Biz Flash: What to Know Before Starting a Vending Machine Business
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“One of the main issues is mechanical problems. There’s a consistent stream of small things to fix, and not a ton of help when you get an error code that just says 200. Being able to fix things on the fly is super handy.”
Trevor Kaak, Founder of Atlas Unchained Business Development
Vending machines are a pretty big business. According to Allied Market Research, in 2022, the global vending machine industry was valued at $18.3 billion and is expected to grow to $37.2 billion by 2032. Starting a vending machine business can seem lucrative for many entrepreneurs looking for a low barrier to entry business with strong growth potential.
In recent years there has been a significant technology shift in many vending machines with added card readers and even machines that offer soft serve ice cream, hot pizza, or cupcakes. “The vending machine industry is in flux with all the new technology available now. So while you see mostly drink and snack machines, there is more product variety and different kinds of niche machines,” says Travis Kaak, entrepreneur and vending machine owner.
He continues, “There is quite a shift in operations on these machines now with integrated software. There are more and more cashless transactions and even contactless transactions where you can order from your phone with a QR code. There is also inventory management software that makes it much much easier to manage what is in your machine without guessing or having to go check out.”
On average, a traditional vending machine earns around $35 per week, although some machines make as much as $100 or more weekly. While there are significant start-up costs, vending machines are an adaptable business: “They are a fantastic hedge against inflation. When the prices of goods go up, you can increase your prices too,” shares Kaak.
However, like with any business, there are a few things to know before starting this venture: “You have to be able to troubleshoot and fix things on the fly. You also need good business acumen and know what you’re getting into. You will want good customer service skills when working with your clients. Also, you need sales and marketing skills. It’s a hustle, and you’ve really got to grind and talk to a lot of people until someone says, ‘Yes,’” says Kaak.
Keep reading to learn the top things Kaak has learned from running his own vending machine business.
Meet The Expert: Trevor Kaak
Trevor Kaak is the founder of Atlas Unchained Business Development. Through this company, he advises small businesses to develop growth strategies that will lead them to success. He has a passion for redefining the business landscape, innovation, and putting vision into action.
In 2022, he started his own vending machine business with his sister and has learned many lessons along the way. He has found vending machines to be an interesting venture that is consistent and has a lot of underutilized opportunities. Beyond business, he’s a believer in making a positive impact.
Types of Vending Machines
When starting a vending machine business, one of the first decisions is the kind of machine to buy.
While there are standard options like drink and snack machines, there are lots of other options available. Vending machines can sell everything from hot coffee to soup, salad, beauty products, and electronics. The type of machine an entrepreneur picks and what goes in it will depend on who their customer base may be. “We look at incorporating not just snacks in our snack machine. We stock a variety of products depending on the location. For a gym, we might do towels, workout mats, sanitizer, or other things you need for a workout,” shares Kaak.
There are even some machines that don’t require inventory: “One machine that interests me right now is an ice machine. You don’t have to manage any inventory. Sure, you have a much lower market during the winter, but since you are not paying for product, I don’t think that would be too bad,” he says.
Startup Costs
Once the kind of machine is selected, the next hurdle is the startup costs: “Your machine is definitely going to be your biggest outright expense. Depending on the machine you’re looking at, the price can range from $500 to $1,500 or more if you’re looking for brand new machines with high-end technology,” shares Kaak. Some brand-new custom vending machines can cost upwards of $200,000, depending on the engineering required to build it. However, most people new to the vending machine business start out with simple, affordable, used machines.
In addition to the machine, there are other start-up costs. “You will have to pay to register your business in your state and any cities that you operate in,” advises Kaak. “You don’t want to start with an empty machine so you will need to budget for your initial inventory. Another thing to account in start-up costs is for the equipment that you’re going to use on a day-to-day basis to service the machines. You might need a cart to carry the drinks and a small truck for hauling things. For moving the machines we got a big vending machine dolly which can balance the machine and makes it easier to move things around. You do have to rent a flatbed truck when moving machines from location to location.”
Location, Location, Location!
Vending machines are only successful if they are well-placed: “Locations are going to make or break the machine. The bigger the audience that you can have, the better. We generally look more at the businesses or industrial locations that have at least 50 employees and get good traffic,” shared Kaak. “We want it to be in front of customers and not just in the break room. You want it to be as visible and accessible as possible.”
Securing a location takes a lot of work. Vending machine owners will need to reach out to businesses and negotiate terms. “To secure a location, there are a number of ways to go about it. The most effective way I have found is just door-knocking. Going to an industrial area and knocking on all the businesses, taking a flier, or talking to them directly has been the best strategy. You can target different niche areas, for example, gyms. Look up all the gyms in your area and go visit them. I’ve found that in person has a better conversion rate than just calling,” Kaak advises.
For some, having a signed contract is critical, but Kaak hasn’t found it to be necessary. “All of our locations don’t have an official contract to place them. It’s just a verbal agreement with the owners or manager on site. We found that a great number of others do that as well, as it’s easier than trying to get a business to formally sign a contract,” he says. “Most of the time, there aren’t any fees. It’s just a perk for their employees and customers.”
However, some businesses may charge a flat fee or even a percentage of sales. It all just depends on what the business needs are and how well you can negotiate.
Inventory Management
Once a vending machine is placed, the next hurdle is managing the inventory inside the machine. Historically, owners only know what needs to be replaced by visiting their machines and seeing what has sold. They also can’t tell if products are sitting in the machine for a long time and expiring without physically seeing the machine.
However, there are now technology solutions that can be integrated to help owners see what is selling and what isn’t: “There are card readers that can integrate with tools like Nayax that provide inventory management on the backend now, which makes it much much easier,” says Kaak. “Otherwise, using a spreadsheet to document and track your sales is important. Then you know what’s selling or not.”
Vending machine business owners are responsible for buying and stocking all of their own products. “Sam’s Club or Costco are the main two hubs for most vending distributors. You don’t generally need to go wholesale on anything unless you really have a large route. You have to worry about things expiring if you buy too much at once,” says Kaak. “Otherwise, keep an eye on the local grocery stores for the deals going on.”
Margins
Typically, each product in a vending machine can have its own price. To make a vending machine profitable, owners need to ensure they are getting sufficient margins. “Generally, I’m looking for at least a 50 percent profit margin on anything I sell. Even if we’re selling a coke for $1.75, most of the time, the gas station across the street is selling for $2.00, so I don’t feel too bad,” says Kaak.
“Some things I sell will be lower margins, maybe closer to 30 percent. You have to test the water a little bit and see what sells and what doesn’t. Then you drop those lower-selling, lower-profit items in favor of the things that move.”
Other Challenges & Closing Thoughts
Maintenance is one problem many entrepreneurs may not consider when purchasing a vending machine: “One of the main issues is mechanical problems. There’s a consistent stream of small things to fix, and not a ton of help when you get an error code that just says 200. Being able to fix things on the fly is super handy. You want to be able to troubleshoot because any days that you have to leave it down is lost sales and unhappy people,” says Kaak. “Cans get stuck, or small wires need to be fixed. You have to be able to figure it out.”
Another challenge to vending machine ownership can be the seasonality: “You’ll have slow seasons. Often that’s a good time to figure out a different variety of products. Maybe be more product-oriented and less food,” Kaak suggests.
