How To Start And Finance A Vending Machine Business
Often, when people think of starting a successful business, they envision high-profile clients signing big checks. But other aspiring entrepreneurs know it makes more sense to think in dollars and cents…and we’re not talking about chump change, here. What we’re talking about is starting a lucrative vending machine business.
Vending machines are everywhere: hospitals, schools, office buildings, malls, and shopping centers. And each year, the vending machine industry brings in billions of dollars in revenue. The great news is you can get in on this profitable venture, whether you have previous business experience or you’re new to the game. All it takes is a little know-how, the right strategy, and one of the most critical pieces of the puzzle: financing.
In this post, we’ll explore starting and financing your vending machine business. We’ll review the ins and outs of the industry, discuss three ways you can start your business, cover the benefits and drawbacks to vending machine businesses, and, of course, talk about how to get the financing you need. Read on to learn more and take the first steps toward launching your successful vending business.
Table of Contents
- How Vending Machine Businesses Work
- Pros & Cons Of Vending Machine Businesses
- Three Ways To Start A Vending Machine Business
- Look For Potential Locations
- Find & Purchase Vending Machines
- Source & Purchase Vending Machine Inventory
- Find Accounting & Vending Management Software
- Final Thoughts
How Vending Machine Businesses Work
We all know how vending machines work from the consumer end of thing — if you’re hungry or thirsty, insert a dollar, some change, or even a credit or debit card to get an instant snack or beverage. Easy!
But, once the machine has your money, where does it go? Most of the money goes directly to the vending machine owner.
The vending machine owner enters into contracts with other businesses. These contracts include details like the commission that will be paid to the business owners in exchange for providing space for the machine.
Vending machines can be used almost anywhere, including but not limited to:
- Shopping Centers & Malls
- Apartment Complexes
After the machines have been installed, it is the responsibility of the vending machine owner to keep each machine stocked and in working order. Money made from the machines is used to purchase additional inventory, cover maintenance costs, expand the business, and pay business owners per the agreed-upon rate in the contract. After all those expenses are covered, the remaining funds are profits for the vending machine owner.
Pros & Cons Of Vending Machine Businesses
While owning a vending machine business certainly has its benefits, there are some drawbacks to note as well. Let’s fully explore the pros and cons of owning your own vending machine business to help you evaluate whether it’s the right endeavor for you.
One of the best things about owning a vending machine business is the flexibility it provides. You don’t have to always be on the clock making sure things are getting done. Simply monitor your machines (even easier when you have the ability to do so remotely) and refill stock or perform maintenance as needed. You don’t have to worry about monitoring employees, keeping a watchful eye on your business 24/7, or devoting your entire life to your business. A vending machine business lets you bring in income while still allowing you to focus on family, hobbies, and other business ventures.
Lower Cost Than Other Businesses
Typically, when you start a new business, there are many expenses to consider. You have to find commercial space to rent, lease, or purchase. You have to hire employees. The list goes on. With a vending machine business, you can bypass many of these costs. Sure, you have to purchase your vending machines, keep inventory on hand, pay maintenance costs, and possibly hire an employee to restock your machines. But compared to other businesses, the vending machine business model has extremely low overhead.
Tried-and-True Business Model
In this business, you’re not bringing a risky new product to market that could possibly fail. You’re not operating an overly complicated business that requires expertise and a business degree. You’re using a tried-and-true business model that has been proven to work over decades. Of course, you do have to have a strategy, and you do have to sell yourself and your business to proprietors, but anyone can get started, no matter your previous experience.
Waiting For Profits
Even though the vending industry rakes in billions of dollars each year, you’re not going to become an overnight millionaire. In some cases, it could take a year or longer to begin seeing profit from your machines. It’s important to go into the business with realistic expectations, a solid strategy, and plenty of patience.
Some Expenses Involved
Even though it’s less expensive to get into the vending machine market than other industries, there are some costs involved. To get started, you have to invest in at least one vending machine. An older, used machine may cost as low as $1,200. A new machine with all the bells and whistles might run you $10,000 or more. The more machines you plan to have, the more expensive it will be to get started.
You’ll also have operating costs, primarily inventory. You can save money by working with a vendor or even buying goods in bulk from big box stores, but this is an ongoing expense that requires capital.
If you plan to expand your business, you face additional costs. This includes hiring an employee or two to keep your machines stocked, purchasing a company vehicle to use for restocking, and upgrading or adding new machines.
While it is possible to start slowly using out-of-pocket funds, most new business owners will need a financial helping hand. This is where loans and other financial products come into play — something we will discuss in more detail a little later.
Three Ways To Start A Vending Machine Business
Does the idea of owning your own vending machine business still appeal to you? If so, it’s important to understand the three ways you can start your business: starting from scratch, buying a pre-existing business, or buying a vending machine franchise.
Option #1: Start From Scratch
The first option for starting your vending machine business is to start from scratch. This requires a little more work in the beginning because you have to scout locations and enter into contracts with other business owners.
Begin by traveling around your area to scout out the best locations for your machines. We’ll discuss finding the best locations a little later in this post. Once locations have been scouted, you’ll work out a contract with the business owner. This allows you to place your vending machines in their place of business at a cost — usually 10% to 20% of your gross sales.
After your locations are mapped out, it’s time to purchase your machines. Only take this step after you figure out locations and what type of machines best fulfill your needs.
The final step is to make sure that you always keep your machines stocked and well-maintained. If your machine is out of order or out of items, you won’t make money. Evaluate what products are selling well and what items are flopping to maximize your profits.
One last thing to note is that you should always understand the rules and regulations in your area. Laws surrounding vending machines vary by state, so do your research online or contact your local chamber of commerce to learn more about local regulations before diving headfirst into your business.
Option #2: Buy A Pre-Existing Business
The second option is to buy a pre-existing business. Instead of doing the initial setup work yourself, you take over an existing business that already has equipment and, in most cases, locations secured with contracts.
The obvious advantage is that this automatically gives you a more turn-key operation. A major drawback is that this is often the most expensive option. After all, you aren’t just buying the equipment and inventory — you’re also taking over existing contracts.
If you choose this option, it’s best to have some business experience under your belt since you need to hit the ground running. You’ll also need to ensure you can secure the capital needed to purchase the business.
Option #3: Buy A Vending Machine Franchise
Buying a vending machine franchise is the easiest way to get your business off the ground. Even someone with no business experience can be profitable through a franchise’s successful, tried-and-true business model.
The downside is that a franchise can be more expensive than going out on your own. In addition to franchise fees required to get started, you may also be required to pay additional fees or give a percentage of your profits to the franchisor. Some franchises even require you to use their equipment and products, which could cost you more than shopping around on your own.
Look For Potential Locations
Strategic vending machine placement is critical to making your business a success. Vending machines should be placed in areas with lots of foot traffic. This could be your local shopping center, an airport, a local gym, or any other public area. In addition to selecting traffic-heavy areas, you also want to make sure that your locations have little, or ideally, no competition in order to maximize profits.
Take the time to do your research to find the locations that will drive your success. Learning about the crime rate in all locations you’re considering, for example, is a very important step that you shouldn’t overlook. You don’t want your business suffering financially due to theft and vandalism.
Once you’ve found potential locations, set up meetings with the business owners to find out if your services are a good match. Don’t be afraid to ask specific questions during these meetings, such as whether the business has contracts with other vending machine companies, an estimate of daily foot traffic, and the amount of commission the business owner is seeking.
Also, keep in mind that your locations will have a heavy impact on what products are stocked in your machines. You want to place your machines where they will be most useful — for example, a coffee vending machine in an office building, healthy snacks and sports drinks at a gym or local park, or a vending machine that dispenses detergent and fabric softener at the local laundromat.
Once you’ve found your locations, make sure that you have a contract to be signed by the business or property owner. This contract should include all key details including commissions, length of the contract, the number and types of machines being provided, and any termination clauses. All parties involved in the deal should sign and have a copy of the contract.
Finally, once you have your locations secured and your machines in place, make sure to provide excellent service. Word-of-mouth is one of the best forms of advertising in this industry — it’s cheap, easy, and completely free. By providing great service and tweaking your product offerings as needed, you can get referrals that bring more contracts your way … and the revenue that comes with them.
Find & Purchase Vending Machines
To get started with your business, you have to find and purchase vending machines. But your business will rely on more than just this initial investment. As your business grows, you’ll want to add more vending machines to your lineup. You may also have to replace broken or outdated machines to maximize revenues.
Unfortunately, vending machines don’t come cheap. While a used, basic model may cost just over $1,000, newer machines run several thousand dollars apiece. Many vending machine business owners invest in machines equipped with credit card readers. Although this equipment is more expensive, these machines have advantages over traditional machines that only accept cash. One of the primary advantages, of course, is that you’ll have access to more customers. Fewer people are carrying cash, so these systems allow them to purchase your merchandise with credit cards, debit cards, or their smartphones. According to Vending Market Watch, consumers spend 32% more when paying with a card versus paying with cash.
Not only is your potential for profits much higher, but these advanced machines come equipped with remote monitoring systems that allow you to keep track of sales, check your inventory, and monitor maintenance needs. This saves you the hassle of having to frequently visit each location in person and helps you ensure your machines are fully stocked and in working order from the comfort of your home or office.
You have several options for where you purchase your machines. Used machines can be found through online classifieds or auction sites. New machines can be purchased through dealers. Check local business listings to find one in your area.
Whether you go with basic or advanced, or new or used, all vending machine operators have one thing in common: the need for capital to purchase equipment. Get started with these options.
One option for purchasing your vending machines is equipment financing. Just as the name suggests, this type of small business loan is used to purchase equipment, breaking down huge price tags into smaller, more manageable payments.
With equipment financing, you have two options: equipment loans and equipment leases. With a loan, you’ll pay a down payment that is typically 10% to 20% of the cost of the equipment. You’ll take immediate possession of the equipment, and you’ll pay your lender on a weekly or monthly basis over a set period of time. Once you’ve fully repaid the loan (plus interest), the equipment belongs to you.
With a lease, you’ll also pay a down payment and take possession of the equipment. However, your lease period will be for a shorter period of time — usually two to three years. Similar to loans, you’ll make regularly scheduled payments to the lender. Once your lease is over, you can sign another lease for new equipment. Some lenders even allow you to pay the remaining balance at the end of your lease to take ownership of the equipment. Leasing may be a good option if you plan to upgrade equipment frequently. However, this could be the more expensive option over the long term.
Recommended Option: Lendio
If you need equipment financing, Lendio has options. This isn’t a direct lender. Rather, it is a loan aggregator that connects you with its network of over 75 lenders. What’s great about Lendio is that you can compare offers from multiple lenders with just one application.
Lendio offers $5,000 to $5 million for the purchase of equipment. Terms are between one to five years with rates starting at 7.5%.
To qualify for equipment financing through Lendio’s network, you must have the following:
- A time in business of at least 12 months
- A credit score of 650 or above
- At least $50,000 in annual revenue
Credit scores below 650 may be accepted with proof of solid cash flow and revenue from the last three to six months.
Through Lendio, you can also apply for other types of financing including Small Business Administration loans, business credit cards, short-term loans, and lines of credit. Check out our Lendio review to learn more.
Personal Loans For Business
One of the obstacles that you may face with equipment financing is that you have to be in business for some period of time. If you’re brand new to the game, this type of financing may not be an option for you.
This doesn’t mean you’re left funding your vending machines out of pocket. Instead, you just have to get a little creative with your financing, such as taking out a personal loan for business. Personal loans take your personal credit profile and income into consideration — no time in business or business credit required.
Recommended Option: Lending Club Personal Loans
Lending Club issues personal loans up to $40,000 to qualified borrowers. APRs range from 6.95% and 35.89% and are based on your credit score and history and the amount and term of your loan. There are no prepayment penalties. Repayment terms of up to 60 months are available.
To qualify for a Lending Club personal loan, you must:
- Be at least 18 years old
- Have a verifiable bank account
- Be a U.S. citizen, permanent resident, or live in the U.S. on a long-term visa
- Have a credit score of 600 or above
Ready to learn more? Check out our Lending Club personal loans review for more information.
Source & Purchase Vending Machine Inventory
One of the few ongoing expenses you’ll have in your vending machine business is inventory. It’s your responsibility to keep your machines well-stocked at all times, so you’ll need to have inventory on-hand to keep your machines full.
In order to maximize profits, you must source your products from a supplier that offers the lowest costs per unit. You can start off by checking out your local wholesale big-box store. Buying in bulk is just one way to save money on inventory, and you may even receive additional discounts for larger orders.
When you’re first getting started, though, make sure to not overstock. Purchasing a large amount of a specific item that’s a flop equals lost revenue. Start off slowly to determine which products sell for maximum earning potential.
Whether you’re making your first purchase or you’re on your way to operating a thriving business, there comes a time when you may need a boost in capital beyond your bank account. For inventory purchases, consider the following types of financing.
Business Credit Card
A business credit card works just like a personal credit card. The issuer of the card sets a limit. You can make multiple purchases up to and including the credit limit online, at retail stores or with vendors that accept credit cards. Each month, you’ll make a payment that is applied toward your balance plus the interest charged by the lender. As you pay down your balance, funds will become available for you to use again.
Recommended Option: Chase Ink Unlimited
Chase Ink Business Unlimited Annual Fee: $0 Purchase APR: 15.49% - 21.49%, Variable
Chase Ink Business Unlimited
15.49% - 21.49%, Variable
If you want to go with a business credit card, Chase Ink Unlimited is available for borrowers with excellent credit.
The Chase Ink Unlimited card comes with a 0% introductory APR for 12 months. After the introductory period, the card has a variable interest rate of 15.49% to 21.49%. This card does not have an annual fee.
As a new Chase Ink Unlimited cardholder, you’ll receive $500 cash back if you spend $3,000 within the first 3 months of opening your account. But the rewards don’t stop there. You’ll receive unlimited 1.5% cash back for every business purchase.
To qualify, the recommended credit score is 740 to 850. Learn more by reading our Chase Ink Unlimited review.
Business Line Of Credit
A business line of credit is very similar to a credit card and can be a great option for purchasing inventory. A lender will set a credit limit based on your creditworthiness or the performance of your business. Instead of using a card, however, you’ll initiate draws from your line of credit. Funds will then be transferred to your business bank account, usually within one to three business days. Lenders charge fees and/or interest on the portion of funds you’ve borrowed. As you pay down your outstanding balance, funds become available to withdraw again.
Both credit cards and lines of credit provide you with on-demand funding, ideal for those times when you need to purchase inventory but come up a little short financially.
Recommended Option: Fundbox
Through Fundbox, you can receive a line of credit up to $100,000 to cover inventory and other business expenses.
Fundbox offers pricing that’s easy to understand. With each draw, you’ll pay a one-time fee. Fees start at just 4.66% of the amount drawn. If you repay early, all remaining fees are waived. Payments are made weekly and are spread out over 12 or 24 weeks.
Fundbox looks beyond your personal credit score during its approval process. The lender evaluates the performance of your business to determine whether you qualify for a line of credit.
Requirements to qualify for a Fundbox line of credit are minimal. You only need:
- A business based in the United States
- A business checking account
- At least $50,000 in annual revenue
- 2 months of activity in supported accounting software OR 3 months of business bank statements
To learn more and determine if this product is right for your business, check out our Fundbox review.
Find Accounting & Vending Management Software
No matter how large or small your business is, keeping up with your finances is an important step in operating a successful vending machine business. The best way to do that is with accounting software. Using accounting software allows you to track your finances, have insight into your revenue and expenditures, and run accounting reports. Keeping your books up-to-date not only helps in the day-to-day operations of your business, but is also beneficial come tax time. You may also need financial statements and reports when applying for business financing, and accounting software gives you easy access to the documents you need.
Some accounting software programs also offer additional features, such as storing information about your contacts and tracking inventory. And it doesn’t matter if you have no accounting experience — there are products tailored to all types of business owners with different accounting skill levels.
Unsure of which program is best for your business? Learn more about our top accounting software picks and selecting the right software for your vending machine business.
While accounting software is a must-have for all business owners, there may be other types of software that will help you maximize your profits. Vending management software, for example, offers many features beneficial to business owners, such as:
- Optimizing vending routes
- Inventory management
- Remote machine management
- Financial reports
There are a variety of products available that may work for your business. Find and compare your options with a quick online search of “vending machine software” to find the software that will best help you streamline your business and boost your profits.
Starting your own vending machine business can be a very lucrative venture with the right strategy in place. This includes calculating the cost of owning and operating your business, doing your research, and getting the right financing.
Understand the potential expenses you’ll encounter, read up on your local laws, then check out our Beginner’s Guide to Small Business Loans to explore more financing options available to you.