Small Business Advice

How to start a vending machine business in 9 steps

If you’re an upcoming entrepreneur you’re probably wondering how you can make passive income. Check out our guide on how to easily start a vending machine business in only 9 steps.

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There are many unique and profitable small business ideas for making money. As an entrepreneur, you want to start a business with relatively low startup costs, minimal risks, and considerable ROI. A vending machine business is one option that fits these criteria, especially if you are looking for a side hustle or full-time operation that doesn't require too much time or effort.

Vending machines are an increasingly popular business opportunity as they provide an easy, time-saving, and convenient way for people to get drinks, food, electronics, and various other grab-and-go items. You'll find these machines working silently in office break rooms, waiting rooms, laundromats, college campuses, and other high-traffic locations. With over $23 billion of annual revenue in the US, the vending machine industry is definitely a lucrative business that you can easily gain entry into, even if you are a first-time entrepreneur.

If you want to start a vending machine business, all you need is to find a perfect location for your equipment, and you'll start making money, RIGHT? Well, nothing could be further from the truth. Like any business, there are a number of important steps that you need to take before you can put your vending machines into operation.

Some of the in-betweens to ensure the success of your vending machine venture include:

1) Research the market

2) Evaluate various products options you want to sell

3) Choose the best vending business model that suits your needs and budget

4) Choose the right type of vending machine for your business

5) Scout the right location for your machine and sign a lease contract

6) Make a budget, establish a business bank account, and secure financing

7) Register your business and get the necessary permits and licenses

8) Get insurance for your business

9) Set up and optimize your vending machine business operations

If you have been thinking of starting a vending machine business but aren't sure where to start, this guide will take you through all the steps to set up a successful operation. It will also look at the cost of starting a vending machine business, the benefits and drawbacks of this type of business, and some tips on making your vending machine venture a profitable one.

How to start a vending machine business step-by-step

1) Research the market

Before you invest any money in your vending machine business, you must do some market research to determine the viability of your chosen industry. This step involves looking at the competition, what type of products are being sold, and what kind of regulations and permits are required. You can get this information from industry reports, government websites, and speaking to other vending machine business owners.

2) Evaluate various product options

Once you understand the market well, it's time to start considering what type of products you want to sell through your vending machines. This will largely be determined by your target audience and the locations where you plan to place your machines. For instance, if you're targeting office workers, selling snacks, drinks, and office supplies is a good option. However, if you're targeting gym members, then selling things like energy drinks, gloves, and protein shakes might be more profitable.

Fortunately, your choice of products should not be limited to food products only. In fact, there are now vending machines that sell items like electronics, books, and even clothes. So take some time to evaluate the various product options and choose those you think will have better profit margins.

Some of the popular items sold in vending machines include:

- Drinks (soda, coffee, water, energy drinks, protein shakes)

- Snacks (chips, candy, nuts)

- Toiletries and hygiene products (soap, toothbrushes, toothpaste, & hygiene products)

- Fitness merchandise (towels, supplements, hair ties, gloves)

- CBD products(Oils, Vapes, Gummies, etc.)

- Electronics (earbuds, headphones, phone chargers)

- Hair products and cosmetics (shampoo, nail polish conditioner, lipstick, mascara)

- Clothes and accessories (underwear, socks, T-shirts)

- Beach supplies (Swimming goggles, sunscreen, pool toys)

- Office supplies (pens, paper, sticky notes)

- Books (novels, textbooks, magazines)

- Over the counter pain medications

- Cigarettes

- Gumballs

Be sure to consider the price-point of your inventory so you can remain competitive and track their demand to help you decide when to re-stock. You also want to make sure that the products you choose are not perishable, as this can add to your inventory costs.

3) Choose the best vending business model that suits your needs and budget

When starting a vending machine business, there are three main business models you can choose from:

- Owner/operator model: In this model, you are the owner and operator of the vending machines, and you'll be responsible for stocking and maintaining them. This is the most common type of vending machine business, and it usually requires less startup capital since you can start small and grow over time.

- Franchise model: This model involves buying into an existing vending machine franchise. This option is more expensive than the owner/operator model, but it comes with the benefit of having an established brand and support system in place.

- Network model: If you have the capacity to buy many vending machines or you have several prime locations, you can rent or lease the equipment/space to other vendors to operate the vending business. This is a good option if you don't want the responsibility of stocking and maintaining machines, but you still want to be involved in the vending machine business.

Once you have decided on the business model that best suits your needs, it's time to start sourcing machines and locations.

4) Choose the right type of vending machine for your business

The next step is to choose the right type of vending machine for your business. There are a variety of machines on the market, from the typical snack machine and drinks vendors to machines that sell more unique items like clothes or electronics. So it's essential to do some research and find the machine that best suits your business needs.

One thing to keep in mind when choosing a vending machine is the space you will need for it. Some larger machines can take up a fair amount of space, so you need to ensure you have enough room to accommodate it. You also need to consider how often you will need to re-stock the machine and if there is easy access for you to do so.

Another important factor to consider is the price of the vending machine. Various machines are available at different price points, so you should be able to find one that fits within your budget.

Vending Machine Features and capabilities

There are specific features and capabilities you should look out for in a vending machine. These include:

- Intuitive and appealing led lighting

- A vandal-resistant design

- Interactive touch and voice-activated screens

- Functionality to accept credit and debit card payments

- The ability to vend a variety of products

- A compact design for easy placement

- An energy-efficient design

- Easy to use software

- A Coin and bill validator mechanism

- An adjustable coin rejector

- Remote stock level monitoring software

- Product software updates provision

Vending machine options to consider

You have a few different options when considering what type of vending machine to buy. You can either buy a new machine or a used one. There are also different types of machines, such as combo machines that vend both snacks and drinks to standalone machines that only sell one type of product. Whichever type of machine you choose, be sure to do your research and find one that best suits your business needs.

Here are some of the most popular options:

- Food and beverage combo vending machines: These are some of the most common and popular types of vending machines. They vend various food and beverage items, such as chips, candy, soft drinks, and water. They are a perfect option for locations with high foot traffic, such as shopping malls and airports.

- Standalone food vending machines: These machines vend only food items, such as chips, candy, and cookies. They are a good option for locations that don't have a lot of space, such as schools and offices.

- Standalone beverage vending machines: These machines vend only beverages, such as water, soft drinks, and coffee. They are a good option for locations where people are looking for a quick and easy drink, such as gas stations, casinos, and gyms.

- Specialty vending machines: These are more modern machines that offer premium products not typically found in your run-of-the-mill vending machine. They can vend items like clothes, electronics, and toys. Depending on the type of machine, they can be a good option for high-end locations, such as hotels and nightclubs. While the items sold on these machines have a higher mark-up leading to better income, they may not be frequented as much as a general food or drink vending machine. They may also need more regular re-stocking due to the unique items they vend.

Sourcing vending machines

There are a few different options when it comes to sourcing vending machines:

- New: You can buy new vending machines directly from manufacturers like Seaga, Royal, or USI. Prices for new machines start at around $2,000 and go up to $20,000, depending on the features and options you choose.

- Used: You can also buy used vending machines, which are typically cheaper than new machines. However, you will need to do your due diligence to ensure the machine is in good working order and has been properly maintained.

- Refurbished: Another option is to buy refurbished vending machines. These are machines that have been used and then refurbished by the manufacturer or a third-party vendor. Refurbished machines typically cost less than new machines but more than used machines.

- Lease: You can also lease vending machines from local or national leasing and renting companies. This is a good option if you don't have the upfront capital to buy the machines outright. Lease prices begin at around $50 per month and range upwards of $150 per month.

5) Scout the right location for your machine and sign a lease contract

Once you have chosen the type of vending machine you want to buy, it's time to start looking for locations. You can find potential locations by scouting out areas with a lot of foot traffic and close to your target market to maximize your cash flow.

Once you've found a good location, it's time to sign a lease contract. Lease contracts vary in length and price but typically start at around $100/month.

Sourcing Locations

Once you have your vending machines, you need to find locations to place them. Here are a few tips for finding good locations:

- Look for high-traffic areas: The more people who pass by a location, the more potential sales you can make. So look for places like malls, airports, office buildings, and other high-traffic areas.

- Look for locations with a captive audience: A captive audience is a group of people who are likely to use your vending machine because they don't have any other options. For example, if you place a vending machine in an office building, the people who work in that building are more likely to use your machine than someone who is just passing by.

- Look for locations with high foot traffic: Foot traffic is a measure of how many people pass by a location in a given period of time. The higher the foot traffic, the more potential customers you will have. So look for locations like bus stations, train stations, and other places where there is a lot of foot traffic.

Here's a list of potential locations for your vending machines:

- Apartment complexes

- Malls and shopping centers

- Hotels and motels

- Train and bus stations

- Grocery stores

- Airports

- Office buildings

- Schools and universities

- Sports arenas and stadiums

- Convention centers

- Casinos

- Hospitals and health centers

- Laundromats

- Busy auto centers, garages, and car washes

Vending machines are pretty versatile and can be stuck anywhere with decent captive and foot traffic. The secret is to be strategic about it and to really understand your target market.

6) Make a budget, open a business bank account, and secure financing

The next step is making a budget and opening a business bank account. This will help you keep your finances organized and separate from your personal finances.

There are various payment processing providers that offer merchant accounts specifically for vending businesses. You can also use a traditional business bank account.

If you don't have enough funds or want to expand your business more quickly, you may consider securing financing. You can get financing through various ways, including:

- Friends and family: You can ask friends and family for loans or investments.

- Small business loans: There are various lenders that offer loans specifically for small businesses.

- Crowdfunding: You can use platforms like Kickstarter or Indiegogo to raise funds from the general public.

- Equipment financing: You can finance your vending machines through companies like USI.

- Credit card loans: You can take out a loan against your credit card. This is a risky option, but it can be a way to get quick cash.

7) Register your business and get the necessary permits and licenses

Once you have chosen a location for your vending machine, you need to register your business with the state and get the necessary permits and licenses. The requirements for registering a vending machine business vary from state to state, so do your research before opening shop.

In most cases, you will need a business license, a sales tax permit, and a vending machine permit. You may also need to get a food handler's license if you'll be selling food products.

Contact your local Chamber of Commerce or Small Business Administration office to get started. They can help you navigate the process of getting the necessary permits and licenses.

8) Get insurance for your business

It's important to get insurance for your vending machine business. Vending machine businesses are at risk for various types of property damage. Having insurance will protect you in case something happens.

There are various types of insurance that you may want to consider, including:

- BOP insurance: This type of insurance covers property damage, liability, and other risks. It is a combined plan for businesses that can be customized to fit your needs.

- Product liability insurance: This type of insurance covers damages that occur as a result of a product you sell or if a customer is injured when using your vending machine.

- Commercial auto insurance: This type of insurance covers damages that occur to vehicles used for business purposes.

- Property insurance: This will protect your machines in case they are damaged or stolen.

- Business interruption insurance: This will reimburse you for lost income if your business is forced to close due to damage from a fire or other disaster.

- Workers' compensation insurance: This type of insurance is required in some states if you have employees. It covers injuries that occur to your employees while they are working.

- General liability insurance: This type of insurance covers damages that occur as a result of your business operations.

You can get insurance through an insurance broker or agent. Make sure to shop around and compare rates before deciding on the best-fit policy.

9) Set up and optimize your vending machine business operations

Now that you have your vending machines and locations, it's time to set up your business operations. This includes everything from finding suppliers, stocking your machines to collecting payments.

- Find quality suppliers: When you're just starting out, it's important to find quality suppliers who can provide you with the products you need to stock your machines. You want to find suppliers who are reliable, have a good reputation and have competitive deals on bulk products so you can max upon your profit margins.

- Stock your machines: Once you have found reliable suppliers, it's time to stock your machines. This includes organizing the products you want to sell and ensuring you have enough stock on hand to meet demand. It is also important that you have a stock system to track inventory and reorder products when necessary so you don't run out of products.

- Collect payments: Ensure the payment collection and tracking system is working correctly. Most vending machines accept cash and credit cards. Other payment options could involve having a person operating the machine or using a third-party payment processing service in case you have a digital vendor.

- Keep your machines clean and well-maintained: Keeping your vending machines clean and in good working order is super important. This will help keep customers happy and ensure your machines run smoothly.

- Respond to customer inquiries: Customers may have questions about your products or the vending machine itself. Make sure to have a system in place for responding to customer inquiries. This could include setting up a help desk or having a person manning the machine during business hours.

- Maintain your machines: Vending machines require regular maintenance to run smoothly. You will need to make sure to have a system to maintain your machines. This could include having a service contract with a vending machine company or hiring a technician to do regular maintenance.

- Market your business: Use marketing materials like flyers, websites, and social media to let people know about your vending machine business.

- Train your employees: Make sure you train your employees on how to use the machines and handle customer inquiries.

- Offer exceptional customer service: Like in all other business ventures, offering excellent customer service is critical to the success of your vending machine business. Ensure that your machine is well-serviced, working properly, and has adequate and fresh stock that fulfills the market demands.

- Stay up-to-date on industry trends: Keep abreast with the latest industry trends to make changes to your business as needed.

- Evaluate your performance: Periodically evaluate your performance to see what's working and what's not. This will help you make necessary changes to improve your business.

Vending machine costs

We've seen what it takes to start a successful vending machine business. But, what about the costs? How much money do you need to get started?

Well, the cost of starting a vending machine business can vary depending on:

- The type of vending machine you choose

- The lease for the location

- Inventory cost, i.e., the cost of stocking the machines

- Insurance cost

- Marketing cost

- Licenses and permits cost

- Employees cost

The cost may vary from as low as $2,000 to get started with a used vending machine to over $20,000 for a top-of-the-line new vending machine with modern features and capabilities.

Besides the machine cost, you'll also want to factor in the cost of leasing a location for your vending machine and the cost of stocking it with the inventory. Insurance is also essential to consider, as you'll want to make sure your business is covered in case of any accidents or damages.

The startup cost will also depend on the number of machines you plan on having and the number of employees you'll need to run your business. If you are running multiple locations, the cost will increase significantly, so will your chances of business success. Fortunately, with a well-planned budget and a little bit of research and planning, you can quickly get your vending machine business off the ground and create a truly successful enterprise.

Vending machines can be a great way to earn extra income or even make a full-time living. If you are a beginner in this segment, it's advisable to start small and expand as your business grows.

Vending machine business benefits

Vending machine businesses have several benefits that make them attractive to entrepreneurs despite the initial investment. These benefits include:

- Low overhead cost: One of the biggest benefits of starting a vending machine business is that it has a low overhead cost as compared to owning other retail outlets.

- Flexible hours: Another benefit of running a vending machine business is that the hours are flexible. You can choose to work the business around your current job or school schedule.

- Scalability: Vending machine businesses are very scalable. As your business grows, you can add more machines to your fleet and expand into new locations.

- Passive income: Once your vending machine business is up and running, it can provide you with a passive income stream having to work in the business actively.

- Be your own boss: Finally, owning a vending machine business gives you the opportunity to be your own boss and set your working schedule. This can provide you with a great sense of satisfaction and more time with your loved ones.

Vending machine business drawbacks

Like other businesses, the vending machine business has its drawbacks, including:

- Limited customer base: One potential downside of vending machines is that they typically have a limited customer base. This means that you may not be able to generate a lot of business from a single machine.

- Competition: Vending machines also face stiff competition from other retail outlets, such as convenience stores, gas stations, and nearby vending machines.

- Limited inventory - Another downside of vending machines is that the inventory is typically limited. Most machines are designed to vend only a few specific items, such as snacks or drinks.

- Expensive maintenance and repair: Vending machines also require regular maintenance and servicing, which can be time-consuming and expensive. This can be exacerbated if you are running an old, lethargic machine.

Despite these drawbacks, the benefits of owning a vending machine business still far outweigh the costs. With a well-thought-out business plan, you can create a successful and profitable vending machine business.

Conclusion

Starting a vending machine business can be an excellent opportunity for entrepreneurs to own a business that earns a decent passive income. The key is to do your research, choose the right machines, and find the perfect locations. With a little bit of effort, you can create a profitable and satisfying vending machine business.

Frequently asked questions

1) Are vending machines profitable?

Yes, vending machines can be very profitable. You can easily create a successful and profitable vending machine business if you do your homework properly.

2) Where is the best place to put a vending machine?

The best place to put a vending machine is typically in an area with high foot traffic such as a bus or train station or a captive audience, such as a school, office building, or hospital.

3) Are vending machines taxed?

Yes, vending machines are typically subject to sales tax which may vary depending on the state or locality in which the machine is located.

4) Do vending machine owners pay rent?

Yes. If you intend to place your vending machines in a commercial location, such as a retail store or office building, the owner of that space will likely charge you rent.

5) Where can you place vending machines?

You can place vending machines in locations like schools, offices, hospitals, retail stores, and airports. Choose a location with high foot traffic, advertise your business, and maintain your machines to ensure success. It is important to check with your local municipality to ensure that there are no restrictions or zoning laws that would prevent you from placing a vending machine in a particular location. 

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