Vending Machines
Let me start off by saying that not all of my income stream ideas and suggestions will apply to everyone. If you absolutely cannot envision yourself doing any of these things to earn extra income then you are better off looking for another solution. The way you have to look at it is that it’s not just about the money. There are millions of ways to make money but not all of them will fit any one person’s needs, goals, or lifestyle. The vending business is a perfect example.
Some people can never imagine themselves owning and operating a vending business. Maybe it’s too low on the totem pole for them or they don’t want to deal with buying a ton of drinks and snacks and feel bad about making other people unhealthy. Whatever your reasons they are valid to you and you should listen to your gut in these situations. In my case I was drawn to vending machines for several reasons. The main reason is that my dad owned a vending business while I was in high school. He actually helped to pay for my college through this business and I helped him on his routes during the summer and sometimes after school. Just having first hand knowledge and experience in the business gave me more confidence in starting out. The second reason is that I was drawn to the business was because it would allow me to manage my routes a few times during the week and I would still have time to work on my other businesses.
Nature of the Business
Now I’m going to be completely realistic and honest here. I do not in any shape or form want to do this business full-time to where I am a big time six figure vending operator. That is not my goal. Can you make that kind of money in vending? Yes. Will it take a lot of hard work and time? Yes very much. However to me it is a means to an end. It allows me to earn income with just a few hours a week of my time and I get experience in running a business with less risk than say starting a franchise. At some point if I want to keep the business and the numbers make sense, I might hire someone to do the day to day operations of the business or I might sell my route. As my needs and lifestyle changes so too will the vending business. For those working full-time jobs right now there are ways to still run a vending business. My dad does it to this day and he is a letter carrier during the day. However you should keep in mind when you can service your locations. If you work 8am to 5pm during the week and all your locations close at 5pm are only open during the week then it would be impossible for you to run the business without making some changes. However if you have locations that are open on the weekend, you can keep your day job and start a vending business.
When you think about the vending business right now there are some factors working against it. The price of gas is the primary factor. Unless your route is very close to where you live you will have to drive some distance to service your machines. The price of snacks and drinks is also going up because of the price of gas and commodities or ingredients that go into the products you sell. That being said, all these factors can be managed if you start up and run your business properly. For example, you can raise your prices to a reasonable level to achieve a better profit margin. Secondly you can build your route tightly so the extra distance you have to go to service your machines is minimized.
The vending business is a simple business that everyone can understand. But it’s not just about selling drinks and snacks. You have to figure out what value you are providing to your customers. Are you all about low prices? Are you all about excellent service? Will you try to offer it all? Just like any other business you are going to have to decide what your brand is going to be about. It’s hard to do it all. Unless you can get rock bottom prices on your products then you will either have to sacrifice your profit with lower margins by selling cheaper or sacrifice units sold by going more expensive. But don’t forget the convenience that your vending machines provide. Because of you, your customers do not need to leave the building to get what they want. That itself has some value and you should be getting paid for that value. Secondly if you also provide great selection, that also has a value but it comes at a price to you. More products equals more things you need to by and the likelihood that more of your items may go bad before they sell.
Getting Started
There are many ways to get started in the business. Rule #1 is not to get into the business via 1-800 numbers. In my experience and in talking with others and reading about the vending business most of those operations are concerned with selling as many machines as possible and care very little about your success as a vending operator. There may be some legitimate ones in the bunch but I’ve had yet to hear about them. Also how you get started depends on the type of machines you want to deal with. The smaller gumball or candy machines are cheaper to buy and easier to service. It’s a great way to get started in the business. I’ve seen machines going as low as $75 used up to $200 or more new. These machines typically can make anywhere from $20 to $30 in profit a month per location. The more complicated and heavier machines also mean you will be dealing with more snacks and drinks and more complexity. You will tend to get more sales with these machines but your costs will be higher as well. Machines can run from $1000 to $3000 per machine or more if they are already on location. However depending on the location you can make anywhere from $75 to $400 per month in profit from each machine. In higher traffic locations you can have multiple machines increasing your sales for that one location.
You can buy machines used or new from independent dealers out there. These can be found locally and they are more interested in selling you single machines or whatever number of machines that you want. They can also be good resources for you in getting started in the business. Some places may also have locating services or may refer you to a locating service. Rule #2 is be wary of these services. These locator services promise to locate vending locations for your machines at a price per location. The reason why you may not be getting a good deal with this is that they care more about making their fee on a location so they may not be providing you with quality locations. If you do deal with these locators, always ask to verify the locations yourself prior to agreeing to pay for anything.
You can also buy from individual owners of machines through Craigslist or websites such as www.usedvending.com. Even in these cases you still have to do your homework. If you buy machines that are already on location and the seller is asking for a premium because of the sales generated by the machine then you need to find a way to verify the sales of that location. If they tell you the machine makes $200 a week in sales and you believe them without checking, you might be stuck with a machine that makes only $30 a month. Trust me, it’s happened to me. The way you can sometimes verify their claims is to ask for any records such as accounting statements along with bank deposit statements. Can they fake these documents? Yes but it would likely take a lot of time and effort and you can usually tell if it’s fake or not if you look close enough. Generally the rule of thumb that I’ve heard out there is if the machine is priced at about 12 months worth of sales or less, then you are getting a good deal. For example, if sales are expected to be $400 a month at the location, that comes out to $4800 a year. With a machine in good working condition that has proof of sales of $400 a month you can expect to pay anywhere from $3600 to $4800. Of course anything is negotiable.
Whether the machines you buy are already on location or not, you will also have to determine what if any problems there are with the machine. Test the machine out under power to make sure that all the cooling systems are functional and that the machine works as intended. It’s usually a good sign if the seller is willing to help you out with any problems after you complete the sale. Finally don’t be afraid to walk away from the deal. If it doesn’t feel right, you are probably right.
Location, Location Location
Just like real estate, the vending business is all about location. Finding machines is only half the battle. In fact I would recommend to try to find locations first because the type of locations will dictate what kind of machine you will need to purchase. If it is a location with lots of employees then you will probably not want a smaller machine that you will have to fill up all the time (more than once a week). This is especially true if your location is 15 miles or more from where you live or work.
We’ve already talked about locator services and buying machines on location. So the next step would be finding locations yourself. There are advantages and disadvantages of finding your own locations. For one you get to talk to and meet the people you will be dealing with. You can assess the level of traffic in the business yourself and get to understand the nature of their business and the prospects for them being in business for the foreseeable future. If they tell you they are going to be moving in a few months then you would not want to place your machines there but you may want to keep the location in mind for the new tenants that come in. The other benefit is that you get to learn more about your local vending market and the competition. Chances are if you will run into many locations with machines already on location. Sometimes you can convince the owners or managers to shift their vending services to you but it may come at a price. Those other companies may try to undercut you and take your locations so be careful. One way to avoid this is to try to get locations that do not have any machines. Usually these will be new businesses in the area or businesses that maybe have grown to the point where they now need your vending services. The main disadvantage to self-locating is it takes time and you will have to knock on a lot of doors and try to get to the decision maker. Here are some ways to scout new locations:
- Driving around trying to spot new companies
- Read local publications or contact the local chamber of commerce for new businesses
- Network and get other people to spread the word that you are in the business and looking for locations
- Advertise in local publications or in the web
Things to Consider in Building the Business
When building the business here are some things to consider:
- When buying used always verify the machines work – get an experienced machine repair tech to check it out to be sure you aren’t buying a lemon.
- Consider the amount of employees or customers in a location. The more employees and the longer the hours of operation, the better. If the location only has 5 employees, it will be hard to justify a machine at that location and it will be harder to justify the mileage you would have to drive just to service the machine if it isn’t very close.
- Run your business like a real business. This means keeping mileage records, receipts, deposit statements and receipts, etc. It also means making changes when you need to such as raising prices, moving machines to new locations, etc.
- Consider working with a local charity. Some locations may ask for a % of the profit from the machine for keeping your machine at the location. Sometimes you can get around this by telling them you are working with a local charity and a percentage of your profits is already being donated to them every month. Make sure you can back up this claim by having a letter or contact information for them to contact the charity.
Real Results
As for me I started in March with the purchase of 1 machine in a medical billing office. The downside is that it is about 40 minutes away. I think that alone should have caused me to not purchase the machine but I was also working part-time in that area at the time. My next two purchases in April were also machines on location but I got burned on these two. Although I think the price was fair for the machines, the sales of the location performed significantly less than advertised. I fell prey to the seller that didn’t have any documentation to back up their claim. He talked a good talk but in the end I should have been more careful. In May I purchased machines at two more locations and these two machines are bringing in the bulk of my sales. The machines did cost me more but this time I asked for proof of sales and got it through accounting records and bank deposits (a very good sign!). I also spent a lot of time visiting the locations to verify they indeed had the necessary employee traffic to sustain a business and generate a profit. It also helped that these two locations were relatively close to one another making it easier to service them in one shot. I would say I am about two or three locations away from reaching my goal at which point I should be around $1500 per month in profit. At that point I will keep my business at the same level and concentrate more on other ventures.
Have questions or comments? Leave me a message on this blog or shoot me an email. I also have a great resource that I can send you for FREE. It is an e-book called Vending Business-In-A-Box written by Bryon Krug. Stay tuned for part 4 of the income series.
