interested in more specialty machines, your costs can climb up to $10,000, not counting inventory.
Two ways to secure financing:
- Short-term loan: This is the best option for anyone who already owns a small business and has a proven business financial history. A short-term loan will offer a shorter payback period with higher interest rates than a long-term loan, but it can be helpful because they are easier to qualify for.
- Equipment financing loan: This type of loan is best for people without a business financial history. The loan offers a fixed interest rate and uses the equipment itself as collateral in case of default, allowing you to get quick access to money without undergoing the same financial scrutiny you might receive obtaining a short-term loan.
Step 4: Buy Your First Vending Machine
After you’ve secured the capital you need, it’s time to pony up and buy your first machine. You can buy new or used, or lease. Do your research and find out which brands are best for the type of product you intend to carry.
Craigslist.org is a good place to look for vending machines. UsedVending.com is another great resource. eBay.com and Amazon.com are also good sources to find new and used machines. You can also go to vending machine dealers, just search online for the one nearest you.
Step 5: Buy Your Inventory
Think about your customers’ needs at the particular time and place where they’ll encounter your vending machine. What products will help them at that moment?
Try to fulfill a niche or gap in the market. This will help differentiate your machine from the competition. When you search for items, make sure you pay close attention to price per unit. Be sure to have your machine’s specs in hand to ensure the product will fit into the machine properly also.
Step 6: Maximize Profits
Once your vending machine is set up and running, you’ll start to see profits roll in. The work isn’t done yet. Now you need to focus on maximizing your profits.
Because the industry has such a low barrier to entry, there’s high competition. Put your time and effort into these three things to ensure you get the most profit:
- Optimize your inventory – A lot of old vending machines make you track your inventory manually. Once you have more than a machine or two, it may make sense to invest in an inventory management system that can help streamline or automate this process.
- Boost your customer service – This will be one of your top differentiators. Make sure your machines are functional, easy-to-use, and fully stocked. Solicit feedback from customers and address any complaints right away.
- Scale up – Once you feel like you’ve got a handle on the operational and financial side of the business, start to think about ways you can scale. Buying more vending machines is the next logical step. What new markets can you expand into?
The possibilities are endless once you know how the business model works. Follow these six steps and you can start generating passive income sooner rather than later.
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This Article first appeared in daily reckoning