What You Must Know About Vending Businesses

By DonShook

From an online marketer’s perspective, owning a vending machine business is not ideally suited for automation or scalability.

However, vending machines are big business. But this does not mean a vending machine business is right for you.

I know the appeal this business model has on people because I’ve “been there, done that.” Please, if you’re thinking about getting involved with vending, read this article first, and go in with your eyes wide open.

Aside from the obvious questions about machine price and delivery, here are 3 questions you must ask yourself and the person trying to sell you either vending machines or a vending machine business opportunity:

1. What is the mean time between failure for your machines?

You probably won’t ask the question quite like that, but the point is, you need to know how much it is going to cost to keep your machines operational and reliable. You may also want to consider whether or not you have the mechanical skills to do the maintenance yourself.

In my experience, some of the machines, and especially the currency acceptance devices, can be very difficult and expensive to repair. One piece of gum jammed in a coin receptacle could theoretically put your $5,000 in the back of the shop, out of order.

2. What type of products will I be able to sell with your machines, and will any of them require that I maintain a food service permit?

Amazingly, many potential vending entrepreneurs fail to consider this, and find themselves retrofitting their home warehouse to meet food service standards.

Also, in the section below I discuss the categories of vending products that sell the best. Hopefully, your machines will be able to market these.

3. Where can I put my machines? And, if the machines are already in place, how long can they stay there?

Perhaps the most critical point in this business is the placement of your machines in high traffic areas. Sadly, as a vending machine business owner, you will be faced with strong resistance in this area. After all, what’s in it for the property owner to allow your machines on his or her premises?

You may find yourself having to share profits with the property owner in order to place your machines.

The vending industry accounts for over $45 billion in annual sales volume, which is a substantial chunk of money. Very briefly, here are the key factors to success in this business:

1. Ability to buy and maintain quality machinery

2. Placement of your machines in high traffic areas

3. Control of employee costs

According to the Bureau of Labor Statistics, about 44,000 people work in the vending machine industry, with about 18% of those owning their own vending business, and a projected growth rate of 7% per year. At one time I was both an employee of a vending company and the owner of my own vending company.

In this exclusive report, I will discuss my personal experiences in the vending machine business, a few caveats you should consider prior to getting started, an overview of your potential to make money with vending machines, and a look at the current market and possible websites you can investigate further.

My Personal Experience

As an employee of a vending company I had a regular route where I serviced about 100 food and beverage machines. On any day I would normally have to deal with machine maintenance issues, customer refunds, expired food, and being asked to get my machines off the property, that day.

As an employee I took all of this in stride. It was just a job.

Several years later I decided to buy an existing vending machine business. I then learned just how hard it was to get machines placed in profitable locations. I also found out how expensive those “little” maintenance issues were. For example, to replace a dollar changer was going to cost me several thousand dollars. The sales at that particular location did not warrant that kind of expense, so I had to pull two snack machines and one drink machine to allow another vendor to come in.

I also dealt with vandalism on numerous occasions. At one time I got a call from my local airport where I had placed a phone card machine. I was informed that my machine had been broken into. I lost over $300 in inventory and about $100 in cash in that one incident.

Challenges To Success

There are essentially six challenges you will face in your drive to make money with a vending machine business:

1. Getting your machines placed in profitable locations

2. Maintaining and servicing your machines

3. Loss of product due to theft and spoilage

4. Labor and vehicle expenses associated with servicing machines spread around town

5. Liability issues related to machines and food products

6. Vandalism of machines

If you can generate enough profitable sales to cover these expenses, plus the value of your time, effort, and capital risk, then the vending machine business may be right for you. Keep in mind that there are companies that specialize in locating and servicing your machines, but their fees may not be realistic based on your projected sales and profits.

Making A Decision

I’m sorry I may sound a bit negative about the vending business, but believe me, I speak from hands on experience as both an employee and owner in this industry.

The idea of making money from your little profit centers spread all over town sounds great–but reality bites.

Do some solid research in this business before you jump in. At the very least, go to work for a vending company for a while and see what’s involved.

Vending Machine Statistics in U.S.

The sale of cold beverages represents over half of all vending machine sales, followed by non-refrigerated snacks.

Interestingly, while cold beverages sold in containers, such as bottles and cans, rank well in the industry, the “cup-drop” variety of cold beverages does not do nearly so well. In my experience, cup-drop machines may pose significant maintenance challenges, these machines are also fairly scorned by the consumer.

Within the cold beverage arena, vendors typically choose either a closed front, or glass front machine. The closed front currently dominates the market, but the glass front is gaining in popularity as the glass front allows the consumer to see the product, which in itself aids in the marketing of beverages.

Among cold beverages, soft drinks account for about half of all sales, with diet drinks coming in second. There is also a growing trend for marketing bottled water and energy drinks.

Within the snack category, rolled candy and gum represent only a fraction of the overall market, with candy bars and bagged pastries leading the way. Keep this in mind when you look at snack machines.

You want a machine that can handle the bestselling product categories. If you commit to a machine that only allows gum, or small rolled candy, you may be limiting yourself.

Of note, the hot selling bagged pastries and chips typically require dispensers specifically designed for those package sizes. Again, this was a mistake I made when purchasing snack machines, and found myself sorry that I was not able to offer more variety to my customers.

While it is hard to quantify, I am sure there were many missed sales opportunities as a result.

It should also be noted that a snack machine should almost certainly have a glass front. The customer’s ability to see the product is essential in this category.

Should You Hire Employees?

According to the U.S. Census Bureau, the majority of vending machine firms retain employees, with some of the larger ones having as many as 66,000 employees. Ideally, you would want to start your vending company without employees, and hire route service people as your machine placements and profitability grow.

As an employer, let me expand on why it so important to carefully manage the hiring and retention of employees in your small business.

If you want to make money and eventually attempt to allow employees to manage the bulk of the day to day activity in your business, keep in mind that vending machine employers often pay near minimum wage to its employees, which means you will have a high turnover of employees. Additionally, keep in mind that your employer costs will represent between 22-25% of base wage expenses.

For example, if you pay an employee $10 per hour, your true cost will be around 10×1.25 = $12.50 per hour. Given an 8 hour shift, you would need to realize $100 in profit from your sales to breakeven with this one employee.

In my experience, I was able to sale my products with a typical 25% mark up, with between 2-5% in product loss due to theft and spoilage.

That means you would have to sell over $400 in product to breakeven on your employee costs for that day.

Additionally, costs not even considered here are the expenses associated with operating a truck driving around town for hours each day.

Is it any wonder that some vending company owners choose not to hire employees?

Additionally, you need to think about the health care and insurance implications associated with hiring employees.

Law Of Large Numbers: 3 Ways to Make More Money

The Law of Large Numbers basically states that success in any endeavor is directly related to the number of trials and failures. This is particularly true in the area of small business, especially the vending machine business.

In any business there are ratios, percentages, and customer conversion rates that impact how that business is operated, and its profit potential.

Operating a profitable vending machine business is no different, so, knowing the numbers that govern your success is critical, and comes back to what I call The Law of Large Numbers.

Here are three suggestions for applying this law to your vending machine business…

1. Find Your True Sales Conversion Rate

Understand that success requires a much larger number of trials and failures than you may realize. For example, some marketing programs will tell you that their product offer converts to a sale for every 20 people who pass their machine.

However, in reality, your experience may suggest it actually takes up to 100 visitors to generate a sale.

Knowing that conversion rate is important, and although sometimes it may prove difficult to accept, knowing the truth is the only way to stay motivated and progress in the vending machine business. Do not accept assumptions or marketing sales pitch data when you are attempting to buy into the vending business, add machines, or chose locations for your machines.

Much of this data will come from experience, but you can also conduct research online using government vending association websites. One word of warning: Do not accept the sales figures and profit potential published by the manufacturers or suppliers of vending machines. Obviously, they are in the business of selling machines, and their data and survey results may tend to over state the profit potential.

If you purchase a vending machine and expect to get the results a vending machine supplier advertises, you may be disappointed.

2. Know Your Costs and Profit Margins

If it takes an average of 20 visitors to your product offer to make a sale, is the profit potential worth the effort, time, and expense to place and service a machine in that location? For example, if you place a machine in a factory that employs 500 people, you may be able to expect around 25 product sales per day. If each product offers a 50 cent gross profit after wholesale product prices and location fees are considered, is the $12.50 in profits for this machine worthwhile?

It may or may not be, depending on your other costs, including employee expenses, number of times per week the machine requires servicing, and your return on the investment in the machine.

These are important numbers to consider before investing in the vending machine business. If you don’t have a clue what these numbers are, you may not be ready to take the plunge.

3. Put Your Marketing Into High Gear

Finally, if the conversion rate, costs, and profit margins are acceptable, you should consider ramping up your marketing efforts to the maximum sustainable rate to capitalize on the profit potential.

For example, if you could consistently make a profit off of one machine, after all expenses are factored in, what would happen if you had 10 machines placed in comparable locations? The answer lies in the Law of Large Numbers. As long as it remains profitable to do so, add machines and grow your business.

Final Thoughts on Vending

I’ve come down pretty hard on vending in this article, but the point I’m trying to make here is that just because a business industry has potential, or built-in consumer demand, does make it an automatic winner for you.

In any business endeavor you pursue, act like a pro:

1. Keep an open mind.

2. Do you due diligence.

3. Decide if the business is right for you or not.

4. Take massive action.

Bonus Tip – Never let a challenge keep you from your future. Take action today to make something great happen.

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