How to Start Your Vending Machine Business
If you’ve spent some time exploring different business ideas that enable you to generate a passive income, you may have come across the suggestion of starting a vending machine business. While you may have associated vending machines primarily with snacks and beverages in the past, they’ve recently been popping up in all kinds of unexpected places, offering a wide range of goods.
Beyond the usual candy bars and cans of pops, you can find vending machines selling electronic goods and essential travel items to travellers in airports and train stations, personal care items and beauty products, toys, laundry detergent machines in laundromats, sanitary items in hospitals, and a variety of other products.
Since the vending business model is based on you renting out space for your machine and periodically restocking it and maintaining it as needed, you can operate a large number of machines since you don’t necessarily have to be there each day to run them as you would for, say, a food truck business. Sounds pretty good, doesn’t it? If you’re thinking of getting into the business yourself, here are the things you should consider before getting started.
How to start a vending machine business
You might think that vending operators are all large corporations and that you can’t break into the game as a new entrant, but there’s plenty of opportunity for an entrepreneur. With a bit of research and some resources to get started, you can join the over 1,100 vending machine operators in Canada who are making money in the vending machine industry.
Determine the startup costs of your vending machine business
Before diving into any new business, it’s important to identify all of the costs associated with getting the business off the ground and operating it. You’ll need to make sure that you either have enough personal savings to start the business or that you can fund your business through loans, grants, or other fundraising initiatives. The good news is, this is a business with a relatively low cost of entry.
So, what are the costs associated with starting a vending machine business? The major expenses you should consider are:
- The vending equipment
You can start with as many as you like, but one of the great things about this business is that it’s scalable. You can start with a single machine, and as you get the hang of it and find new potential locations, you can always add more machines. This provides machine owners with a great deal of control over their overhead costs. In Canada, a new machine can set you back between $5000 and $10,000 depending on the features. However, you can purchase a used and refurbished machine for as low as $1000. If you want more modern features such as debit card and credit card readers, a used machine can start at around $2000.
- Your location
Depending on where you choose to place your machine, you may either pay a fixed monthly fee to the property owner or a small percentage or commission of your total sales. You’ll have to ask around in the locations you’re considering since this cost can vary widely depending on the popularity of the location.
- The cost of inventory
You’ll have to purchase stock for the machine, which can also vary widely in cost. A snack vending machine will have a lower cost than one selling something like electronics or even office supplies. Within the food category, healthier snack options are more costly than traditional options.
- Maintenance fees
Maybe you’re a handy person who will be able to fix and maintain the machines yourself, but if not, it’s a good idea to have some budget set aside for potential maintenance issues and operating costs.
Depending on how many machines they operate, vending machine business owners have to spend some time driving their vending machine route to stock and maintain them. Since gas and car maintenance can add up, you should consider this expense identifying the costs of running this type of business.
You’ll need a few different types of insurance for your vending machines, including general liability, property insurance for things like vandalism and theft, and insurance in case credit card skimming occurs on your machine.
Research the market
Market research is an important step in creating any business plan, and the same is true for this industry. By reading about the market in Canada today, you’ll get ideas for what type of products you think would sell well in your particular area.
The vending industry is Canada is worth $433.9 million in revenue and is largely made up of small businesses.
You can purchase detailed industry reports to help guide your decision-making, or you can get in touch with the Canadian Automatic Merchandising Association (CAMA) to find out more about the industry.
Consider the types of vending machine options
While there are many different types of products that can be sold through vending machines, a few major types of machines are used to sell these products. This range of options includes:
Food and beverage machines
Food and beverage machines typically have dual temperature zones so that you can keep the food items and beverage items in separate zones, each with a temperature that’s ideal for the products. While the extra features mean this is a more expensive option, it also means you can provide a wider variety of products for a more profitable machine. For example, the refrigerated portion can contain healthier options such as fresh food, healthy snack foods like hummus, and other specialty foods.
These can also be used for hot food, serving appealing junk food options such as pizza.
If you have children, they’ve probably begged you for a quarter or a loonie so that they can get something out of this type of machine. They don’t have racks, so you can’t select a specific product. They typically contain things like rubber balls, stickers, chewing gum, and bulk candy. These can be very cheap to get started with, costing as little as $50 per machine, and the quarters and dollars can add up to a nice passive income.
While this is a broad, catch-all term for machines with a range of specialty items, you’ll find it used to describe machines that have offerings ranging from beauty products and tech accessories to office supplies and other goods that people may be interested in a given location. These can be found in airports, conference centres, school campuses, and any other high foot traffic area.
A snack machine has the benefit of being potentially successful in a wide range of locations. From offices to schools to shopping areas and beyond, there are many high foot traffic locations where people may need a snack and likely grab something from these types of machines. You can provide the usual chips and candy bars, opt for a selection of healthy snacks, or a combination of the two. With some experience, you’ll identify what your most lucrative vending products are.
This type of vending machine, more broadly called a hot beverage vending machine, is a type of specialty vending machine that has specialized temperature controls so that people can purchase hot beverages that are dispensed directly from the machine. Drink machines can be successful in a wide range of locations.
Frozen vending machines
Frozen vending machines typically dispense ice cream and other frozen vending machine offerings. They can be a great money maker in the warmer months when people are looking for a refreshing treat to cool off.
Office vending machines are welcomed by workplaces because it makes it easy for their employees to quickly get the supplies they may be low on, reducing the chances of leaving the office space during work hours to get the supplies they need. They’re also a great choice for coworking spaces, which are becoming increasingly popular.
Smart machines contain the same products as traditional vending machines, but they have smart features such as touch screens that give customers a more contemporary, high-end, and user-friendly experience. They may also have sophisticated built-in inventory management software.
Choosing the perfect location for your vending machine
Once you’ve decided what kind of vending machine you’d like to purchase, you can narrow down the list of locations that would be suitable for a successful vending machine business in your niche. For example, if you’re going to start an office supply vending machine company, you might be less inclined to approach shopping malls to rent a location for your machine. Success in vending is largely based on having a great location.
One way to go about this is to make a list of every prime location you can think of in your area where your type of machine could successfully be placed. The goal is to have a profitable vending machine, so think about where you yourself are when you’re motivated to purchase the type of product in your vending machine. Let’s go with the example of an office supply vending machine.
Are there any office complexes in your area? If so, those are filled with office buildings that may potentially be interested in having a supplies vending machine in their lobby. Those offices represent business opportunities. Plus, if you find multiple businesses in the area that are interested, it is very easy for you to refill multiple machines in a short period of time if you choose to expand your business.
Maybe there’s a food court where office workers frequently eat their lunches; that might be a creative location for your vending machine, since every time they go for lunch, they’ll be reminded that they’re getting low on their favourite pens and can grab some from your machine.
If there are schools nearby, they can also go on your list. Colleges and universities are good candidates, but even high schools can be a great choice since those students use many of the same supplies that an office worker or university student might need.
Once you’ve come up with your list, approach these businesses and institutions to gauge their interest. Doing this before you buy your machine or multiple machines ensures that you have some viable choices for where to place them and is an important research step in creating your business plan.
Make a budget and secure financing
Once you have an idea of the startup and maintenance costs of your business, based on the costs we looked at earlier, you can create a budget and identify if you need to secure financing. Since some vending machine businesses have relatively low startup costs, you may not need to secure a loan or other type of financing.
However, if you’re planning a larger business, those providing you with capital will likely require a well-thought-out business plan from you before they advance the funds. A business plan typically includes an executive summary, an overview of your business structure and products or services, market research, a marketing strategy, an overview of your company organization and the team if there is one, and an overview of your financial plans and pricing.
Register your business
Once you have done your research, created a business plan, and secured financing if necessary, the next step as a business owner is to register your business. You can register either as a sole proprietor or a corporation, with each structure having its benefits and drawbacks.
Even if you are a sole proprietor and don’t expect to make huge revenue from your business right away, there are still good reasons to make sure you register. By registering, you ensure your business is a legitimate operation from the point of view of the government. You can also get an HST or GST number, depending on which province you operate in, allowing you to collect sales tax and reap tax benefits.
It also allows you to register your business name, which can be an effective way to make your business memorable as you enter a new industry.
Secure your inventory and suppliers
With your business registered, you can start taking the exciting first steps of getting your vending machines out there in the world. Since at this stage you’ve decided what product mix you’re going to sell in your machines, you want to make sure that you have stock with which to fill them. Different suppliers will have different price points and minimum order quantities, so by contacting a range of suppliers, you will find the one that is best suited for your business.
For example, one supplier may have excellent prices but large order minimums of 1000 units or more. A second supplier may have slightly higher prices, but allow you to order only 100 units of a product. When you’re just starting out, you may want to go with the second supplier since you won’t know at the beginning exactly how quickly you’ll sell through your stock and which items in your product mix will be most successful.
If you’re selling items that have expiry dates, this is particularly important since you can end up having to throw out stock that reaches its best before date.
Another consideration at this stage is identifying backup suppliers if your first choice falls through on an item that sells well.
Purchase your vending machine
Finally, you can purchase your vending machine! There are perfectly good used options, so unless you want to have the absolute most cutting-edge technology and a brand new machine, opting for a high-quality used option can be a great way to cut down your startup costs and start turning a profit sooner.
This is a great, scalable business that allows you to make a passive income that can really add up. By going through these steps, you’ll be able to get your vending machine business off the ground sooner than you might think!
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