The content of this article is provided for informational purposes only. You should always obtain independent business, tax, financial, and legal advice before making any business decision.
The vending machine industry presents a promising opportunity for entrepreneurs. Whether pursuing it as a primary business or as a side hustle, the venture offers significant potential for profitability and scalability.
According to a recent report, this market presents an estimated value of $37.1 bn by 20301. In this article, we will map out the steps needed in starting a vending machine business in the United States.
Vending machines can be seen in various places, such as schools, office buildings, malls, airports, and even on the streets.
These machines dispense a wide range of products including snacks, hot and cold drinks, candy, chips, sandwiches, and even electronics or personal care items.
The convenience of vending machines usually makes them a popular choice for people who are looking to make quick, on-the-go purchases. Most machines now accept mobile payments or credit cards, in addition to cash.
The operator of a vending machine business is responsible for the placement, stocking, and maintenance of their vending machines. They buy the inventory for the machines, handle cash collection, and address any technical issues that may arise.
A vending machine operator does not have to be the primary employment of those who own the business. The responsibilities and levels of vending machine business income can be adapted to suit varying levels of commitment, whether as a full-time job, a part-time role, or a profitable side hustle.
There are four main types of vending machines:
Let’s look at each one of these in a bit more detail, outlining their benefits and challenges. There are also some innovative ideas for new businesses to consider for each category.
This category can offer a diverse range of products, from snacks and beverages to ready-to-eat meals. It caters to the immediate needs of passers-by, but care must be taken due to the perishability of items which can pose inventory management challenges.
The growing popularity of healthy food may provide an opportunity to offer a selection of nutritious snacks and drinks to cater to health-conscious consumers.
With a more discerning audience now insisting on freshly brewed coffee, this may also provide a profitable point of difference for a new vending machine business.
This usually refers to the dispensing of small, inexpensive items like gumballs, toys, or stickers. As such, it requires minimal maintenance and offers significantly lower inventory costs. With lower individual item prices, however, such machines must achieve a high volume of sales.
Vending machine businesses with their eye on the ever-changing fads and crazes followed by young children can attract the volume of sales needed. With careful monitoring of the latest trends, small collectibles or themed toys could prove a big hit.
These machines target niche markets with specialized products, catering to specific consumer needs. An example is travel-sized toiletries or grooming products. An in-depth understanding of the latest niche preferences, backed by market research, is needed to ensure product selection is on trend.
Electronics and accessories can provide affordable and profitable products to select, especially with careful sourcing. Dispensing phone chargers, headphones, or other tech accessories could provide the volume of sales required at a healthy margin.
By leveraging the established brand support and market presence of a franchisor it can be possible to increase appeal, streamline operations, and optimize marketing efforts. However, it is important to bear in mind that franchise vending is usually accompanied by a higher initial investment and attracts ongoing franchise fees.
Some ideas to consider in this category include collaborating with a health-focused franchise to cater to dietary preferences, franchising for a tech brand, or teaming up with a coffeehouse chain to benefit from their brand recognition.
Legal considerations can encompass aspects related to vending machine licenses, vending machine permits, taxation, and health and safety. There are federal, state-specific, and local regulations.
A useful place to start is the Small Business Administration (SBA) where support is available for all aspects of setting up a new business, including the different requirements in each state. A visit to the CandyMachine.com Vending Regulations by State guide can also provide a useful overview.
If the business plans to sell food and beverages, a food service license may apply. Refer to the FDA Food Business Guide to review the relevant criteria.
Vending machines are also subject to compliance with the Americans with Disabilities Act, or ADA. The ADA Small Business Primer will help business leaders to understand the requirements.
It is a legal requirement to keep all records of permits and licenses for compliance audits and regulatory checks. They also must be renewed in a timely manner.
The business and its structure must be recorded on the relevant Secretary of State website. It is then possible to apply for a Tax ID or EIN (Employer Identification Number) on the IRS website.
With a business registration and EIN, the business can be registered on the relevant state’s Department of Revenue website. Simply search for “Sales and Use Tax” to do this. There is more information on the process and importance of acquiring a business license here.
Startup costs can include the purchase of vending machines, inventory procurement, franchising fees, and rental or location expenses. These costs must be recorded fully and accurately so that the profitability and ROI of the business can be calculated. A fuller exploration of the breakdown of initial vending machine startup costs is available here.
The ROI is a critical indicator in assessing the profitability and efficiency of the vending machine business. It can also guide decision-making regarding scaling operations, purchasing additional machines, or relocating underperforming ones.
To calculate the expected ROI, follow these steps.
A significant factor that can alter the expected ROI of a vending machine business is the quality of research that has been carried out into inventory and the machine locations.
The market research should cover factors such as demographics, consumer preferences, market demand, and competitor analysis. Careful consideration must also be paid to choosing prime vending machine locations that attract the target market, offer high foot traffic, and ensure optimal machine visibility and profitability.
When undertaking research into the potential ROI and the market for types of vending machines, it is worth keeping in mind the advantages and disadvantages of the business.
While vending machines are flexible in terms of products, are easy to scale, and attract little overhead costs, these positives can be counterbalanced by other factors.
The owner, or an employee, must invest a considerable amount of time in checking stock, collecting cash, and maintaining the machines. With such unattended sales points, theft and vandalism can eat into profitability.
As a quick review of all that has been covered, here are some key steps to consider when starting a vending machine business.
There can be great opportunity to scale vending machine businesses for those who analyze meticulously the ROI of their locations and the types of machines they install there. Many entrepreneurs see their operations as a chance to gain a profitable passive income.
Although startup costs are not too high, it may be necessary to consider seeking finance for the business. Options may include seeking a collaborator, using a business credit card to extend finances, or seeking a loan. For more information on financing new businesses visit PayPal’s ‘Small business loans’.
Starting a vending machine business demands thorough planning and a deep understanding of the market landscape.
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