The first vending machines dispensed postcards in exchange for coins in the 1880s. Now, vending machines are a $18B industry.
With low startup costs and little maintenance required, vending machines offer an exciting, passive opportunity for entrepreneurs looking to launch their first businesses or a side hustle.
But figuring out how to start a Vending Machine business requires picking a profitable niche, an ideal location, and the right suppliers.
A vending machine business is a firm that operates machines that dispense goods, mainly foods and beverages. An owner of one or multiple vending machines selects where to place them, what goods to sell, and collects money deposited by customers.
Vending machine businesses sell a diverse range of goods, such as:
Many universities and offices feature vending machines with oft-used supplies, such as keyboards and mouses. Other more traditional ones, such as gumball or food machines, give customers easy access to a quick treat. Whatever you can fit inside a rectangular box (even live crabs or caviar), you can start a vending machine business with it.
The industry isn’t dominated by large players. The vending machine market features millions of small, independent owners. Not one firm owns 5%+ of the market. This makes launching a vending machine business ideal for those looking to start small.
Although the pandemic caused drops in revenue for owners of vending machines, the market has rebounded and now grows at a CAGR of 16.7%.
The average vending machine earns $35 a week, but your profitability depends on the location of your machine and the kind of goods sold. Operators purchase goods in bulk and sell them for a premium in their machines, making margins as high as 86% on items such as water.
However, low foot traffic affects the machine’s profitability. A vending machine on a popular boardwalk will likely pull more sales than one in a half-occupied office building.
“At the right location, you can expect the machine to pay itself off in as little as six months in some cases,” says vending machine consultant Lakinya Francis.
The type of vending machine you choose also impacts its profitability. Bulk vending machines, such as ones that only sell toys, gumballs, temporary tattoos, and other cheap knickknacks, tend to see the highest margins alongside the lowest costs. These machines tend to cost less than more standard vending machines, and the products are cheap to purchase (e.g., $35 for 800 gumballs).
More advanced machines that sell goods such as beauty supplies can pull in significantly more revenue. However, these require higher startup and maintenance costs.
Vending machines can cost anywhere from a few hundred dollars to $10k, depending on the quality and make of the machine. More high-tech machines with smart features cost more than traditional vending machines. Relative to other startup ideas, however, vending machines tend to have lower costs.
However, other costs reported by operators will also eat at your margins, including:
Putting everything together: If an operator brings in $5k every month, they will likely see $2k in profit.
To figure out what to stock in your vending machine, first identify your target location and demographic. Do you plan on putting a vending machine in a corporate office or inside a school cafeteria? What kind of goods would these customers likely need from a vending machine?
Office workers may want a vending machine that dispenses beverages like energy drinks or coffee. On the other hand, college students may want a vending machine with snacks or quick meals in between classes.
Next, figure out which products have enough demand and high profit margins. An ice vending machine requires virtually no cost to stock, as an example. However, this type of machine may see smaller volume than one that sells beverages or food. Pick goods that have a solid balance of high margins and high demand.
Your target demographic will make choosing an ideal location easier. For example, if you choose to sell to college students, you likely plan on placing it on a campus. Now, you need to figure out an exact location (e.g., a residential hall compared to a student center). Consider the following questions when selecting a specific location:
Create a list of several potential locations. Then, find contact information for the owners and call them to set up a meeting. Dress professionally, bring information about your vending machine idea, and answer any questions.
As noted before, you can expect to pay 5%-25% of your gross income to the location owner. Negotiate with them on what cut of your profits you can give, using the range as a guide.
Choosing the right vending machine depends on your budget and goods sold, per Francis.
If you plan on selling drinks and snacks, for example, you will need to purchase a machine that can accommodate both. More technologically advanced vending machines, such as ones that make coffee, require purchasing specialized equipment.
Additionally, you should consider the pros and cons of purchasing a new or old machine. New machines likely cost more, but require less upkeep and often have more technologically advanced features. Old ones, on the other hand, cost much less, but may cost more in maintenance.
“[Buying] a brand-new machine means it will come with a credit-card reader, warranty, and a peace of mind that you won’t have any issues for a while,” says Francis.
Vending machines types include:
You also need to consider whether to purchase a machine that accepts electronic payments. With customers growing increasingly used to making digital payments alongside poor coin circulation, you may want to pay a higher price to get a machine that accepts card or mobile payments.
Many operators purchase vending machines from suppliers in their area, often found via a simple Google search. Retailers such as Sam’s Club and Amazon also sell new vending machines. Alternatively, you can find used ones on marketplaces such as Facebook, eBay, or OfferUp.
However, before making any purchase, remember to vet the machine’s specs, reviews, warranty, and any other information. When buying used, check the buyer’s reputation and ask any follow-up questions you have on the machine.
Every city has different restrictions when it comes to vending machines. However, you will likely need all or some of the following permits to get started:
You also need to get other licenses and permits that come with running any business, such as getting a seller’s permit, state or federal licenses, registering your business name, and applying for an Employer Identification Number (EIN).
Additionally, remember you will have to file taxes for your vending machine business.
You know what you want to put in the machine, so now you need to secure a supplier. Buying in bulk represents the best way to reduce marginal costs and to keep profits as high as possible.
Many operators use membership clubs, such as Costco, Sam’s Club, and BJ’s, which offer discounted prices. Alternatively, you can purchase directly from wholesalers, such as General Mills and Kind Snacks, though you will have to pay shipping fees.
When you first get started, check on the machine at least once a week. That way, you can see which products sell, when to restock, and to address any issues with the vending machine.
Once you understand the machine’s cadence, you can adjust your schedule accordingly. For example, if you know the machine tends to run out of products every two weeks, you can schedule restocking then.
Once you get your machine set up, regularly review to optimize your operations. This means making adjustments over time to get the most out of your machine. When analyzing the performance of your current machine and thinking about expansion, consider the following money-saving strategies:
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