Vending Machine Business: A Step-by-Step Guide to an Actually Profitable Side Hustle
The perfect side hustle. It's what every entrepreneur is searching for, the question is does it even exist?
But this is a pretty good option for someone wanting to earn steady cash with flexible hours.
Find out how you can become a vending machine mogul...
What Is A Vending Machine Business?
Simply put, a vending machine business is where you own or rent a vending machine and place them in ideal locations. Customers, who are in the area, have the option to purchase a variety of goods from your vending machine without you, the proprietor, ever being present.
When researching the profitability of a vending machine business, some may be surprised to learn that the vending machine industry in the US produces over 23 billion dollars in annual sales. Because of the profitability, low start-up costs, versatility, and hands-off nature of the business, vending has become an enticing business model for entrepreneurs looking for their next business investment.
This article will show you how to start a vending machine business and more importantly, how to choose the right type of vending machine business for you.
Getting Started: Types of Vending Machine Businesses
If you are looking to invest in a vending machine business there are 3 main types of business models to choose from:
1. Buy An Existing Vending Machine Business
The first option is to 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.
That said, it is extremely important to do your due diligence. Prior to buying, you want to understand why the owner is selling. Make sure to get some hard numbers on the costs and profitability of the current business. Find out what the status is on location and supplier contracts, which may or may not be expiring. Lastly, take some time to make sure the machines are in good working order and are functioning well.
The main advantage of buying an existing vending business is you’d have a business that is already generating sales. Also, keep in mind that much like real estate, location is incredibly important in the vending machine business, so you may be stepping into some prime areas.
2. Buy A Vending Machine Franchise
Another option is to 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. This means that you start with a clear framework from day one. Typically, you would need to attend a training session(s) that teaches you the procedures of every step of the process outlined by the franchise owner.
Buying a franchise would require more commitment of capital upfront. This would be similar to purchasing a fleet of vending machines.
The advantage of buying into a franchise is that you inherit the operational procedures of an already existing business, which help make the business turnkey.
However, there are often significant up-front costs associated with buying a franchise and additionally, you may have to pay the franchisee a monthly fee or a portion of your business profits.
It's important to have the legal paperwork reviewed carefully whenever you are buying a franchise opportunity. The franchisee will typically have strict rules and standards of procedures that would need to be followed exactly, which might take away from the freedom that a vending machine business could allow for. Some of these restrictions could include where you get your machines and products.
3. Start Your Own Vending Machine Business
The last option to consider is to start your own vending machine business. This requires the most thought about what kind of product you want to stock in your vending machine and which locations you want to target.
But 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.
A good candidate for a vending machine business is somebody who can work flexible hours: machines need to be checked and re-stocked periodically. Since finding the correct location is important, you should also feel comfortable cold-contacting business owners and selling them on the benefits of adding a vending machine to their location.
Why Should I Start A Vending Machine Business?
Vending machines are a profitable business. In 2018 vending machines brought in 30.20 billion dollars and between 2019-2025 the industry is expecting a 9.4% compound growth.
With many advantages to starting this type of business, from low start-up costs, profitability and flexibility, let’s explore the pros and cons of 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
One of the most desirable aspects of starting a vending machine business is the concept of low maintenance. The income derived from your vending machine is passive, meaning the money is generated without you, the proprietor, being present.
Once your vending machine contracts are secured (vendors and location), and the machine is installed and active, you have created a passive source of income. This means you spend very little time with customers and more flexibility in terms of scheduling for you, the owner.
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
Vending machines offer a wide variety of options - perhaps more so than just at first glance. There is an endless variety of options you can sell from sugary drinks to healthy snack options, bulk candy, toys or even electronics.
In fact, some of the greatest opportunities are outside the box thinking. Since the start of the COVID-19 pandemic, there have been vending machines that have popped up selling face masks, for example.
This is a good example of the business truism that opportunity is everywhere: you just need to look for it. The increased regulations mandating face masks, and the increased customer demand for disposable face masks have created an opportunity for savvy entrepreneurs to step in and supply this through vending machines.
The vending machine industry definitely has room to expand with more creative options.
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.
There is a wide variety of levels of machines, from simple turnkey gumball dispensers to standard variety snack dispensers, and go up in complexity to high-tech vending machines that can provide instant access to hot or cold food.
For example, bulk vending machines that stock items like:
- Plastic jewellery
- Loose candies and gum...
...could cost as little as $50 for a refurbished machine and since these machines don’t require electricity to run, the operational cost is extremely low. The numerous quarters this machine collects can add up to as much as $30 a month or more depending on the location.
This in itself can be very appealing to many entrepreneurs who want a physical business but without breaking the bank.
Flexibility as the Boss
A vending machine business is the perfect side hustle, perfect for somebody that has the entrepreneurial drive to start a business but may already have another job
Not only do you have complete control to set and change your inventory, but you set your schedule for restocking and collecting the money from your machines.
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 the businesses scalability. You can start small to reduce initial risk and costs, and you can 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. This is an attractive aspect of starting a vending machine business for many entrepreneurs.
High Success Rate
Vending machines have a 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 year before.
While mega-vending companies generated the majority (65.2%) of the industry’s revenue in 2018, the report shared that small vending companies (those with less than $1M revenue annually) enjoyed higher profitability. The report attributes that to minimal staffing and lower technology costs to handle their customer base and number of locations, compared to what larger companies spend.
Cons of Vending Machine Businesses
With all the great aspects of starting a vending machine business, let's face it, vending machines are not a perfect business. Nothing is. So let's look at some of the common problems and issues that can plague vending machine owners.
Profitability Relies On Scale
The amount you can earn from a single vending machine in a single location is limited. There are only so many people that 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
Outside influences can play a part in your vending machine business and how you proceed. For example, the first thing that often comes to mind when thinking of vending machines is those carrying sweet snacks and sodas. With the world becoming more health-conscious, as the owner of the vending machine business, you might be required to pay special taxes on these “unhealthier” choices.
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. Possible locations are the following:
- Shopping malls
- Grocery stores
- Doctors offices
- Hospitals and health centres
- Apartment buildings
- Hotels and motels
- Schools (elementary, secondary)
- Gyms/Sport Facilities
- Airports, train and bus stations
- Manufacturing facilities and workplaces
Statistically, places with higher percentages of blue-collar workers will purchase twice as many vending machine products. Blue-collar workers are those who typically perform manual labour, like plumbers or construction workers.
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.
Is the vending machine saturated? No, but you are probably used to seeing vending machines near the entrance of malls or in airports. These prime spots are already taken. So often, you would need to find new areas, or displace existing vending machine locations.
A good idea is to think of new areas being developed and new commercial centres being built - and look to contact them first with your proposal.
Step By Step Guide to Starting Your Vending Machine Business
1.Choosing What You Will Sell
You’ve decided to start a vending machine business and make it work, but what will you sell? What products would be the most profitable?
“Figuring out what the next big trend is tells us what we should focus on.” - Mark Zuckerberg
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? Is it a good idea to follow the trend or start a new trend?
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. For example, people will pay (and possibly at a premium) for healthy options. Can you create a healthy alternative that may be more attractive to people who might not want 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.
Consider what other vending machines are selling. Can you sell that same product in a new area or can you sell a competitive and more attractive product?
Consider your flexibility going forward. 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. Do you want to build in that flexibility going forward or 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 and snacks are what first comes to mind for many people. If you've ever been in an airport, you've probably studied all the rows and columns of snack options about a hundred times.
Consider the traditional crisps, chocolate bars, and also the less-traditional options such as healthy snacks and 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. There is a wide variety of confectionary you can sell from a vending machine. Candy is common in the bulk-type vending machines.
Cold beverages have been a staple of vending machines and with good reason. When people are thirsty, they want something cold and something now. Think about where you can set up shop and sell cold drinks to thirsty people.
Hot beverages are a staple of car dealerships, cafeterias, ice rinks. You can sell hot chocolate, coffee or even cappuccinos from your vending machine. Some ice rinks may not find it profitable to have a staffed canteen and may be interested in a vending machine solution.
Tobacco is another option to consider. Vending machines selling cigarettes used to be quite common, but have declined in recent years due to a drop in the number of smokers and legislation that surrounds selling tobacco and tobacco-related products.
If you do want to sell tobacco, be sure to look into the legal ramifications of a tobacco vending machine.
Games & Toys
Often you see these types of vending machines in hotels or outside of malls - in prime locations for stressed parents and demanding kids to combine and make an impulse sale.
Phone charger accessories and earphones are notoriously easy to break. That's why 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?
With facemasks being mandatory for the undetermined future, selling disposable facemasks is an option. You can sell nice designs or a variety of different styles of facemasks. Be sure to not make medical claims about the effectiveness of your face masks.
Toiletries and Hygiene Products
These are often smaller vending machines installed inside bathrooms selling condoms or tampons, or even 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
Location. 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 and Foot Traffic
One of the most significant elements to consider is whether or not there is enough foot traffic to make your vending machine a profitable venture?
A small office building could not provide enough visitors to make it worthwhile, but a prime location outside a football stadium could have 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 and watch how many people walk by - especially at the expected peak times.
Peak times could be different for different areas. Think about the morning commute for people leaving a train station or evenings in a busy downtown area with lots of bars.
Consider the competition in the area - and not only other vending machines. You need to consider stores and other potential vendors, like hot dog stand operators, or small convenience stores which could take away potential customers.
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!)
“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
Don't neglect to think about the relevance of your vending machine items in relation to your ideal customer.
It's always good business practice to create a buyer persona.
Understanding who your ideal customer is and what their needs are is key to making a profit. So you need to 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?
For example, if you put a vending machine in a gym or yoga centre, you wouldn't want to fill it with sugary snacks. You would do far better with energizing products like protein bars, or energy drinks.
The stronger the correlation is, the higher chance you have of making a sale.
Abiding By the Local Governance and Law
It's very important that you carefully consider the laws and regulations in your area. You cannot put a vending machine on public property without the proper paperwork and permissions.
This is not something to take lightly.
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. The vending machine business is like real estate - location is critical as it is a huge 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 and the more foot traffic, the better.
Some common locations you will find vending machines are: airports, malls, truck stops, cafeteria, office buildings, subways, bathrooms, gyms, schools, and hotels.
This list is by no means exhaustive but should give you a starting point.
Hit the Streets
A good way to find the perfect location is to take a walk. Walk around your local area to find good locations. 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.
It's worth it to spend time in your customer's shoes.
4. Securing a Location for your Vending Machine
Once you have a lock on an ideal location, it's time to secure your location. In this section, we are going to discuss how to make a proposal, approach business owners and write the contract in order to finalize the deal for your vending machine’s location.
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.)
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.
Be persistent and confident in the value your vending machine would bring to that location, and continue to follow up.
Try to find out what they like and don't like about a current vending machine relationship.
Ask them what kinds of products they would like to offer to the people in the area and ask about the cost and commission they are earning with their current situation.
You may have to be patient if they already have a contract in place.
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
Usually, vending machine contracts will include the following points:
- 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)
- 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)
- Time period of the contract
- Contract termination terms in case of breach of contract or vending machines generating no 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 not only your buyer persona but also what the local, site-specific needs are.
Other things to keep in mind are, to buy low and sell higher. 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.
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 at 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 usually 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. 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 (source: just business article)
Speciality vending machines
These speciality items can include warm beverages, tobacco products, hygiene and laundry products as well as beauty products like lipstick and blush powders and electronics.
A hybrid type of vending machine is a gaming vending machine that gives out stuffed animals, for example, you may have seen those vending machines where you play a game and have the ability to win a stuffed animal if you can grab it with a hook. You can find many of these in malls or rest stops.
7. Getting your vending machines
There are several ways to obtain vending machines. These are the most common:
Leasing is when you essentially rent the vending machine from somebody else. This can be a good option if you want to test out an idea for a vending machine.
Keep in mind that like franchise situations, the leasee 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 and 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
This is where you buy a machine outright and you can settle your upfront costs. The benefit is that 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. When purchasing a used vending machine, be sure to evaluate the condition of the machine and make sure everything is in proper working order.
It's also important to ask why the vendor is selling their machine. Ask if there is a warranty that protects you.
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 and so choosing an original name is best. You want the name to set it apart from your competition.
Another important point to consider is the relevance to your business name in relation to your business dealings.
To ensure the name you are considering is not already taken by another business, be sure to conduct a name search.
The first thing is to do a search on the internet and see if any companies come up. When picking a name, it’s always a good idea to see if the domain name is available. But even if you don’t find anything, consider researching 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. The business entity you choose is important since you will need to comply with its legal and tax regulations.
Below are the various entities that you can choose from depending who makes up your business, and what your needs and future goals are for your business.
Partnerships are one of the most popular types of business entities. Partnerships consist of 2 or more people who enter into business with one another and are relatively inexpensive to start.
In any partnership, it is advised that a partnership agreement be drawn up to clearly define what each partner is responsible for.
In a partnership, quick decisions can be made in terms of the direction the business should take.
In terms of tax purposes, 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.
The main negative aspect of a general partnership is the liability that partners must assume for business debts and obligations. This means creditors can seize not only the business assets but also partners' personal assets.
To avoid this risk, some entrepreneurs establish a limited partnership. General partners still carry personal liability but limited partners are only liable for the amount of their financial investment in the business.
The Sole Proprietorship is owned by one person or a married couple. This is not a formal business entity and in this setup, the business debts flow through to the individual. The sole proprietorship is the same legal entity as the business and the individual is responsible for the debts.
Unless you file paperwork stating otherwise, all single owner businesses are deemed to be sole proprietorships.
Sole proprietors are paid when they withdraw funds out of the business for their personal use.
When entrepreneurs first get started, they often start as a sole proprietorship. It is common practice for entrepreneurs to start as Sole Proprietors and once their businesses begin to grow, they eventually form a formal business entity.
Limited Liability Company (LLC)
A Limited Liability Company (LLC) is a business structure that is a hybrid of a partnership and a corporation.
Unlike a corporation, the LLC’s owners are not liable for the businesses debts but share some of the characteristics of a corporation.
C Corporations are considered separate entities from their owners and complete their own tax return.
Corporations pay a lower tax rate which is favoured by business owners whose plan is to keep reinvesting the profits back into the business.
C Corporations provide risk and liability mitigation for their owners as they are regarded as separate entities.
Regarded as a formal business structure, Corporations also have a better chance at securing capital, and are often seen as more professional than other types of business structures.
Some businesses choose to register as an S 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, LLC’s and any business with employees need to register for an Employer Identification Number (EIN).
EINs are also referred to as Federal Tax ID Numbers. If in the future, a business changes its business entity, a new EIN is required.
Set Up A Business Bank Account
Setting up a business bank account is good business practice.
Having a separate bank account makes for much easier accounting come tax time, and it keeps all business finances properly accounted for. This is even more crucial when using a corporate business entity. Since corporations and their owners are separate, should finances be co-mingled, the protection that one has as a corporation (no personal liability) can be jeopardized and their personal assets be at risk.
Other reasons to have a dedicated business bank account is that it helps you to manage your business financials, and helps you assess the health of your business.
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
Of course, 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.
Make sure to keep records of any purchases for the business along with receipts and invoices, and also keep track of your mileage when re-stocking or servicing your vending machines.
10. Installing Your Vending Machine
Don't forget about installing your vending machine. You will want to consider how to get your vending machine to the desired location and installed.
Will the seller of the vending machine deliver and install it for you?
Are you going to hire a moving company to move it?
And don't forget the stock. You will want to 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 did it! You bought a vending machine and it's a success. What next?
You can 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.
One of the nice things about a vending machine business is that most of the hard work is done up-front. Once you have your location and a system for replenishing supplies, you have a semi-automated business.
So the next step is to scale up with a second vending machine or more.