How to start a profitable vending machine business
This guide will:
- Provide some interesting stats on the vending machine business and the latest trends that are shaping the vending machine industry
- Help you understand why you want to start a vending machine business and what your motivation is
- Help you define your personal goals and outline and analyze your core skills
- Provide answers to some of the most critical questions a newcomer in the vending machine business asks themselves:
- Guide you to finding and securing the most profitable vending machine locations:
- Help you choose the right machines and get an edge in the highly competitive vending machine business
- Teach you how to choose the right products to keep your customers happy
- Offer hints on how to deliver outstanding service to keep your vending machine locations for good
- Help you make your vending machine business profitable
Read on to get the full picture or use the summary above to jump to topics of interest.
Chapter 1. Quick stats and consumer trends
This chapter provides some key stats, as well as the latest market and consumer behavior trends. Thus, you will get an idea about the vending machine market size, the leading payment patterns, and consumer nutrition habits that shape the vending machine industry today.
- $22 billion is the annual spending through vending machines in the United States.
- There are approximately 4.6 million vending machines in the United States right now.
- 56% of vending machine sales are cold drinks, including soft drinks, juices, and other sugary options.
- In 2017, healthier snacks sales outpaced traditional ones by 3 times, though most vending machines are still stocked with junk food.
- 55% of vending machines are located in offices/manufacturing buildings.
- 30% of total vending machine sales come from schools, and most schools are obliged by regulations to restrict traditional junk food from vending to students during school hours.
- Nearly 80% of people are conscious about their weight.
- 65% of Americans are actively trying to get on a diet one way or another.
- Every American citizen owns nearly three credit cards.
- More than 31% of the vending machines accept some form of cashless payments, such as credit cards, debit cards, or mobile wallets.
- Vending machine business owners who advertise the option to pay via Apple Pay have registered 22% overall revenue growth.
- Nearly 80% of Americans don’t use cash in their day-to-day payment transactions.
- When paying with credit cards, the average consumer is spending 32% more vs. when they pay in cash.
- Nearly 70% of operators are using vending management software (VMS).
- Customers who had the best experience spend 140% more compared to those who had the most unsatisfactory experience.
- Happy customers are 74% more likely to be still customers a year later.
- The average cost of new documentation requirements is expected to be about $2,400 per machine.
- The industry is consolidating – 45% of the operators are making over $10 million annually.
- Six significant consumer trends are driving the global vending industry:
- Perception of freshness: consumers want convenient access to fresh food and the ability to check the expiry dates
- Quality of the product: consumers want access to healthier options
- Experience: consumers want a more interactive experience
- Mega convenience: consumers want cashless options and the ability to pre-pay
- Transparency of sourcing: consumers want to buy locally sourced products
- Experiment & customize: consumers want a variety and products more suitable for their daily work and eating habits
Chapter 2. Everything starts with the question “Why?”
You have probably heard that everything starts with the simple question: Why? So, in this case, the question is: Why vending?
The question looks simple, yet, the answer might not be. When trying to understand why you want to start a vending machine business, you should first search for an answer within yourself:
- What is your key motivation for going into this direction?
- Is it your passion for sales or it is just because you’ve heard the vending machine business is an excellent opportunity for “passive income,” or something else?
- What are your long-term goals in personal, professional, and social aspects?
The main reasons people want to start a vending machine business are:
- Everyone believes it can be a part-time/side job
- It allows you to enjoy flexible working hours/schedule
- It is a home-based business
- It allows for more time with the family – better yet, the business is ideal for families as your spouse and kids can be easily trained to assist you with purchasing, replenishing, and accounting.
- It is a simple business, and it does not require special skills or training – once the machines are in place, your only duties boil down to servicing the machines when needed and collecting the money
- It does not require much money to get started, i.e., you can start small and then scale
We tend to disagree only with the first reason. Don’t expect that the vending machine business is a “passive” one. Even when everything is set and fully operational, you still have to monitor and regularly service your machines. What’s more, now you need to deliver excellent customer service to prevent competitors from stealing away your locations.
Just like any other business, the vending machine one still requires some business fundamentals to be fully operational and profitable, such as business intelligence, planning, operational efficiency, and last but not least - dedication. If you are planning to quit your current job and start “living the dream,” as an entrepreneur-to-be, you have first to get a better understanding of your strengths and become fully aware of your limitations. In brief, becoming an entrepreneur requires you to have a robust plan in place. Before quitting your job, ensure you have tested and proven your entrepreneurship readiness.
Luckily, there is a swift and straightforward 4-step process called Q.U.I.T. that can help you assess whether you’re up for it.
- Q - Question your passion. This first step aims to confirm how solid your motivation is and to help you understand whether your passion is your own or an imposed one. You may be inspired by another fellow vending machine business owner who has successfully built an excellent start-up, but this doesn’t necessarily mean that you really “have” the passion for it or that you can replicate his success. While this fellow can inspire you, your goals should be based on your personality and skills.
- U - Understand the power of your reputation. The second step helps you get a deeper understanding of whether your reputation is “self-made” or “company built.” No matter how many brilliant projects you have executed for your current employer and although you are a “top professional” in your field, try to answer yourself honestly, are your customers praising you, or the company you are working for right now. All your glitter might be a result of your company resources. Try to evaluate your unique abilities and talents independent of the “company provided” facilities or processes. An integral part of this step is understanding how trustworthy your contacts are. Categorize them into two groups: high profile contacts, approachable for business, and just casual contacts, not approachable for business. The healthy ratio between these two groups should be at least 50/50 to be able to make a “good start” for your new enterprise. Remember, networking matters in any industry!
- I - Investigate your skills. Investigating your abilities is probably the most fundamental part of this process. Do a thorough audit of your core skills. As they are the “bread-and-butter” of your new enterprise success, for more accurate results, you can use some of the online self-assessment tools available. Your partnership skills are the most critical business skills you can have, as every business revolves around connections with customers, partners, and employees. Your managerial skills are the next to evaluate. Resourcing, negotiation, and project management are among the critical skills you will be needing when managing your vending machine business. As your new venture most probably will be a one-man-show, at least at the beginning, you will need some peripheral skills, too. Some knowledge or lack of such in the field of HR, process management, and finance, for example, have the potential to make or break your start-up.
- T - Test the waters. Now is the time for “proof of concept.” A pilot project will give you the evidence that your business idea is likely to succeed. Discover your market niche without losing the bigger picture. You better strive to be the best in your chosen niche market, rather than average in a broader market. There is common sense behind the fact that when a customer makes a buying decision, they usually choose the best provider of the service or product. As we love to say: be everything to someone, instead of being something to everyone”. To go further with the execution of this pilot project, first read Chapter 4: “How to find and secure the most profitable vending machine locations”.
Before quitting your current job, you should have a good understanding of your financial limitations, too: like any other business, if you decide to develop your own vending machine business from scratch (more on the topic in Chapter 4.1), you need at least a year to become profitable. In other words, on top of your initial investment capital, you should have enough savings to manage without income in the first 12 months.
Finally, to help you assess whether the vending machine business is the one for you, we have listed below some vending machine business pros and cons:
- The vending machine business has had a pretty stable growth over the years
- You don’t need special education, skills or training to get started
- Business fundamentals are common sense
- You are your own boss, and you answer to no one but yourself
- You break free from the 9 to 5, Monday to Friday rat race
- You don’t need significant up-front investment to start
- You don’t need an office
- Your family can be your employees, too
- You can start small and then grow fast
- Recent trends in technology and the rise of the customer-centric approach to business, in general, give a unique opportunity to challenge the vending machine business status-quo
- You can secure a stable retirement income
- It is not a “part-time” business as you may think
- It is a mature and highly competitive industry; the incumbents are strong and acquiring good locations is tough
- You need more than a couple of machines to make a considerable income. It won’t be exaggerated to say that you need a few hundreds of them.
- The vending machine business is a low margin one, and everything is about controlling costs
- Growing big requires keeping a large inventory, and stale products may undermine your bottom line. However, you could easily hedge this constraint by using a vending management software (VMS). Read more on this topic in Chapter 8.
- Starting a vending machine business as a one-man-show, you will be away from home more than 10 hours a day
In a nutshell:
- Before entering the vending machine business, you have to be fully aware of: How strong is your motivation; Which are your strengths and limitations; What are your financial boundaries
- Make a plan
Chapter 3. Key questions a rookie in the vending machine business should ask themselves
The vending machine business has a lot on the “front end” – you have to learn a lot upfront to ensure a healthy start for your new venture. Answering these four key questions will make your enterprise successful right from the start:
3.1. How much should I invest up-front to start a vending machine business?
Depending on the way you would like to operate your vending machine business, the capital investment for a vending machine can vary a lot. It is zero (in the case of a full-service program), or its price might broadly range if you decide to operate the machine by yourself and want to buy it.
Far from offering an exhaustive list, below you can find a summary of some key types of brand new vending machines, varying in the type of products they sell, size and the number of sections they have:
- A gumball vending machine will cost you some $40
- А mini vending machine for cigarettes will cost you some $500-$1,100
- The typical snack or soda machine will cost you some $2,000 to $3,000
- A perfume & toothpaste vending machine costs ~ $3,500 to $5,500
- One-stop-shop solutions start at $9,000
- A pizza vending machine, which can deliver a pizza, cooked to perfection in under three minutes, with a choice of three toppings costs $20,000
Finally, a refurbished full-size soda vending machine can be found on eBay for less than $500. However, you have to carefully evaluate the risk of getting yourself a machine that needs many repair jobs.
Last but not least, some manufacturers would give you a good discount on brand-new vending machines. Still, they will likely ask you to commit to purchasing a specific volume, like 5, 10 or even 20 of them.
One of the biggest mistakes a rookie in the vending machine business can make right from the start is to buy the machines before securing locations for them and even before knowing what kind of products they will be delivering to the respective customers at these locations. They end up stocked with useless vending machines in some warehouse or their garage. To avoid being in a trap with such “dead inventory,” make sure you only buy vending machines that directly respond to your end customers’ needs. Do your market research first and then start looking for the tools to deliver the products, not the other way round. The topic is covered in detail in Chapter 4. (How to find and secure the most profitable vending machine locations).
Lastly, as every business has its ups and downs, you better put some money aside for the times of trouble. The best practice, proven over the years, is to try to save enough to cover a year of tough times.
In a nutshell:
- Your start-up capital costs are relatively low – you can start literally with a few hundred dollars.
- You don’t need a building or an office space.
- Your vending machines can be leased, and no other equipment or machinery is required than a vehicle to service your routes.
- Still, don’t buy vending machines unless you know your customer needs at each specific location. Buy vending machines only WHEN you need them.
- Put some money aside for tough times!
3.2. Do I need any licenses to start a vending machine business?
Before starting a vending machine business, you have to go through the process of acquiring all legal permits. Make sure to obtain all licenses, certifications, and insurance requirements that are needed to operate in your state.
Every vending machine owner or owner/manager of the establishment in which the vending machine is located should obtain a food vending machine license from the local Department of Consumer and Regulatory Affairs. The complete application may include a list of vending machines, a vending machine location plan, a list of foods to be dispensed, and application tax paid. In all states, the license duration is two years. The tax, however, may vary from state to state and per number of units.
If you decide to sell food items through your machines, you have to get the right to do so. In some states, there is an exemption from a vending machine food license for:
- machines selling pre-packaged, non-perishable food items, such as chips, candy bars, and packaged gum.
- bottled/canned, non-perishable drinks, such as bottled or canned soda, or gumball machines
A vending machine license is not required if the following items are offered for sale:
- paper cups
- paper or cloth towels
- postage stamps
- sanitary napkins
- soap and toilet seat covers
In a nutshell:
- While requirements differ from state to state, it’s clear that the pre-operation paperwork stage can be quite painful.
- Be sure to familiarize yourself with the process before making the next step.
- Take into account all related costs when making your investment estimations.
3.3. Do I need insurance for my vending machine business, and how much does it cost?
Once you launch your vending machine business, you will rarely have the time to stop and think whether you need to insure your business and if yes, how you should go about it. That’s why in this chapter, we walk you through what types of insurance there are, how much they cost, and what should you be careful about.
If you’d like to get a good night’s sleep and have the time and energy to focus on your vending machine business, it probably does make sense to insure it. A few reasons why:
- Risk of vandalism or theft - no machine is safe when placed in a public space
- An undesired and unpredictable event such as machine breakdown
- Credit card fraud
- Legitimate customer claims for things such as food poisoning from expired goodies, customers tripping over spilled beverages, etc. - you might find yourself liable for things you have a hard time to imagine at the moment and might or might not sound reasonable to you right now.
What vending machine business insurance options are there on the market?
Three insurance policies are a must-have when operating a vending machine business:
1. The Commercial General Liability insurance covers your vending operations in the case of a client getting hurt while using your machine, a product in the machine causing harm to somebody, someone tripping over leakage and falling, a customer getting food poisoning, etc.
General liability also protects you if you get sued for things like causing physical damage to someone or someone’s property, using someone else’s trademark without permission, making false claims in advertising and so forth. If any of this happens, the liability coverage will take care of your customer’s medical bills and protect you from any further obligation towards them.
It’s not uncommon for building owners and location managers to require vending machine operators to own and show proof of liability insurance. In other words, if you’d like to be competitive and secure the location you fancy, the general liability insurance is a must-have for you. Even if it’s not your fault, if someone else thinks it is, that person can sue you. Liability insurance helps you cover the cost of a lawsuit—and if you are found to be negligent, the insurance will also cover what you did wrong.
To track inventory levels and expiry dates at your warehouse and for each machine, you might want to consider using vending machine business management software. It can help you avoid pricey lawsuits due to food poisoning, for example.
2. Property insurance helps protect your business assets (property and equipment) from theft, damage, or any loss of:
- Office equipment such as computers
- Owned/leased property used to run your business (such as office and warehouse)
What your insurance premium should be (that is, how much you should pay for your coverage) depends to some extent on the type of machines you own, as well as on the location where you are planning to place them. Some insurance providers combine property and general liability in a single policy named Business Owner’s Policy. Combining a few policies from a single insurance services provider guarantees you a discount, too.
3. The Commercial Auto Insurance protects your vending car/truck when on route to refill existing machines or install new ones.
If you are using your personal car as a vending truck, remember that the personal auto insurance policy usually does not cover commercial use, so you can’t rely on it in the case of a problem.
Commercial auto insurance typically:
- Covers damage to your vehicle in the case of a collision with another driver
- Insures you in the event of theft
- Includes medical coverage whenever medical bills need to be paid
- Protects you whenever the accident is with a driver who doesn’t have insurance himself
- Will cover your truck, but not necessarily any damage to your products in the truck
While the above three insurance policies are a must-have when operating a vending machine business, there are a few other types that might be worth considering depending on your particular case:
- The Worker’s compensation policy - it covers your employees in case they get injured while working. The policy typically covers the injured employee medical bills and pay for the period they would need to be off work.
- Crime insurance - protects your vending machines business from loss caused by crime. As most vending machines still accept cash, employees and owners are forced to carry a lot of bills and coins around with them.
- The location owners/managers may request a Certificate of Insurance (COI). While this is not yet another type of insurance policy that you need, you might have to pay a fee to have the COI issued.
4. A cyber liability coverage - this is a type of liability insurance that you might want to consider if your vending machines accept credit cards. As of October 1, 2015, a change in how card payments are accepted and processed in the US has come into effect. Now vending machine operators, not banks, are liable in case of fraud with credit cards that have EMV chips if the business owners have not installed an EMV-ready credit card reader. In short, when a credit card fraud takes place, whoever did not comply with the latest standard, absorbs the charge. The real issue for vending machine business owners, however, is the potential risk for chargebacks. Beware that the chargeback fee is assigned per transaction, not per card or customer! It can be a significant issue for vending machine business operators.
How do I insure my vending machine business, and how much does it cost?
If you are a one-man-show in your new enterprise, you’d better find an insurance agent or broker to make the process less stressful and time-consuming. How much does the service typically cost, however?
- The cost can significantly vary and is mostly dependent on your turnover. If your vending machine business sales are around $100k or less/year, your general liability premium should be in the range of $400-500. Some insurers offer the option to add additional coverage for each machine you own for an additional premium.
- Depending on the type of car/truck you own, and your driver’s record, the annual commercial vehicle insurance range will be $750 – $1,200 per vehicle.
- The employee insurance premium varies depending on the number of workers your business has employed and may range between 3% up to 5% of the employee salary.
- There are also subscription-based options such as CoverWalett that have packaged together readymade monthly plans which include one or more policies (for example, the General Liability one starts at $39 a month).
What should you watch out for when insuring your vending machine business?
When selecting an insurance policy or a package of policies, be sure to make yourself familiar with the nitty-gritty details such as what the procedures are in the event of an emergency, what exactly the policy covers, etc. Read the fine print, and invest enough time to select the right insurance policy for your vending machine business.
Some of the most common and expensive mistakes some vending machine business owners do are:
- Not insuring all the products that you sell through the vending machines. When the list of products you sell is long, and the variety is large, you might forget to disclose a few items to your insurance provider. This might result, however, in an invalid insurance claim when it turns out that the policy you’ve purchased does not cover incidents related to those items. Using a vending management software (VMS), though, can help you see the entire inventory you own at the moment in a single click.
- Failure to maintain your vending machines. To keep your machines up and running and avoid pricey tech support and fixes, proper upkeep and maintenance need to be performed regularly.
- Forgetting to insure your vending machines when they are leased.
In a nutshell:
- The General Commercial Liability insurance, Property insurance, and Commercial Auto Insurance are a must-have!
- Depending on your annual turnover and the type of car/truck you own, the must-have insurances premium start from approximately $1,200 a year.
- It might be worth having insurance coverage for the latest threat – cybercrimes.
- Take your time and read the fine print of your selected insurance policy.
3.4. How to find and secure the most profitable vending machine locations?
There is no doubt that one of the essential prerequisites of owning and running a profitable vending machine business is the quality of your machine locations.
What is the definition of an excellent vending machine location?
Unfortunately, there is no such thing, as the good vending machine location depends on many factors. Moreover, they all “work together” but not alone.
There are three different ways of finding vending machine locations:
- Sourcing a machine location by yourself and developing your routes offers a high degree of flexibility. You can start with just a few vending machines, and later analyze and verify customer preferences to expand the business when opportunities arise. This is the most time-consuming scenario - you need to both continue with new location sourcing, spending time negotiating with new locations’ owners/managers and start servicing your locations. As this is one of the most common scenarios, which requires some business fundamentals knowledge, we dig deeper into the topic in Chapter 4.1.
- On the other hand, many entrepreneurs prefer to have an instant income, and buying an existing route gives them the advantage of getting access to immediate cash flow. This approach requires some significant cash available up-front to close the deal. Regardless of how well developed an existing, operational business may seem, at first sight, it is crucial to investigate and understand beforehand why the current owner wants to sell it. In case you are this type of entrepreneur, Chapter 4.2. gives you all you need to know in advance.
- The last options for getting into the vending machine business are to buy a franchise or by using a vending machine locator service. More on this topic in Chapter 4.3.
In a nutshell:
- There are three main ways to find locations for your vending machine business – by yourself, by acquiring an existing business or by leveraging a locator service.
- The vending machine business gives you flexibility and scalability – you can start small, with a few machines only, and expand your operations when circumstances allow.
3.5. What should my exit strategy be if I fail?
This question should be question # 1 for any start-up and any business.
Being passionate about your new vending machine business, you probably only see the positive sides and don’t want to think about possible failure. Don’t make this mistake. Before investing too much of your time and resources into a new vending machine business, take your time and identify what failure means to you, until what point you are ready to try and make it work, and what you would do if it just doesn’t work out. In short, consider what your exit strategy would look like if things go wrong. Not doing so will definitively cost you more money and negative emotions at the end.
In a nutshell:
- Before entering the vending machine business, define your contingency plan. Have a plan B right from the start.
Chapter 4. Finding the most profitable vending machine locations
In the vending machine business, it is all about the locations, not the machines. The machines are just the means, and a great machine won’t do you any good if it is not in a great location.
Like they say in the FMCG industry, the most important thing is location, location, location!
In reality, you are not in the vending machine business until you secure a good location for your vending machines. Our advice would be to start with only a few machines but to place them at the most profitable locations that you can select and negotiate. This way, you are going to secure yourself an excellent start to your vending machine business.
Getting a suitable location has been, is, and will always be the hardest part of the vending machine business, and using your network is the most useful source for finding great locations. People work with people they know, people they like, people they trust. Securing a proper location starts with prospecting, finding, and contacting leads. Our next advice would be to reach out to:
- business founders
- office managers
- HRs and
- all type of C-level managers that you know.
The best types of locations are those with a lot of foot traffic:
- large offices or multi-business office parks
- manufacturing companies
- schools and universities
- hospitals and medical centers
- airports, bus and train stations
- waiting rooms, lunch rooms, and break rooms
- grocery stores and shopping malls
- hotels/motels and jails
- gas stations, repair shops, and laundromats
- cinemas and theatres
- residential complexes
A vending machine might fail in a mall with a strong food-court, but that same machine could flourish in a business center. There is a straightforward reason behind it: the type of customer and their specific needs at each location vary. You must have an individual approach to each location.
Think of each location as a different person. How do you approach and communicate with each one? Do you talk to them in the same manner?
Of course not! You treat each person differently, so treat each vending machine location individually – like a different person, with different background, education, pain-points, and different needs respectively.
When assessing a vending machine location, some of the questions to ask are:
- What is the location’s daily foot traffic estimation?
- Are there currently provided vending services, or any other food services (restaurants, micro-markets, etc.)?
- Do the location’s renters or owners have a contract with a vendor?
- Are they happy with their current vendor?
- Do they receive additional services or commission from their current vendor? How big is this commission?
- Who is the customer at the selected location?
- What does the customer want/need?
- What type of product mix/vending machines do I need to meet the customer needs?
After getting answers to these questions, plan how to approach the location owner/manager, and prepare a customized proposal for them. The next section helps you build your tactical plan for securing the most profitable vending machine locations.
In a nutshell:
- Regardless whether you will be developing the vending business from scratch or you have your eyes set on an existing vending machine business for sale, do your market research and gain as much insight as possible on your selected vending machine location and its end customers.
- Get the location first, then buy the machine(s). Not the other way round.
4.1. How to develop your vending machine business from scratch
When starting a new vending machine business, one thing is sure - regardless of the number of machines you own, you are to be a one-person show, at least at the beginning.
Owning a business means understanding a little bit of everything since at first, you’ll be managing just about anything: sales and marketing, accounting, operations, inventory management, partner relations, product, and machine sourcing, and price negotiations.
Even when your business grows enough for you to have dedicated route drivers, accountants, and inventory staff, you’d still be the strategic thinker and the chief negotiator when contracting new locations or extending the agreements for existing ones.
Possessing the right sales attitude and skillset plays a critical role in starting and sustaining a vending machine business.
Sales techniques that work in the vending machine business
Before you initiate the first contact with a vending location owner/manager, you’d need to do your homework. Going to this initial meeting prepared means you’ll be much more confident, ready to answer questions, and in general, look professional in your opponent’s eyes.
a) Start by defining your value proposition.
While the end-customers generate your sales turnover, the actual buyers - your target persona - is the location manager; he’s the gatekeeper who controls your access to the consumers. The offer you make should be able to improve their current situation. Have in mind, though, that you don’t operate in a vacuum and the respective location may be occupied with other vending machines already.
Before meeting the location manager, we suggest you ask yourself these key questions:
- What pain points is my service solving for the location manager?
- Is he better off with my machines placed in the area?
- Are there any other vending machines already placed at the location?
- What do they offer?
- How’s my offering better/different?
- What can I offer to the location owner that’s better than what the competition already does? What is my unique selling point?
The answer to the last question might be the variety of snacks/sodas that you offer, the payment methods that you provide or merely the fact that you are faster to respond and better cater to your POC’s needs. Your value proposition must be relevant to the location manager. It has to be as unique as possible and hard to replicate by the competition.
b) Emphasize the before/after contrast.
To help the location manager understand the added value your offering brings to their place, tell an outstanding story that builds on and improves the status quo.
Your goal is to help your potential location manager see the difference between now and a future where your machines are placed in their location. Make sure to ask questions that help you reveal the problem your prospect experiences at the moment so that you can position your service as the solution to it.
We suggest using questions like:
- “Tell me about your current situation…”
- “What’s not working right now…”
- “What happens if you don’t deal with this and find a solution?”
- “And what is that going to cost you?”
Analyze and manage your behavior:
We have listed for you some techniques that can help you lead the conversation and increase your chances for a positive outcome of a meeting with the location manager:
- Choose wisely your opening line. Don’t start a meeting by commenting on how bad the traffic/weather is or how busy and tired you are. It just starts the whole conversation off on the wrong foot.
- Don’t speak ill of competitors: say, a competitor has already moved in his machines at the location you are trying to secure. Not only does gossiping create mistrust and undermines your credibility, but your location manager is also likely to involuntarily and subconsciously relate those negative traits to you.
- Show you have high expectations of your prospect location manager – despite what most people believe, using superlatives to describe the person you are doing business with, the location itself, end-customers, etc. works in your favor. A study reveals that people usually live up to their positive labels. You can say, “It’s great that I can have an open and honest conversation with you” or “You’re such a pleasure to do business with.”
- Mind your body language. Research shows that salespeople who effectively use nonverbal communication are much more successful.
- End the meeting on a high note.
Negotiating the details
Negotiation is not a skill that one can quickly master in a day or two. Still, there are some straightforward tips you can follow to achieve a win-win scenario for your prospect location manager and yourself:
- Be prepared to address the objections the location owner might have against your offer. Naturally, you can’t read minds, but if you try to walk in your opponent’s shoes, you’d be able to come up with at least one or two doubts that he might have. Try to dissolve these before your prospect has even managed to articulate them (once said aloud, objections tend to solidify and gain ground).
- Ask your opponent many questions to better picture his current situation, to understand his pain points to address them later with your offer; when you are proactive, you control the set and rate of the conversation.
- If you are to agree to the location manager’s terms, be sure to get something in return. You shouldn’t accept every single one of the prospect’s demands without making some requests of your own. By establishing a win-win situation, you lay the groundwork for a sustainable, mutually beneficial relationship with your location manager. For example, if you agree with the commission they are asking, try to obtain a guarantee for the foot traffic that will be passing by your machines daily.
- Be sure to understand the vending machine business standard – if you’ve done your homework, before entering your location manager’s office, you should know what’s typical for this location in terms of commission payable, machine servicing and presentation, the variety of stock that you need to offer, etc. Not only being prepared makes a good impression on your opponent, but it also helps you better formulate your offer without leaving money on the table. As a rule of thumb, always start with a slightly higher offer. Try to provide extra value rather than agreeing to a high commission that’s not sustainable in the long run.
Closing the deal
No matter how positive you feel about your presentation so far and how excited your prospect location manager is, there’s always a chance you’ll lose to the competition. The manager may decide to postpone their decision, or he/she may ask for a commission you can’t sustain in the long run. Using the right words, however, can make a difference.
If you act as if the prospect has already accepted your offer, it might sound a bit aggressive and scare them away:
- “When should I start placing the machines in your venue?"
- “When do we sign the contract?”
- “I’ll get the paperwork ready now.”
Instead, make the location manager feel comfortable without completely taking off the pressure:
- “Is there any reason if I agree to your terms that you wouldn’t do business with my company?”
- “If I could find a way to deal with [objection], would you sign the contract on [set period in time]?”
- “It seems like the machines and snack/soda service my company is offering is a good fit for your venue. What do you think?”
- “Why don’t you give it/us a try?”
Congrats! You closed the deal. What’s next?
If you are undecided whether you should work on finding new locations to expand your vending machine business penetration or persuade the manager you just signed a deal with to increase the number of machines at their location, the choice should always be the latter.
Wonder why? Here’s some hard data:
- Existing customers tend to spend ~ 33% more than new ones.
- The probability of upselling/cross-selling to an existing customer is, on average, 60-70%, compared to the 5-20% chance of converting a new prospect.
- It’s 6-7 times more expensive to acquire a new customer than to retain an existing one.
So, what can you do to maintain a healthy relationship with your POC/location manager?
- Be proactive: be sure to call on your location manager regularly without being too pushy. Keeping a good rapport with your client helps you recognize if there’s any potential for upselling. Plus, it helps you identify any needs that have not been addressed, such as the need for shorter service cycles, a new variety of items that should be offered to end-customers, etc.
- Solicit feedback: perhaps the best way to figure out what to provide your customers in the future is to ask them what they want. In an industry where you have direct contact with your end-users, there are several ways you can do so:
- Survey and poll your client base, both directly after they’ve made a purchase and after they’ve used the product for some time.
- Leverage social media and forums to get feedback.
In a nutshell:
- Sourcing the locations by yourself and developing your business from scratch is the least expensive way to get into the vending machine business
- Starting a vending machine business as a one-person show, you will be away from home more than 10 hours a day
- To develop solo your vending machine business, you should be good at networking and sales
- Selling more to existing locations is not only beneficial to your company’s bottom line, but it also helps improve and streamline your operations, servicing schedules, and inventory management.
4.2. How to buy an existing vending machine business
Many entrepreneurs prefer to go for existing vending machine routes or vending machine businesses for sale, and there are a couple of reasons for that:
- Taking over an established business is much simpler than doing everything yourself. Also, a geographic area may already be well-stocked with vending machines and service companies, so there is no room left for another one.
- Purchasing an established vending machine business provides an immediate source of income. If you start from scratch, it will take a considerable amount of time to develop a route and develop partnerships that can help make a profit.
Despite the apparent benefits, there are some critical questions to ask before you sign ownership papers or pay any money. Going carefully through the below tips will let you quickly identify and locate a successful vending machine business to buy out and may save you much money and sleepless nights. While they do not cover all possible aspects, they provide a good starting point and valuable information on how to get the best value for your money and how to identify and acquire a business that already is and will remain profitable in the future.
1 - Find out why the current owner wants to sell the business.
When you are researching potential vending machine businesses to buy, always ask the current owner why they want to sell it. There can be both good and bad reasons to sell a vending machine company, so try to do a bit of investigation to find out if the answers you got are accurate.
2 – Ask the current owner if they use any vending management software (VMS) to optimize their vending routes.
If so, ask to see historical data – this will help you understand how the owner has managed to optimize their machine servicing schedule and what the quickest route is. The reports generated by the software will shed light on the performance by location and per machine, as well as provide an insight into the seasonality of each vending machine location. You’ll also get a glimpse of the mileage log and calculate the cost per visit.
3 - Examine three to five years' worth of tax statements and profit sheets.
Examination of the tax returns and accounting profit sheets for at least 3 to 5 years is essential to determine whether the vending machine business is self-sustainable and can make you money if you buy it. If you don’t have any experience in the vending machine business, this paperwork can also help you understand operation costs and company structure.
Other bits of financial information that is important for you to know and should be readily available in the current owner’s vending management software are:
- P&L report
- Cash flow statements
- Sales tax report
- Commission percentage owed to location owners
- Total revenue
- Profit margin over cost
- Assets owned by the company
4 - Ask about the current vending routes and investigate locations for potential problems.
Any honest vending machine business owner should be happy to let you ride along with them on the route to examine both the vending machine operation itself and the professional relationships they have with the site managers. If you can, download the vending machine location list and the location contact person information from the VMS, meet and talk to as many of them as possible.
5 - Give all vending machines a thorough inspection.
A full inspection of all machines that the vending machine business has for sale is necessary to understand what you are getting for your money and to make sure everything is operational. If any of the machines look unsightly, worn out, or have many “Sold Out” labels, the location may be undesirable, or the vending machine itself may be too old to attract sales. These are just some of the red flags that indicate neglect or mediocre maintenance by the existing owner. It can also lead to a negative impression on the location staff and respectively, accounts that may close or fail to make money.
6 - Go over the current contracts.
A vending machine business is only as good as the contract held with location owners/managers. Examine all existing contracts to see which are most lucrative and which may need to be re-signed if you purchase the company. Also, be aware of any “Change in Control” clauses in the contracts that allow a location owner to cancel the contract if the vending company changes hands. The latter is especially important as you want continuous profit from the start of your new ownership.
Some vending companies do not own the machines they use, but instead, rent them from third-party sources. These leases must continue if the company is sold to you, the new owner.
7 - Contact the Better Business Bureau to check for complaints or other issues.
Check for any existing or repetitive complaints on the Better Business Bureau website that pertain to the vending machine business you are hoping to buy. Searching for problems with this tool is entirely free.
8 - Research public court records for past, pending or current legal trouble.
Purchasing a vending machine business can cost much money, and should not be undertaken without due diligence of any potential legal trouble it had in the past. Contact local and state clerks to access public records that pertain to the particular company. Look for judgments, liens, and any past or present litigation processes that have been filed. If you go on to purchase the vending machine company, you become liable for any legal damages determined from these court proceedings.
9 - Get a “Clearance Letter” for the company before purchase.
Many states issue a “Clearance Letter” outlining any current or former taxes that have not yet been paid by the vending machine business you are considering for acquisition. Vending products do require sales tax payments in many places, and these must be remitted to the state government as necessary. This letter gives you a clear impression not only about how much sales tax is usually due every month or quarter but also whether any outstanding taxes may affect your bottom line when you buy the company. Cross-check this information with the data you got from the current owner’s vending management software.
10 – Include transition help from the previous owner in the purchase.
Although many companies hand the reins over to the new owner immediately after the money is paid and paperwork is signed, it is an excellent idea to negotiate a transitional period with the sale, meaning that the current owner would assist with all transition tasks for a period of a few weeks or even one month. This not only allows a novice to the vending machine business to learn the ropes from a seasoned professional, but it also helps even experienced owners to learn more about the particular route and contracts in place. This period can include route optimization, machine maintenance assistance or education, and introduction to crucial location managers and customers.
11 - Stick to your budget.
After you have completed all the previously mentioned research and due diligence steps, it should be easier for you to decide if the vending machine business in question is a profitable venture or not. If you do decide to go ahead with making an offer and potentially to buy out the machines and routes, you need to know how much the company is worth altogether. Paying too much can be just as much of a mistake as buying the wrong business.
Making the first offer on a business purchase should always start at least 10 to 15% below your budget to leave room for negotiation. Always keep your maximum dollar amount in mind, so you do not pay too much for a company or spend more money than you have access to. The negotiations should be carried out honestly and in good faith, so both parties are satisfied with the result.
12 – Hire a lawyer and a professional accountant.
Your best bet is to hire a lawyer who specializes in business acquisition and has some knowledge or experience dealing with vending businesses in particular. A professional accountant may also help to go over paperwork and determine value.
If you would rather not employ outside help and figure out everything on your own, it might be a better idea to start by purchasing a smaller business with only one or two dozen vending machines placed at proper locations.
In a nutshell:
Buying an existing vending machine business:
- requires professional due diligence
- brings immediate income
- requires an estimate of $100k to $500k financing
4.3. How to buy a franchise or use a locator service
Using a vending machine locator service
If you can’t rely on a good personal network, then your next best option is to use a vending location company. While it may seem the obvious choice to hire a locator service to find the best places for your vending machines, the latter may ask for a considerable percentage of the charge up-front. This practice opens the door for scammers to charge a fee but never find a good vending machine location for you. As soon as they get your money, the unscrupulous location finders can also convince you to put a machine at a particular location they have not researched appropriately.
One of the main reasons why vending machine locator services often fail to deliver on their promises is that all they have to do is to find a location owner or manager willing to have a vending machine at his premises and collect a fee from you. They cannot guarantee and are not accountable for how successful your products will be in that location. As you wouldn’t have any data on the location performance, you would need to have your vending machines sitting there for several months until you gather information on sales, profits, and expenses.
If you rather avoid all these problems with locator services, you must take special care to find a reputable one.
One of the best approaches to finding a quality vending machine locator service is to ask other vending fellows which ones they have used successfully in the past. Honest reviews and testimonials can help you decide. Locator service officials should be willing to put the contract in writing and clearly outline everything they are responsible for and every task they should complete.
As the vending machine locators are not all equal in their service quality, we strongly recommend doing your best in networking first.
Buying a franchise
In general, getting into the vending machine business by purchasing a franchise is even easier than buying an existing vending machine business or vending machine route.
As a franchisee, you are partnering with a company that has a well-established and proven business model and a highly recognizable brand. You join a community of other vending machine business owners, with whom you can share best practices. The franchisor trains you, and professional sales support is provided throughout your contract, to help you secure your new vending machine locations. Nevertheless, always keep in mind who is your customer at the selected location and how your franchised products match their needs!
Last but not least, in addition to the start-up franchise fee, you pay the franchisor a monthly fee or a percentage of the profits. As a franchisee, you cannot purchase or rent machines, as well as products from any other suppliers that the franchising company.
In a nutshell:
Buying a franchise:
- you can get the best life-time support possible in sales, operations, and marketing
- brings immediate income
- requires a higher up-front investment
- you pay ongoing fees/royalties
Chapter 5. How to choose the right machines and get an edge in the vending machine business
Now go back to Chapter 1 and take a look at the stats and recent trends again!
Do you notice something that stands out?
The vending machine business is changing, and the old days when vending machines were only stocked with sugary carbonated drinks and junk food are gone for good.
Just a decade ago, it was difficult for people to get access to healthier products, yet, since the start of the rise of the healthy eating trend in the last few years, the vending machine business gradually started shifting towards healthy vending, too.
In the very beginning, the demand for healthier options was mainly in specific locations, like gyms and schools (the latter being actively supported by the legislation in some states). However, the growing population of health-conscious consumers has changed the vending machine business landscape completely. Today, one thing is certain: healthy vending is not just a fancy buzzword anymore, and the vending operators who only stock their vending machines with candy, junk food, and sugary drinks are dramatically limiting their market size and sales turnover.
Your product offering should be diverse, and the healthy vending snacks may be precisely what your vending machine needs! We strongly advise you to offer local products, too, as they can be a good source of extra margin for your vending machine business.
Offering better choices to consumers equates to premiums. Best business practices show that when presented with the opportunity to make better choices, customers often select better quality, even if the premium and healthy snack goes with a higher price point. When a vending machine operator offers excellent meals, consumers appreciate it - the latter results in steadily increasing sales and growing business.
One of the main advantages a vending machine gives to a customer is convenience. Remember, every American citizen owns nearly three credit cards, thus ranking the US among the top 10 cashless economies. This all means that a vending machine that offers cashless payment options offers even more convenience than the coin/bill-operated ones. Most new vending machines accept various forms of cashless payments, such as credit cards, debit cards, or mobile wallets, providing a safer and quicker option for both customers and vending operators.
Undoubtedly, the most significant and valuable advantage from a business standpoint is the real-time data collection that is a direct result of cashless payments. Instant data collection allows you to analyze and understand your customers’ buying patterns, to plan more accurately your tactical moves, or to reward the customers for their loyalty. Furthermore, real-time data allows you to monitor your inventory levels per machine and per location, specifically for vending machines with telemetry. You can react immediately in case of a sudden increase in sales and to prevent empty trays and missed business opportunities.
Another trend that’s been recently on the rise in the vending industry is the introduction of the so-called micro markets. They are unattended staff-free, self-service areas that predominantly offer healthier options, warm and fresh food. Customers pay at check-out by using digital LCD kiosks. The micro-markets are changing the vending machine business playground. Regardless of the significant up-front equipment capital that they require, all business fundamentals, we touched in this guide apply to the micro-markets business, too.
In a nutshell:
- Consumers are more demanding than before. Vending machine business owners need to respond to the new requirements.
- Think beyond candy and chips - be versatile, be healthy, and stay local.
- Go cashless.
Chapter 6. Choosing the right product mix to meet your customers’ needs
The type of products you will be offering through your vending machines varies a lot and depends on your target customer at each specific vending machine location.
Remember: each location is different and has to be treated differently!
With its unique customer requirements, demographics, and different traffic patterns, each location defines its own and particular product mix.
All you have to consider when creating your product mix are these five straightforward factors:
- Taste – if your product doesn’t meet your customer taste preferences, you won’t be selling a lot. As simple as that. Instead of blindly following the mainstream food and beverage trends, keep an eye on the local, site-specific demand. Do your initial market research for your respective locations. On-site promotional sampling campaigns can give immediate insight into your local preferences. In the beginning, don’t overstock your vending machines. Then start analyzing the demand from day one and adjust your offerings based on your vending machine sales.
- Price – can customers afford your products at each vending machine location? Be competitive, but not too cheap! Being too cheap at some locations can make the consumer suspicious about your product quality. The vending machine business is a low-margin one, so carefully select your product supplier. Another source of margin optimization is the smart use of your vending management software (VMS) for minimizing the amount of vending machine stale products.
- Brand awareness – Your products’ brand awareness consists of two components – the brand recognition and brand recall. Brand recognition is precisely what it sounds like: the ability of a consumer to recognize one brand over other brands; the ability of consumers to identify your product by its attributes, such as shape, color, illustrations, and graphics. Make sure your vending machines are stocked with recognizable products. Still, don’t underestimate the power of local products – sometimes their sales may pick up over some well-recognized brands, as local communities may tend to appraise local producers.
- Uniqueness – sooner or later, customers get bored unless you offer them something new every other week or month. With exciting new products being introduced once a week, you keep your customers positively surprised and happy. The unique product mix will work for some locations, certainly not for all. Remember, you should follow one fundamental rule – your product offering should be diverse, and the healthy vending snacks may be precisely what your vending machine product mix was missing!
- Nutritional value – given the global healthy eating trend, more and more people are paying attention to how much calories, sugar, and fat they consume. Check attentively federal guidelines and requirements, when placing your vending machines in schools and hospitals, and give your customers a wide variety of healthier products. In 2016, the National School Lunch Program (NSLP) covered some 30.4 million children. The final rule broadened the variety of milk options in the National School Lunch Program and School Breakfast Program by allowing local operators to offer flavored, low-fat milk permanently. Additionally, this final rule prescribed that half of the weekly grains in the school lunch and breakfast menu should be wholegrain-rich. Finally, it provides schools in the lunch and breakfast programs more time for gradual sodium reduction by retaining Sodium Target 1 through the end of the school year (SY) 2023-2024.
Last but not least, when sourcing products for your vending machine business, don’t limit yourself to just one channel. Check as many as possible, compare prices, bundle offers, etc. The most popular vending machine stock suppliers are Costco, Sam’s club, CandyMachines, and the United Natural Foods Inc (UNFI).
In a nutshell:
- Each location is different and has to be treated differently!
- Test your customer preferences with on-site sampling events.
- Be competitive with your pricing, but not cheap.
- Don’t limit yourself to just a single stock supplier.
Chapter 7. How to deliver outstanding service and keep your vending machine locations for good
Congratulations, you have managed to contract a location, and to place the right vending machine(s) to meet your customers’ needs there! You may think the job is done; now, all you need to do is start collecting the cash. Wrong! Now the real work begins. The only sustainable way to keep your location is by offering outstanding customer service.
As we already mentioned, the vending machine business is a mature one – it’s an industry of similar product offerings and freebies, relatively low margins, identical promotions, and commissions. Remarkable customer service is the ultimate differentiator that prevents your competitors from stealing away your vending machine location.
You can find vending machines everywhere. Excellent customer service is still rare.
Every savvy business owner knows that only mutually beneficial business relationships last in time. In other words, it’s all about showing your location managers/owners how their business matters to you and how willing you are to respond to their requests in short order.
The vending machine business, like many other location-based businesses, is dependent on personal connections and word of mouth referrals. Invest your time in building strong relationships with business owners - let them know you, make them like you, and let them trust you.
If you fail to provide an excellent level of customer service, another vendor with a slightly better offering will take your location soon.
Here are some tips on how to deliver fantastic customer service:
- Continuous product optimization: by continuously optimizing your product mix in your vending machines you not only secure a positive impact on your bottom line, but you also demonstrate to your location manager/owner how flexible and ready to adapt to your end customers’ tastes you are.
- Perform preventive vending machine maintenance to eliminate downtime, and to enjoy long-lasting equipment. By taking care of your vending machines in the long run, you will not only save money – you will also build a good reputation.
- Provide multi-channel customer support. No matter what channel the customer is using to log a customer request – phone, email or social media – be well prepared not just to review the service request, but to also promptly respond and even more importantly, to resolve the claim, preferably, within 24 hours. Provide your top customers with a direct 24/7 service line and treat them like they are a business partner.
- Over-perform on deadlines. Delivering at the deadline is a must, and every competitor will do so. Delivering ahead of deadlines is how you stand out from the crowd and make an outstanding impression on your vending machine location managers/owners. Equip your vending machines with vending management software (VMS) that can help you manage inventory by tracking purchases, critical levels of product items, and product expiry dates.
- Don’t just do the bare minimum by taking notes on your customer product/brand/pack size preferences. Start taking notes on their personal choice.
In a nutshell:
- To take good care of your customers, you have to get to know them first.
- Go the extra mile to deliver an outstanding service. If you don’t, someone else will.
- Take care of your vending machines – machine downtime is more expensive than preventive maintenance.
- Use vending management software to get an edge over competitors.
Chapter 8. How to make a vending machine business profitable
What does it mean to optimize your vending machine business operations?
In your quest to maximize revenue and become profitable, you have to deliver excellent customer service to prevent your competitors from stealing away your profitable locations. Furthermore, you have to optimize your operations to minimize cost, boost revenue, and to impact your bottom line positively.
Managing operations, while you still own just a couple of vending machines placed at one or two locations, is quite an easy task. You might as well be using a simple tool, like an excel spreadsheet, for example. When you start adding more machines and locations, however, the amount of data that you need to process and analyze will grow exponentially. You will have to automate all the decisions you make daily, and every experienced vending machine operator knows, that the only sustainable solution to such a complex task is to rely on a robust vending management software (VMS).
We’ve already discussed that each location is unique, featuring different traffic patterns, customer demographics, and product mix requirements, so you should treat it differently. Optimization and streamlining of operations are a process that spans over different business functional areas, each requiring numerous decisions to be made. The complex process of operations optimization includes, but is not limited to:
- Managing your vending machine inventory - knowing what sells where and how often, so that the product items get replenished before the machine runs out of stock. When analyzing the exact product mix each vending machine needs, time matters and often, it is a question of just one day that can make the difference to your customers and to impact the quality of your service. As a vending machine owner, when managing your machine inventory, your ultimate goal is to keep your customers happy.
- Maximizing vending route efficiency - keeping your operating costs low immediately helps you improve your bottom line. Part of this process is planning preventive vending machine maintenance to avoid potential machine breakdowns and missed business opportunities.
- Keeping leaner warehouse - how to maximize stock rotation and keep your dead stock low. Tracking each vending machine performance and consolidating all vending machine data allows you to boost profitability.
Perhaps this is easier said than done, yet, optimization is all about identifying your most significant opportunity and taking advantage of it, to positively impact your bottom line.
Optimization means revenue maximization.
Vending management software (VMS) helps you automate all the decisions you need to take daily. It reduces uncertainty and helps you rely on data to manage inventory, identify consumer trends, manage routes, and keep cash accountability. All that while sitting comfortably in your armchair!
In a nutshell:
- You might not need any special tools when you operate a couple of co-located machines. Once you start adding machines and locations, however, you will not be able to manage them all by yourself, using a spreadsheet or a notepad. Think well in advance about your growth plans. Use vending management software.
Thank you for reading thus far! We hope that this guide helped you gain insights into the vending machine business stats and latest trends, that are shaping the industry; the pros and cons of starting such a business, as well as the most critical questions that one should ask before embarking on such a journey.
Following the guidelines that we outlined, now you should be able to identify the consumer’s needs at each location and to carefully select your product mix and the vending machines you need.
Finally, you have a clear picture of what outstanding customer service means and how it can help you keep your vending machine locations for good. Great service, along with reliable vending management software, can help you grow your vending machine business and make it profitable.
Good luck with your new venture!