The perfect side hustle. It's what every entrepreneur is searching for – easy money on top of their main income stream, preferably hassle-free. But does such a thing even exist?
Well, there’s no perfect side hustle – but this one is a fairly good option for someone wanting to earn steady cash with flexible hours.
Read on to find out how you can become a vending machine mogul!
What is a vending machine business?
A vending machine business is pretty self-explanatory: you own or rent a vending machine and place them in ideal locations, making money off of the products that get sold.
What’s the appeal?
- Make money without ever needing to be present
- Low startup costs – just the price of the machine and product
- Highly profitable with flexible margins
Still not convinced?
You may be surprised to learn that the vending machine industry in the US produces over 23 billion dollars in annual sales – and you could share in the winnings.
This article will delve into the details of starting up your vending machine business and more importantly, how to choose the right type of vending machine business for you.
Types of vending machine businesses
When starting a vending machine business, there are three ways you can approach it:
1. Buy an existing vending machine business
This is an easy way to walk into a business that has the potential to be profitable from day one.
How: the interested person buys a vending machine (or machines) from someone who has already been selling products.
Benefits:
- Purchase a business that is already generating sales
- Get tips on where to place the machines
- May be able to purchase products from the machine owner to get you up and running
Prior to buying:
- Understand why the owner is selling
- Get the numbers on their costs and profitability
- Find out what the status is on location and supplier contracts (may or may not be expiring)
- Make sure the machines are in good working order
Keep in mind that much like real estate, location is incredibly important in the vending machine business – so the key is to find some prime areas.
2. Buy a vending machine franchise
When you purchase a vending machine franchise, you are also buying the systems and procedures of a company that already has experience in the business.
How: the interested person inherits the operational procedures of an already existing business. They may need to attend a training session(s) to learn the procedures of every step of the process outlined by the franchise owner.
Benefits:
- Business is already established and set up by someone with experience
- No need to establish your own systems and procedures
- Easier to make your business turnkey from the get-go
Prior to buying:
- Carefully review any legal paperwork
- Take note of all standards, procedures, and systems, as you will need to follow these
- Find out about any restrictions around what products you can use, where you can place the machines, etc.
Remember that buying a franchise requires more commitment of capital upfront, and you may have to pay the franchisee a monthly fee or a portion of your business profits.
3. Start your own vending machine business
This option requires the most thought about what kind of product you want to stock in your vending machine and which locations you want to target.
However, there is good upside potential if you can find a strong match between a solid location and a vending product that would have high demand in that location.
For example, if you discovered a popular health gym without a vending machine nearby, you could fill the need for healthy vending machine items like protein bars and potentially have a winning business on your hands.
Who can start a vending machine business?
Anyone can start a vending machine business. You do need some startup capital but one of the advantages of this type of business is that startup costs can be as low as $2K.
You are:
- Somebody who can work flexible hours: machines need to be checked and re-stocked periodically
- Someone who feels comfortable cold-contacting business owners to add a vending machine to their location
If this sounds like you, you may be the perfect candidate for starting a vending machine business.
Why should I start a vending machine business?
“I believe vending machine businesses are a good investment because it is fairly easy to get into and start. I think it's a great way to develop skills in starting/managing a business. I also like the potential of scalability and profitability.” - Parker Thompson, Vending machine owner.
The Pros of Starting a Vending Machine Business
Low maintenance
The income derived from your vending machine is passive, meaning the money is generated without you – the proprietor – being present.
What this means: once your vending machine contracts are secured (vendors and location), and the machine is installed and active, you spend very little time with customers.
The main responsibilities are to collect the money, restock the machine and deal with repairs – or hire somebody else to do that job.
Variety of options
There is an endless variety of options you can sell through your machines, from sugary drinks to healthy snack options, bulk candy, toys, or even electronics.
What this means: by thinking outside the box, you can take advantage of product trends and sell the items that will be most lucrative.
Since the start of the COVID-19 pandemic, for example, there have been vending machines that have popped up selling face masks instead of candy!
Low startup costs
Starting a vending machine business has low start-up costs between $3k-$10K for new machines, and under $3k for used or refurbished machines.
What this means: since plenty of vending machines do not require electricity to run, the cost of operating them is extremely low. Combined with the low purchase price of the machines themselves, your upfront costs are minimal.
For example, bulk vending machines that stock items like:
- Stickers
- Toys
- Plastic jewelry
- Loose candies and gum
– could cost as little as $50 for a refurbished machine. The quarters this machine collects can add up to as much as $30 a month or more depending on the location.
Flexibility as the boss
A vending machine business is the perfect side hustle for those who have the entrepreneurial drive to start a business but may already have another job.
Why?
- Maintain complete control to set and change your inventory
- Set your schedule for restocking and collecting the money from your machines
- Make side income without having to be physically present
Please note: This might not be the case if you purchased into a vending machine franchise, which would require you to use the scheduling and procedures laid out by the franchisee.
Control of your business growth
Since you’re the boss, you have complete control over your business’s scalability.
What this means: to reduce initial risk and costs, you can start off small and then slowly and steadily expand your vending machine empire.
The first vending machine you buy will give you experience and insight into where to launch a second vending machine. You can add additional machines as your business profits grow.
High success rate
According to the Automatic Merchandiser State of the Industry Report for June/July 2019, 2018 was a record-breaking year for vending machine operators, with average revenue growth of 7% over the previous year.
What this means: due to minimal staffing, lower technology costs, and lower distribution costs than larger companies, small vending companies (those with less than $1M revenue annually) enjoy higher profitability.
Cons of vending machine businesses
Let's face it – vending machines are not a perfect business, despite their many advantages. There are still common problems and issues that vending machine owners must face.
Profitability relies on scale
The amount you can earn from a single vending machine is limited – after all, only so many people are going to use it in a given time period. However, smaller vending machine operators enjoy higher relative profitability, according to this report.
Outside influences on decision-making
The first thing that often comes to mind when thinking of vending machines is those carrying sweet snacks and sodas, but the world is becoming more health-conscious.
Because of this, you might be required to pay special taxes on these “unhealthy” choices – and there are other similar external influences you will have to contend with.
Competition for prime locations
The trick to succeeding in the vending machine business is to place the machines in a great location where people (based on habits) are more likely to make a purchase.
Vending machines often do well in places that people congregate or where people will impulse-buy your vending stock.
Did you know? Statistically, places with higher percentages of manual labor workers will purchase twice as many vending machine products.
However, finding and securing a contract for a location is one of the more challenging aspects of starting a vending machine business.
There will always be competition for the best locations with good walk-through traffic.
Saturated market
Is the vending machine saturated? Not necessarily – but prime locations such as near the entrance of malls or in airports are already taken.
So, what now? A good idea is to investigate new areas being developed and commercial centers being built. Contact them with your proposal before anyone else can get in!
Step by step guide to starting your vending machine business
1.Choosing what to sell
You’ve decided to start a vending machine business and make it work, but what will you sell? Let’s take a look.
Current trends
“Figuring out what the next big trend is tells us what we should focus on.” - Mark Zuckerberg
When searching for product ideas, ask yourself:
- What are most vending machines selling right now?
- Do you have any ideas for products that you have seen in other vending machines?
- Are you going to follow the trend, or start a new one?
There is a definite opportunity to expand in the vending machine market with outside-the-box thinking. Think about potential non-conventional products that you could bring to vending machines.
Think about this: people will pay a premium for healthy options. Can you create a healthy (and attractive) alternative to sugary drinks and salty snacks?
Consider the novelty of new items in a vending machine. What would students on a University campus purchase on impulse, for example? What do office workers buy regularly?
Finding a new product to distribute also brings a slight competitive moat around your business. On a macro-scale, there is an overall trend of consumers picking more "niche" products.
Competition
Consider what other vending machines are selling. Can you sell that same product in a new area? Can you sell a competitive and more attractive product?
Flexibility
If your vending machine has a big picture of Pepsi on it, it might be more difficult to sell a variety of products from it.
Ask yourself: do you want to maintain flexibility going forward, or will you stick to one type of product?
Different kinds of stock
So, what are some different items you can stock and sell from a vending machine? Let's go over some of the common options.
Food & snacks
If you've ever been to an airport, you've probably studied all the rows and columns of snack options about a hundred times. Most people expect to see snack foods when they approach a vending machine.
Consider selling:
- Traditional crisps
- Chocolate bars
- Sandwiches
- Healthy snacks
- Protein bars
Candy / sweets
Candy sells. This is a great option because of the long shelf-life, but also because the demand for sweets exists – and there is a wide variety of confectionery to choose from!
Cold drinks
When people are thirsty, they want something cold – and they want it now. Think about where you can set up shop and sell cold drinks to busy people.
Hot drinks
Hot beverages are a staple of car dealerships, cafeterias, and ice rinks. You can sell hot chocolate, coffee, or even cappuccinos from your vending machine.
Tobacco
Vending machines selling cigarettes used to be quite common, but have declined in recent years due to low demand and legislation changes.
If you do want to sell tobacco, be sure to look into the legal ramifications you may face.
Games & toys
Often you see these types of vending machines in hotels or outside of malls – prime locations for stressed parents of demanding kids to make an impulse sale!
Electronic accessories
Phone charger accessories and earphones are notoriously easy to break, so you often see vending machines selling these types of accessories in airports.
These are very inexpensive to buy in bulk from wholesaling sites like AliBaba.com. What other electronic devices do you think could sell from a vending machine?
Facemasks
With facemasks being mandatory for the undetermined future, selling disposable facemasks is a lucrative option. Avoid making any medical claims about the effectiveness of your face masks.
Toiletries & hygiene products
These are often smaller vending machines installed inside bathrooms selling condoms, tampons, and/or makeup removers. These are all solid options for vending machines because they fill an immediate need from the consumer.
2. Choosing Where To Put Your Vending Machines
Where should you put your vending machines? That's the million-dollar question. In this section, we'll go over some key points about where you will find the best (and most profitable) locations.
“I usually won’t place a vending machine in an apartment building of less than 40–50 units. Whether it's to get change for doing laundry or just to buy a single snack or cold beverage rather than go to the store, sales are usually worthwhile.” - Brian Chung, CEO & Co-Founder of Alabaster
Popularity & foot traffic
Is there enough foot traffic to make your vending machine a profitable venture?
Why does it matter? A small office building won’t provide enough visitors to make it worthwhile – but outside a football stadium, there will be hundreds of people walking by multiple times a week.
The best way to evaluate foot traffic is to put on your detective hat and stake out the area. Watch how many people walk by, especially at the expected peak times.
Remember: peak times may be different from one area to the next. Think about the morning commute for people leaving a train station or evenings in a busy downtown area with lots of bars.
Competition
Just because you have hungry people walking by does not guarantee your venture will be a success. Take the time to consider what other options people might have. (Hint: less is better!)
Consider: stores and other potential vendors, like hot dog stand operators, or small convenience stores which could take away potential customers.
“The most important factor in making money with a vending machine is its location. Of course, you'll need a visually eye-catching display front, high-quality products at reasonable prices, and a maximum in order time, but if the machine is placed poorly, no one will ever buy. A bad place is one where there is no foot traffic and other company's machines compete for their attention. Cafes, diners, and restaurants, among other food service establishments, will cut into your earnings. Another thing to keep an eye on is the people who can use its peace of mind. People would be hesitant to stop at vending machines in poorly lit areas.” - Daniel Velez Vasquez
Relevance to product sold
Understanding who your ideal customer is and what their needs are is key to making a profit.
Ask yourself:
- Who is your customer?
- What do they want/need?
- What is occupying their thoughts?
- Where are they coming from?
- Where are they going?
The stronger the correlation is between your consumer and your product, the higher chance you have of making a sale.
For example: if you put a vending machine in a gym or yoga center, you wouldn't fill it with sugary snacks, but rather healthy protein bars or energy drinks.
Abiding by the local governance & law
Carefully consider the laws and regulations in your area. You cannot put a vending machine on public property without the proper paperwork and permission.
Remember: this is not something to take lightly, as legal ramifications can be both expensive and complicated.
There may be laws specific to what you can or cannot sell in a vending machine, like tobacco, for example. Certain products may require additional licenses.
3. Finding Your Location
Ready for an adventure? Now is the time to find the perfect location for your vending machine business.
Take note: the vending machine business is like real estate. Location is a critical component of your sales success.
Take the time to do your homework; scope out not only one location, but several. Remember that your location has to align with the products being sold in your vending machine.
The more foot traffic, the better!
Popular locations
Some common locations you will find vending machines are:
- Airports
- Malls
- Cafeterias
- Office buildings
- Subways
- Bathrooms
- Gyms
- Schools
- Hotels
This list is by no means exhaustive, but it should give you a starting point.
Hit the streets
A good way to find the perfect location is to walk around your local area. There is no substitute for discovering the area on foot – if you want to put yourself into the frame of mind of your potential customer, this is a must.
4. Securing a location for your vending machine
Once you have a lock on an ideal location, it's time to secure your location.
You’ll need to:
- Make a proposal
- Approach business owners
- Write the contract
Ready? Let’s get into it.
Make a proposal
You will want to frame your proposal in terms of how it can benefit the business owner. Included in the proposal and contract will be an amount in rent, or compensation (usually a percentage of the machine’s gross or net sales, depending on the contract).
Remember: if you can demonstrate the real, tangible benefits, and not just the features, you're more likely to secure your location.
Approach business owners
Starting a vending machine business will require you to reach out and speak to the location owners. It's very important to recognize this can be a long process, like a B2B sales cycle.
They may already have a deal with another vending machine proprietor, so it's important to nurture a relationship and reach out multiple times.
Some owners respond directly to cold calls, and other times you'll have to work your way through a gatekeeper.
Remember to:
- Be persistent and confident in the value of your vending machine
- Find out what the business owner likes and dislikes about their current deals
- Ask the owner what kinds of products they would like to offer
- Ask about the costs and commission they are earning from their current arrangement
If they already have a contract in place, be patient – you never know who may re-contact you in the future.
Finalizing the deal
When it comes to finalizing the deal, make sure to get everything in writing. It's prudent to have a lawyer draw up and review the paperwork.
Make the terms and payments clear and transparent, so that there are no surprises in the event that certain situations arise (see below).
Prepare a contract
Always use a contract. A contract protects both parties and helps make it clear what the responsibilities and are for each
Most contracts will include:
- The parties entering into the agreement
- The length of the agreement
- The type of machine(s) and products sold
- Location(s) of the machine(s)
- Compensation
- Responsibilities of parties related to machine damage, maintenance, and service
- Notification about machine failure
- Exclusivity provision (if applicable)
- Rights to add, remove, or replace machines
- A termination clause (for voiding the contract if there’s a breach of contract or the location proves to be unprofitable)
- The time period of the contract
- Contract termination terms in case of breach of contract or insufficient profits
- Types of vending machines and the products sold
- Rights in respect of replacing, increasing or decreasing the number of machines
Make sure you understand everything in the contract and are comfortable with the proposal.
5. Sourcing your stock
Now it's time to get a contract for the supplies you'll be selling in your vending machine.
When choosing your stock, keep in mind:
- Your buyer persona
- The local site-specific needs
- Buying low and selling high
The spread will be your gross profits. If you can secure your vending items for a lower cost, you have the potential to earn more money.
Wholesalers
You will want to buy your products wholesale, if possible. The best way to do this is to contact the company that creates the product directly.
For electronics and non-perishables: a good place to look is AliBaba. We recommend making a test order to make sure the quality is good. Most reputable merchants on AliBaba have a MOQ (Minimum Order Quantity).
For food items: buying in bulk is an option. Protein bars, for example, are sold individually at grocery stores, but they display them in their boxed package.
You can usually get a discount by contacting the store manager and asking what the price is per box. However, you may be able to get a better price by contacting the parent company directly.
6. Choosing the type of vending machine
There are 4 main types of vending machines:
Bulk vending machines
Bulk vending machines typically sell bulk goods, like loose candy, stickers, rubber balls, and toys (often in a circular plastic globe).
Food and beverage vending machines
Food and beverage vending machines sell snacks, drinks, or both. These are often filled with chips, chocolate bars, or soft drinks.
Did you know? These types of vending machines make up the bulk of the vending market share. In fact, beverages make up a third of all vending machine sales.
Specialty vending machines
These specialty items can include warm beverages, tobacco products, hygiene, and laundry products, as well as beauty products and electronics.
Hybrid machines
A hybrid type of vending machine is a gaming vending machine that gives out stuffed animals. For example, you may have seen vending machines where you can win a stuffed animal if you can grab it with a hook.
7. Getting your vending machines
There are several ways to obtain vending machines. These are the most common:
Leasing
Leasing can be a good option if you want to test out an idea for a vending machine without fully committing, as you simply rent the machine from someone else.
Keep in mind: like franchise situations, the leaser can be in profit even if you are not. You may have an agreement to pay the franchise a flat monthly fee, for example, but that plus the cost of goods sold could be more than you earn.
You may want to consider negotiating a deal that pays them a royalty based on your take-home profits.
Buying from manufacturers or wholesalers
When you buy a machine outright and settle your upfront costs, the machines are often brand new and are guaranteed to work. Most will also include a warranty in case it goes faulty.
Buying from secondary market sellers
You can source vending machines on secondary markets like eBay or Facebook Marketplace.
Remember: evaluate the condition of the used vending machine. You can ask questions like,
- Is everything in proper working order?
- Why is the vendor selling their machine?
- Is there a warranty to protect you from damages?
8. Choosing a business name
It's time to name your venture.
When deciding on a name, remember the name will represent your brand. You want it to be memorable, original, and relevant – something that sets you apart from other brands.
To ensure the name you are considering is not already taken by another business, be sure to:
- Conduct a name search online to see if any companies come up
- Make sure the domain name is available for making a website in the future
- Research the corporate names database and the business registries database in your country
9. The legal stuff
Type of business entity
When you enter into a vending machine business, you will need to decide on your business entity and comply with its legal and tax regulations.
The entity you choose will depend on who makes up your business, as well as what your needs and future goals are.
Partnership
Partnerships consist of 2 or more people who enter into business with one another.
The pros: This entity is popular, as partnerships are relatively inexpensive to start. Quick decisions can be made in terms of the direction the business should take.
The cons: Partners must assume liability for business debts and obligations, meaning that creditors can seize not only the business assets but also the partners' personal assets.
Tips: To avoid losing assets, some entrepreneurs establish a limited partnership so that limited partners are only liable for the amount of their financial investment in the business.
In any partnership, it is advised that a partnership agreement be drawn up to clearly define what each partner is responsible for.
The partnership does not have a separate tax return but each partner reports the profit and losses of the business on their individual tax return.
Sole Proprietorship
The Sole Proprietorship is owned by one person or a married couple. This is not a formal business entity.
The pros: Sole Proprietors have control over the business and receive all profits from their operations. Startup costs are low, and it’s easy to change to a different legal structure later on.
The cons: In this setup, the sole proprietorship is the same legal entity as the business and the individual is responsible and liable for all debts.
Tips: When entrepreneurs first get started, they often begin as a sole proprietorship and then switch to a formal business entity later.
Limited Liability Company (LLC)
A Limited Liability Company (LLC) is a mix between a partnership and a corporation.
Unlike a corporation, the LLC’s owners are not liable for the business’s debts but share some of the characteristics of a corporation.
C Corporation
C Corporations are considered separate entities from their owners and complete their own tax returns.
The pros: Corporations pay a lower tax rate, which is great for business owners who plan to keep reinvesting the profits back into the business.
C Corporations also provide risk and liability mitigation for their owners as they are regarded as separate entities.
The cons: While C Corporations have a lower tax rate, they often have to pay other fees and fill in more paperwork to stay in operation.
Tips: Ensure that you read up on all of the legislation and rules relevant to your area, as C Corporations can have complicated regulations to follow.
S Corporation
Some businesses choose to register as an S Corporation. Unlike a C Corporation, this business entity avoids double taxation by having the company’s profits and losses flow to the shareholder’s personal tax returns.
Registering your new business
Once you have decided on the business entity, it is time to register your new business.
Obtain an EIN
Corporations, LLCs, and businesses with employees need to register for an Employer Identification Number (EIN).
EINs are also referred to as Federal Tax ID Numbers. If a business changes its business entity in the future, a new EIN is required.
Set up a business bank account
Setting up a business bank account is good business practice.
Why?
- Having a separate bank account makes for much easier accounting come tax time
- Keeps all business finances properly accounted for – crucial when using a corporate business entity
- Helps you to manage your business finances and assess the health of your business
Important to note: Commingled financing puts your personal assets at risk, as you will lose your liability protection. It’s best to keep business finances separate from your own.
Business license and permits
As with any business venture, it is critical that you are aware of all the rules and regulations and obtain the proper business license and permits. You will need to contact your local authorities to determine which permits you require.
Keeping On Top of Taxes
No matter what type of business entity you are, it is your responsibility as the business owner to keep the proper books for tax purposes.
Keep records of:
- Any purchases for the business
- Receipts and invoices
- Mileage when re-stocking or servicing your vending machines
10. Installing your vending machine
Next, you will need to figure out how to get your vending machine to the desired location and install it.
Consider:
- Will the seller of the vending machine deliver and install it for you?
- Are you going to hire a moving company to move it?
- How and when will you stock it?
Top tip: Fill the machine to capacity and monitor it carefully during the first week to see which stock is selling the most. This will allow you to plan with your wholesalers on when you place your next orders for more stock.
11. Expanding your vending machine business
So, you bought a vending machine and it's a success. That’s excellent! What comes next?
Well... why not buy a second vending machine with the profits from your first business, and expand into a similar market?
The first one is the hardest, so once you have managed one, adding a second will be much easier this time around.
Good luck! You’re on your way to a lucrative stream of side income.
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