Sunday, August 22, 2021

How to Start a Vending Machine Business

According to a Zapier report, one in three Americans has a side hustle. 

But ideas for a second source of income aren’t always forthcoming. 

The vending machine business has offered many aspiring entrepreneurs an easy barrier to entry. 

This business is low maintenance, has few overhead costs, and is relatively easy to start and manage. 

If this sounds good to you, I will take you through how to start a vending machine business step-by-step.  

The Easy Parts of Starting a Vending Machine Business 

Generally speaking, a vending machine business is one of the easiest types of commercial ventures to start. There are many points of entry into the industry. These include inexpensive options like leasing vending machines, which you can finance yourself. 

Additionally, the vending machine business doesn’t necessarily require unique expertise or even industry experience. Typical daily activities include restocking products, refilling the coin mechanism, emptying the cashbox, and reordering products. These activities can be accomplished in just a couple of hours, making the vending machine business incredibly hands-off. 

Negotiating space for your machine is equally straightforward. Most landlords or business owners are happy to arrange a commission in exchange for space. Here, you’ll pay a specific percentage of your vending machine profits to the landlord. Alternatively, some landlords prefer a fixed monthly fee. Finding space for your vending machine shouldn’t be too tricky with proper due diligence. 

You’ll also have a wide variety of potential high-traffic locations to choose from. Examples of potentially profitable sites include office buildings, hospitals, airports, laundromats, and schools. Furthermore, you have a diverse range of products you could stock your machines, including traditional snacks, healthy options, gourmet treats, laundry products, and even electronics. 

Today’s vending machine industry is very well developed, making it even easier to run a vending machine business. You can now get help from vending machine software to automate most of the mundane and repetitive tasks. VendSoft is an exceptional example of such software. With VendSoft, you’ll be able to streamline logistics, improve inventory management, manage your machines in real-time, monitor your finances, and simplify logistics.  

VendSoft prices start at $19.99 per month for two users. The cheapest plan also supports up to 30 vending machines. 

The Difficult Parts of Starting a Vending Machine Business 

Many people can agree that the vending machine business has relatively low barriers to entry. However, some aspects of starting your business can be challenging. 

For one, setting up your business structure can be a hassle. However, you can escape some of the hard work by setting up a sole proprietorship or partnership. In most cases, you won’t need to register your business with the state. This is especially true if you run your business using your first and last names. 

However, this route leaves you and your partners vulnerable to lawsuits and financial issues. You will be held personally responsible for your business’s tax, legal, and financial obligations. Setting up a limited liability company (LLC) can protect yourself and your assets from personal liability. You will need to file paperwork and consult a lawyer to handle the process correctly. 

Additionally, operating an LLC also means you need to obtain an Employer Identification Number (EIN). This also applies if you hire employees. Other legal requirements may include filing a Doing Business As (DBA), filing Articles of Organization, and appointing a registered agent for your business. 

While not particularly difficult, these tasks can be time-consuming and slow down the process of starting your vending machine business. 

Step 1 – Do The Background Work 

There are a few critical tasks to accomplish before you dive headfirst into the vending machine business. Your success or failure primarily rests on the quality of your pre-planning.  

Do Your Market Research 

According to an Allied Market Research report, the vending machine industry is expected to reach $25.25 billion by 2027. This figure is up from $18.28 billion in 2019. In addition, the industry has an estimated compound annual growth rate (CAGR) of 6.7% between 2021 and 2027. 

While the general outlook for the industry is optimistic, it may not be true for your desired locations. You may need to drive around to identify sites with high foot traffic. Also, identify areas with existing vending machines. This will help you identify your competition. 

Also, look into what your competition is selling. This research will help you craft a strategy to beat the competition. Great locations to investigate include gyms, motels, hotels, shopping centers, and office buildings. 

Go a step further and talk to people walking by or who shop or work at the locations you’re scouting. Ask them if they would use a vending machine and what they would like to see in one. Take your time on this step and get valuable information. 

Decide What To Sell 

There is a wide range of products you can sell in a vending machine. What you choose to sell largely depends on the results of your market research. However, some products tend to do well almost anywhere. Options such as snacks, soda, coffee, and water are generally in high demand. You may want to take this route if you prefer to play it safe. 

There are also non-food items that do well with vending machines. Examples of these products include over-the-counter pain medications, laundry supplies, and skincare products. Additional options to look into include:

  • Fitness merchandise like gloves, towels, and supplements
  • Electronic accessories like headphones, earbuds, and phone chargers
  • Toiletries and hygiene products
  • Skincare products
  • Dog treats 
  • Hair products
  • Paper cups
  • Magazines
  • Newspapers
  • Cigarettes
  • Travel items such as deodorant, toothbrushes, and toothpaste 

What you choose to stock in your machine depends on a number of factors, including location and demographics.

Register Your Business

We briefly mentioned that registering your business can be easy or complex, depending on your chosen route. For example, if you plan to do business under your name, it may not be necessary to register your business. But, you will be missing out on potential tax benefits, personal liability protection, and legal protection. 

The next best option is to register an LLC. The particulars of registering your business vary from state to state. Check with your local government for the specific registration and licensing requirements for starting a vending machine business. 

There are also online legal services like CorpNet and LegalZoom that can help you register your business for a fee. Additionally, these services can help you navigate other legal particulars like getting the relevant business licenses, obtaining an EIN, and a Taxpayer Identification Number (TIN). This is also an excellent time to choose a business name. 

Step 2 – Sign Up for Vending Machine Software 

Signing up with vending machine software will help you get a running start. The software is especially useful if you are starting with multiple vending machines in different locations. You will more than likely have to start with a few machines before scaling up. This strategy gives you the best chance for success. 

Choose Your Software 

For this step, I chose VendSoft for its reasonable pricing and automation features to make your life easier. Some of its features include:

  • Inventory management – This feature helps you monitor and manage your inventory. You can track product levels and expiration dates, check servicing history by machine or location, and get detailed product information such as inventory value, average cost, and unit cost. 
  • Locations – VendSoft also lets you quickly add locations and view them at a glance. Here, you can calculate the easiest route to your machine locations, assign locations to drivers, and analyze the product mix for each location. 
  • In-depth Reporting – VendSoft provides in-depth reports to help you stay on top of your business. These reports include sales per product, location, and month over month. You’ll also get reports for profit and loss, cash flow, commission, and sales tax. 

Select Your Plan 

VendSoft offers four plans. I recommend the Starter plan that costs $19.99 per month. You’ll be able to use your software with up to 30 vending machines. You can scale up at any time. Additionally, VendSoft offers a 14-day free trial with all its plans. This is an excellent opportunity to test out the software before committing.   

Step 3 – Choose Your Vending Machine Location 

Even the best vending machine won’t be profitable if you choose a poor location. So take your time to find the optimal place for your machine. You should also secure a spot with the business owner or landlord before purchasing the machine. It’s only after finding the location that you can accurately judge which machine to acquire and the best products to stock it with. 

Leverage Your Networks

Finding an ideal location isn’t always obvious. However, you can reach out to people in the vending machine business for tips on how to find a great place. Additionally, use your network to prospect and find sites. People to speak to in your network may include business owners, C-level managers, HR, and office managers. 

Ultimately, people like to do business with people they know, like, and trust. It will be a while until you make a name for yourself in the industry. Until then, leverage your network to source locations for your vending machines. 

Investigate High Traffic Locations

The vending machine business is a numbers game. More people passing your machine means a higher potential for making sales. Look into locations with high foot traffic. Some of the best locations include:

  • Grocery stores and shopping malls
  • Multi-business office parks
  • Large offices 
  • Airports, train stations, and bus stations
  • Manufacturing companies
  • Cinemas and theaters
  • Gas stations 
  • Waiting rooms, break rooms, and lunchrooms
  • Residential complexes
  • Hospitals and medical centers

It is crucial that you look at each location as a different territory. For example, your potential customers at an airport have different desires compared to your target market at a large office. The former may be more interested in travel items like earbuds, snacks, toothbrushes, and toothpaste. The latter clientele may be more interested in sandwiches, hot meals, and tea or coffee. 

It is always a good idea to spread out your locations and target market. But be sure to consider which items are more likely to sell at each location.

Negotiate Contracts

Once you’re happy with the location, it’s time to negotiate with the property owners. First, you’ll need to compensate the business owner for using their premises, and likely, electricity. 

Most vending machine agreements work on a commission basis. The industry average is around 7% of your sales or profit. But, this number can vary widely depending on the size and number of machines. 

Some crucial areas to cover in your contract include:

  • Duration of the contract
  • Machine types and products sold
  • Exclusivity 
  • Rights to increase, decrease, or replace the number of machines

If possible, get a lawyer to draw up the contract. This step ensures you don’t miss anything. Property owners are also more likely to abide by an agreement drawn up by a lawyer.  

Step 4 – Choose Your Point of Entry  

There are several ways to get into the vending machine business. Therefore, it’s worth exploring all your options before you hit the market to purchase your machines. The point of entry you choose largely depends on your budget. 

Buy an Existing Business 

If you have the budget for it, the quickest way to get into the vending machine business is to purchase an existing business. An existing business offers an established customer base. And you’ll get a revenue stream right off the bat. 

It is worth doing some research to find out if any business owners are looking to sell. Some of the things to look for in the existing business include:

  • Existing contracts with vendors and clients
  • The condition of the vending machines 
  • Financial reports

Consider a Vending Machine Franchise 

Another fast track into the business is purchasing a vending machine franchise. You’ll benefit from an established business model. Additionally, this type of business comes with established operational and administrative infrastructure. 

Many franchisors offer a good level of support to get you started. You need to pay an upfront fee to buy into the business opportunity. Then, the franchisor takes a fixed monthly fee or a percentage of your profits. 

Be sure to read the franchise agreement to make sure you agree with the terms and conditions. Franchisors may have some restrictions, including the types of machines you can purchase and what you can stock. Additionally, many franchisors have specific rules before you can buy into the opportunity. For example, you may need to register a business such as an LLC. 

Start Your Own Business 

Starting your own business is the longest route. But you’ll have complete freedom to build exactly the kind of business that you want. This is also an excellent opportunity to develop your brand and bring your vision to life–and keep most of the profits. 

There are still some opportunities to cut your startup costs. For example, many vendors offer significant discounts for large orders. You may also be able to secure financing from your vending machine manufacturer or supplier. 

Step 5 – Acquire Your Vending Machines 

Now it’s time to take physical action to set up your business. You can now go shopping for vending machines. There are some considerations to pay special attention to during this step. 

To Buy or Lease?

Leasing vending machines are a great option if you are strapped for cash. You’ll can test the market without committing to permanent assets. Some leasing agents also offer attractive perks such as no payments for 90 days and brand new vending equipment. 

Some of the things to look into when renting a vending machine include:

  • Maintenance requirements
  • Machine size and configuration
  • Customer payment options
  • Leasing prices
  • Ongoing fees

Also, be sure to draw up a lease agreement that clearly states the terms of leasing. These may include the lease period, rental price, and who is responsible for what. 

The other option is to purchase your machines outright. Again, this option gives you total freedom for how you’d like to run your business. You can always buy used vending machines if you’re on a tight budget. But make sure to thoroughly inspect the machines before purchasing. 

New machines are also accessible for small business owners. Many vendors offer technical support, financing, and extended warranties. These perks may be worth the extra money you spend purchasing new machines. 

Some of the places to buy vending machines include:

  • Wholesalers 
  • Manufacturers
  • Online sellers
  • Specialty retailers
  • eBay
  • Amazon 
  • Craigslist 

Decide the Features You Want 

Vending machine features vary from basic to high-tech. Use your market research and the products you want to sell to determine the features you need. Generally speaking, more complex features will drive up the cost of the machine. 

Some features to consider include:

  • Graphics and branded wraps
  • Credit and debit card payments
  • Combination food and drink dispensing
  • LED lighting 
  • Touch screen
  • Intuitive operating system
  • Software integration 

Software integration is a vital feature. Most modern electronic machines integrate with software to help you monitor your stock levels remotely. You’ll also benefit from VendSoft’s comprehensive features such as reports, route management, and mobile app. 

Step 6 – Start Selling 

Now you are ready to install your vending machines and start selling. The vending machine business is generally low maintenance. Your primary job will be to restock the machines, service them as needed, and collect your money. 

Sign Contracts

Be sure to sign contracts with the property owners or managers. It is vital that everyone is clear on their responsibilities. For example, who is responsible for service, maintenance, and damage? Also, consider who will notify you in case of machine failure. 

Set Up VendSoft 

Make sure to connect your vending machines to VendSoft. The process is straightforward and intuitive. You’ll start with setting up your inventory by adding products. Next, create locations where your vending machines will be placed. You’ll also need to define your machines, including vendor prices, types of products, and product positions for each machine. 

Install Your Machines 

Finally, it’s time to install your vending machines and start selling. This process is straightforward if you purchased or leased your machines. Franchises, on the other hand, may have stricter requirements. For example, a representative may have to visit the physical location to determine whether it’s fit for business. 

Many suppliers are happy to install the machine for you. However, this can take some time, depending on the location and the availability of the machines. Therefore, you may need to call well in advance to schedule a date that works for you. Then, all that’s left is to fill your vending machine with products and start selling!

from Quick Sprout