The keys to building a vending machine business are finding and selling the right locations, having a lot of locations, keeping machines clean and stocked, and maximizing net margins on your inventory. The steps to start a vending machine business are:
- Decide if a vending machine business is for you
- Figure out what type of vending you want to try first
- Pick your products
- Get your machines
- Stock and maintain your machines
We’ll go through each of these in detail, hopefully hitting the key issues gleaned from those with years of experience in the business.
There are few ways to get into the vending machine business but this guide focuses on building a business from scratch, as opposed to franchising or buying a route. Generally speaking, you should expect to earn a few hundred dollars a month per machine and expect startup costs ranging from a few thousand dollars for a single machine.
Step 1: Decide If a Vending Machine Business Is For You
Like most startups there is no magic bullet in building a vending machine business. You’re chance of success will be better if you’re realistic about the hurdles and hard work involved.
Pros and Cons to Starting a Vending Machine Business
Here are some pros and cons to the business:
Probably the single hardest part of starting a vending machine business from scratch is acquiring locations for your machines. It is straight up sales. You need to find prospects then approach them and talk them into letting you put in a vending machine.
If do place a machine, the next biggest hurdle is going to be driving around to sites to stock, clean, and fix your machines. You’ll need to be good at client relations to fend off the competition and know what your customers want over time. You have to do all of this with the knowledge you will not make any real money until you have a number of machines that are placed and generating sales. Oh and you still have all of the work associated with a business like incorporating your business, paperwork, taxes, financials, etc.
Do Some Preliminary Market Research
If you’re not 100% sure you can get it done, do some initial research before diving in.
Take a look at potential spots (example types below). Try to get a feel for the foot traffic. Do folks have other options such as convenience stores. Do they spend a lot of time at that one location. What sort of vending are they likely to want. Upscale locations might want healthier options. Are there missing options such as beverages, snacks, hot food, etc. The things you’re looking for include:
- Number of possible locations and chance of placing machines in your region
- Sense of traffic at those locations
- Types of products best suited for those locations
For every $1,000 you want to earn per month you’re going to need have 2 to 4 locations. So if you want to make $10,000 per month you’re going to need to sell and manage 20 to 40 locations.
Test Drive Selling
After you’ve scouted some spots and created your plan (described below) take some materials and go around to a few prospects and try to talk them into letting you put a vending machine in. You could bring, for example, images of a stocked machine, selling points on why a host would benefit from a vending machine, and a way to talk about the great customer service you’ll be providing. This should give you a good feel as to whether you can get past the biggest initial hurdle, location sales.
Step 2: Figure Out What Type of Vending You Want to Try First
Each vending option varies in machine investment needed, potential demand for given location types, product costs and therefore profit margins, shelf-life, etc. The most common vending machines are beverages followed closely by candy/snacks/confections. But you may want to focus on a new niche to entice locations.
Low Cost, Low Margin Options
Low cost, low margin options generally are generally familiar products that have a long shelf life. They have the lowest upfront costs for equipment and inventory. They are also generally easier to keep in stock. But because they are low-cost, familiar, packaged products they tend to have the lowest margins and will require higher turnover to generate enough income. Examples include candy; bottle or canned beverages; and packaged snacks like chips or crackers or cookies, toys, phone cards, gift cards, non-food items like car wash or laundromat supplies, etc.
Higher Cost, Higher Margin Products
Some products require more sophisticated equipment or have a higher base cost. This means higher startup and operating costs but provide generally higher margins. Examples include frozen or hot foods, high-end fitness foods, hot beverages such as coffee, electronics, etc.
In addition to the machines being more expensive these vending machine types tend to need a lot more cleaning and maintenance than lower cost vending machine types.
Trending Vending Businesses
In addition to more traditional vending machine businesses there are a couple of new segments that are trending in the industry.
One clear trend – at least in certain types of locations like schools, gyms, etc. – has been growing demand for healthier options. These include flavored waters, juices, and sports drinks instead of sodas; fresh fruit; and health bars like granola or protein.
Another trend going on in the vending industry doesn’t involve any traditional vending machines at all. It’s the rise of micro markets, also known as honor markets. It’s an extension of the healthy options trend. Micro markets tend to have fresher, healthier options, including warm food. Their products are in open, self-serve areas where customers pay at kiosks without any staff involved.
Though micro markets are becoming more popular among consumers, they have very high upfront equipment costs and high ongoing management costs. They tend to be dominated by a few, very large players in the vending machine industry.
For the purpose of this guide we’ll assume you’re going to start with a low-cost, low margin, healthier snack focus.
Step 3: Pick Your Products
If you’ve gotten this far, you think you can sell some locations with sufficient traffic on placing a vending machine and what potential products might sell well in those locations. Now you need to think through what products will be in the machine and at what price. Ready for some math?
Let’s compare 2 different “healthy” snacks: Clif bars and Sun Chips. Let’s assume your supplier is Sam’s Club, a common one for those just getting off the ground.
A 24 count variety box of Clif bars costs $19.98. That means each bar costs you $0.83. (As an aside this was $28.86 on Amazon, so shop around!)
A 30 count variety box of Sun Chips is $12.44, or $0.42 per bag.
The general consensus in the industry is you want to try and markup your product 100% or more and round to the nearest quarter. So in the case of our Clif bar you’d ideally sell this for $1.75 for a profit of $0.92 each. For the Sun Chips we’d sell at $1 for a profit of $0.58 each.
According to Healthy2Go the average healthy vending machine earned $9,336 per year at about $1 per vend. Divide that by 12 and you get about 778 vends per month. So if every vend in our machine was a Clif bar we’d make $715 per month. Which would be great since the industry average is around $300 per month. But if all transactions are Sun Chips we make $451. Big difference. And all of this assumes 25 vends per day. The higher the price the better the margin but then we get a lower number of vends. If our average is 10 vends per day (closer to the industry average) you can see what happens to profits. So product mix, pricing, and demand at a given price are going to influence exactly which products will max out profit.
A typical vending machine has 32 to 40 items to select from so you’ll need to work through that many options. It doesn’t have to be that complicated. This example was just to show the impact of product selection, pricing, and demand on profits. Generally speaking you should pick items you think will sell well at your location and experiment with pricing, keeping in mind what others are charging.
Another thing to keep in mind is that you’ll get better prices at large snack wholesalers and even more if you go directly to manufacturers. But each of these require very large and consistent order sizes. If you manage to get to a certain size you should check out these options later on.
Step 4: Get Your Machines
Buying a new vending machine usually costs between $3,000 and $5,000 new and $1,000 to $3,000 used. The main factors include the type of machine – snacks, frozen, coffee, etc. – and the features that come with the machine. Assuming we’re talking about a healthy snack machine, typical main features that you’ll need to decide on are:
- Size and configuration
- Refrigerated or not
- Customer payment options
- Electronically programmable prices
- Aesthetic design
Size and Configuration
Size and configuration will depend on the available space for the machine and the types of products you plan on stocking. Do you want a 32 or 40 selection machine and the accompanying variance in width? Snack bags tend to come in two sizes that will fit in a machine. Snack bars tend to have a different size rack than chips. You get the idea.
Refrigerated Or Not
This is pretty straightforward. If you’re going to have cold beverages you’ll need a refrigerated model with requisite racks for bottles.
Customer Payment Options
The main payment option question is whether your vending machine has a credit card reader or not. Most vending machines do not have a credit card reader. However people are carrying around less and less cash, especially in more upscale locations. So cash-only machines have lower revenue than those with card readers. But having a card reader adds:
- Higher upfront cost of $400 to $500 for the reader
- Requires a cellular connection
- Adds a transaction fee of 3% to 7%
- Minimum fees of $5 to $10 per month
A small but growing option on vending machines is availability of paying with your phone using for example Google or Apple payment apps. If your locations are in more affluent locations this is something you may want to look at.
Step 5: Acquire & Maintain Locations
Ok, you’ve got your machine and you’ve got your products. Now we only have the hardest step left, acquiring locations. The main things you need to keep in mind are:
- Look for certain location characteristics
- Common location types
- It’s a sales process so manage it that way
- Maintain the relationship over time
Look For Certain Location Characteristics
The main things you’re looking for are foot traffic and conversion of that foot traffic. Good locations are going to have some common characteristics including:
- High amount of foot traffic, e.g. schools
- Removed from other options, e.g. midsize offices in remote office parks
- Lengthy wait times with no food options, e.g. small veterinary hospitals
- Late night visits when restaurants are closed, e.g. small to midsize hotels
We talked to Tony Buonanno, an Account Sales Manager at Crane Merchandising System with over 30 years in the industry, and he said the biggest mistake made by people new to the vending industry is picking a location that doesn’t have enough traffic.
“Each machine should sell at least $150.00 per week. If the location does not sell that much per machine, move the machines to another location. Don’t just keep buying machines,” Tony said, “As a rule of thumb, office locations might see $1.50 per person, per week and a blue collar workplace will see $3-$6 per person, per week.”
Common Location Types
Everyone location is going to have its own particular potential but here’s a short list of places to consider placing your vending machines.
There are many other perfectly suitable locations to place a vending machine. Keep in mind the size of the space you have available, whether your machine will be inside or outside, and what kind of competition your products will be facing.
It’s a Sales Process
The biggest hurdle in starting your business is not going to be the machines or the inventory, it’s going to be selling just like every other startup business. You need to build a sales funnel large enough to produce enough location sales. You’ll need to work on conversion rates. You’ll need to have a thick skin for all of the rejections.
After you close a location your sales responsibilities don’t end. Competitors are going to try and take your locations. You’re going to want to manage your product mix and pricing to max out revenue. The best way to do these 2 things is to maintain a close relationship with the business owners and the users who shop at your machines. Build personal relationships and trust. It’s the biggest barrier for competition. Make sure your delivering great service. Listen to feedback on what might be better replacement items.
Step 5: Stock & Maintain Your Machines
Once you’ve sold your locations the 3 most important things you can do to drive sales are keep the machines 1) well stocked, 2) clean, and 3) functioning.
Keep The Machines Well-Stocked
The more empty your vending machine is the more stale your remaining inventory looks to prospective users, costing you sales. So keep your machines as full as possible. Since you’re just getting started you probably won’t be investing in a remote monitoring system which requires a few hundred dollars in equipment per machine and also requires a backend 3rd-party monitoring service and related software. So plan on making frequent trips to check on your machines in the beginning until you have a feel for how quickly your inventory goes.
Keep The Machines Clean
Keeping your machines clean accomplishes 2 things: increases sales and reduces maintenance cost. If your machines are dirty prospective users will associate that with poor quality food. Your machines are mechanical. So cleaning them regularly will reduce the number of vending failures and reduce the need to fix internal mechanisms. You can read more on cleaning a vending machine here.
Keep Your Machines Functional
Regardless of how clean you keep your machines they will eventually breakdown and you’ll need to fix them from time to time. To get an idea about how much we spoke to Mark Giroux, National Sales Director for Coinco/Royal Vendors, North America’s largest manufacturer of cold packaged beverage vending machines, who said, “A commercial-grade machine may require one or two service calls per year, at an approximate cost of $100–$150 each, depending upon who provides the service and where the machine is located. Smaller, less expensive, lesser-designed machines often require much more service.”
Bottom Line: Easy Start, Work to Build
Starting a vending machine business is straightforward but it’s a lot of work to build a sizeable business. You’re going to have to get good at finding and selling locations (2 – 4 for every $1,000 in earnings a month), good at having the right mix of product and prices, and spend a lot of time (or someone you hire) to keep enough machines stocked. Keep in mind the 5 steps to get started:
- Decide if vending machine business is for you
- Figure out what type of vending you want to try first
- Pick your products
- Get your machines
- Stock and maintain your machines
If you get through these well you’re on your way to building your vending machine empire.
If you’re considering financing the purchase of one or multiple vending machines, read our ultimate guide to equipment financing first. The right financing can help you build your fleet of vending machine much more quickly.