Are you looking into business ideas that can help you generate passive income? If so, you may want to consider investing in vending machines. But how do you start a vending machine business, and is it worth it?
Read on to learn everything you need to know, from the types of vending machines you could own to the best vending products and locations. By the end, you should have a better idea of what’s required to get this type of business going, and if it’s right for you.
Vending machine industry quick facts
- Vending machine sales totaled $19.4 billion in 2021, a huge recovery from 2020 but not quite back up to pre-pandemic levels ($24.20 billion in 2019).
- There were approximately 1,971,600 vending machines in the U.S. in 2021, down from 3,504,566 in 2016.
- Cold beverage vending machines were the most popular vending machine type in 2021, and accounted for 24.5% of the industry’s revenue — more than any other type.
- Healthy vending products, such as plant-based healthy snacks, showed the largest growth last year (up 200%).
- 58% of vending machine operators make under $1M per year, 30% make between $1M and 4.9M, 5.6% make $5M to $9.9M, and 5.6% make $10M+.
Source: Automatic Merchandiser's 2021 State of the Industry for Vending and Micro Market Report
7 steps to start a vending machine business
If you want to own a successful vending machine business, where should you start? A good first step is to understand the legal requirements. From there, you’ll need to consider potential locations, overhead costs, and more. Here’s the step-by-step breakdown.
1. Check state and local laws
Before taking any action to start a vending machine business, you should check the state and local laws where you plan to operate. In most cases, you’ll need a business license or permit. There’s often not a specific vending machine license that’s required, but a more general permit for doing business. Additionally, there may be restrictions on what you can sell in your machines.
For example, in California, you need to obtain a seller's permit if you plan to make money from a vending machine. You only need one permit, even if you have multiple vending machines. That said, you won’t need to get the permit if you sell food through a machine for less than 15 cents per item or if you’re a nonprofit organization. Additionally, California has laws that limit what can be sold through vending machines on school grounds.
Along with the legal requirements to set up a vending machine business, be sure to look up the requirements for establishing any type of business in your area. They often include registering with your state, choosing a business name, designating a business address, opening a business bank account, selecting a business structure, getting an EIN, and more.
2. Scout a vending machine location
Once you know the legal requirements you have to meet to open a vending machine business, it’s time to start thinking about where you’ll place your machine(s). The key to successful placement is finding a spot where foot traffic is high, competition is low, and the people walking by are in need of the items you offer.
Some of the most popular vending machine locations include:
- Manufacturing plants
- Office buildings
- Retail sites (grocery stores, malls, laundromats, etc.)
- Hotels and motels
- Elementary, middle, and high schools
- Colleges and universities
- Hospitals and nursing homes
- Correctional facilities
- Restaurants, bars, and clubs
- Military bases
- Apartment complexes
- Amusement parks/ Entertainment establishments
- Gyms
- Condos and apartment buildings
- Airports, train stations, bus stops
While all of these places could be profitable, you can’t place a vending machine wherever you want. You’ll need to contact a potential location’s property owner and request permission — which can be easier said than done. A recent survey of vending machine owners by The Hustle revealed that many had to call 100+ property owners before landing a decent location.
Additionally, once you find a property owner who is willing to talk, you’ll then need to negotiate a deal. In most cases, they’ll charge you a percentage of your gross sales. The Hustle reported that the commission often ranged from 10% to 25% of an operator’s gross cash flow. If you can get a rate you’re happy with, then you can sign a contract to place your machine.
Pro tip: Many who own vending machine businesses recommend that you secure a location before you buy a vending machine.
3. Choose vending products
Along with choosing a location and making a deal, you’ll need to decide what vending products you’ll sell through the machine. What will the target market want?
For example, if your machine is located in a hospital waiting room, people may be hungry, thirsty, and tired after the cafeteria closes. In that case, a combination beverage and snack vending machine could be ideal. In an office space, you may want to vend coffee.
The most common vending machine product categories, according to Automatic Merchandiser, include:
- Packaged cold drinks (24.5% of 2021’s revenue)
- Miscellaneous items like electronics, accessories, toys, and magazines (15.5% of 2021’s revenue)
- Candy (13.5% of 2021’s revenue)
- Healthy items including plant-based snacks (10% of 2021’s revenue)
- Confections (9% of 2021’s revenue)
- Food items (6.5% of 2021’s revenue)
- Hot drinks like tea, coffee, and cocoa (3.5% of 2021’s revenue)
- Frozen items/ ice cream (1.5% of 2021’s revenue)
When deciding on products, you’ll need to analyze the product-market fit along with the profit margins and restock requirements. Additionally, be sure to consider the state and local laws and what type of machine will be required to vend the products.
4. Find a vending machine
Once you know what type of products you want to sell, it’s time to figure out how you’ll get a vending machine. Here’s a closer look at the different vending machine types, sellers, and costs.
Vending machine types
The vending machine type you’ll need will depend on the type of products you plan to sell. For example, if you want to sell coffee, you’ll need a hot beverage machine. If you want to sell ice cream, you’ll need a machine that can keep the ice cream frozen. The main types of vending machines are:
- Cold drink machines (accounted for 42% in 2021)
- Glass front machines (accounted for 39.5% in 2021)
- Refrigerated food machines (accounted for 12.5% in 2021)
- Hot beverage machines (accounted for 3.5% in 2021)
- Frozen only (accounted for 2.5% in 2021)
Additionally, there are bulk vending machines which can be used to sell things like gumballs and bouncy balls — and a variety of specialty vending machines for things like office supplies, toys, medical equipment, and souvenirs.
Vending machine sellers
You have a few choices when it comes to buying a vending machine. You can buy directly from the manufacturers like Seaga, from resellers like Sam’s Club and Vending.com, or from private sellers on platforms like Amazon and eBay.
While manufacturers offer the most support with your machine (manuals, warranties, etc.), they often have the highest prices. Conversely, private sellers often offer the lowest prices but have the least amount of support. Resellers typically fall somewhere in the middle on both fronts.
If you can find a refurbished machine with a warranty, that’s often your best bet to get a great deal. But be sure to shop around!
Vending machine costs
As for the costs, new vending machines often range from from $4,000 to $6,000, but high-end models can be much more expensive. Used models often cost somewhere between $1,500 and $4,000. However, in either case, the price will depend on the machine you want, its age, its features, and who you’re buying it from.
To minimize your upfront costs, you can look into financing the machine or leasing it. Companies like Intelligent Dispensing Solutions offer leasing terms up to 48 months. However, money spent on the lease will be money lost unless you can find a lease-to-own agreement. If you’d like to reduce the upfront costs but also ensure your payments are going toward asset ownership, financing is a good route (more on that below).
5. Consider technology
Next, you’ll want to consider how technology can help your vending machine business. First and foremost, with many people preferring to tap a credit card rather than use cash, you’ll want your machines to have a card reader. According to the Automatic Merchandiser's Market Report, 74% of vending machine business owners said that investing in cashless payments offered great ROI.
Pro tip: If you buy a card reader from someone else, ensure that it's disconnected from the seller’s account.
What other technology should you consider? The market research report mentioned above reported that the majority of owners found prekitting, vending management system software (VMS), LED lights, and remote monitoring to be great investments. On the other hand, they saw poor ROI from investing in video screens, QR codes on machines, and warehouse pick to light systems.
6. Assess the costs and pricing
By this point, you should be able to figure out the approximate cost to start your vending business. You’ll need to take note of the administrative fees, taxes, commissions, inventory costs, machine costs, and technology costs. Additionally, you’ll need to account for transporting the machine to the location, as well as restocking, maintaining, and financing it.
With all that info, you can get a clear view of where to set your pricing to ensure the business is profitable. It’s also a good idea to put together a business plan and predict your break-even point. Then, you can decide if a vending business is worth the investment of time and effort in your situation.
7. Set it but don’t forget it
If you decide to go ahead with your vending machine small business, it’s time to put all the above steps into action. You’ll need to secure your location, get the machine, stock it with products, and set up your tech.
Once your vending machine is in place, you can start earning. However, it’s not something you want to set and forget. In order for the machine to work well, it needs to stay well-stocked and in working order. You’ll need to implement a restocking, inspection, and maintenance schedule.
Most vending machines require you to restock and inspect them at least once per week, but it will depend on what you’re selling and the demand levels. Additionally, you’ll want to monitor the cash flow to determine if the location and products are working well, or need to be reconsidered.
Pro Tip: Pay attention to which products are selling best and continuously optimize your inventory to better serve your customers.
Pros and cons of a vending machine business
Now that you know how to start a vending machine business, here’s a quick rundown of the pros and cons.
Pros
- While you’ll need to restock and monitor your machine(s), the business can create a mostly passive income stream (compared to other business models)
- Cashless payment machines can reduce theft risk and ease logistics
- The business model is easily scalable
- Your ongoing overhead costs are low
- You can finance vending machines to lower upfront costs
- You can start small with one machine to reduce risk
Cons
- There’s a lot of competition for good locations
- You’ll likely need to pay commission to property owners
- Merchant fees apply for credit card payments
- Machines can be an expensive upfront cost
- You’ll face the threat of theft and vandalism
- Repairs and regular maintenance are required
- The machines require regular restocking and inspections
- Due to small profit margins, it can take time to see ROI
Frequently asked questions about vending machine businesses
Here are answers to some of the most frequently asked questions about vending machine businesses.
Is it hard to start a vending machine business?
The biggest challenges that come with starting a vending machine business are the upfront cost for the machine itself, securing a location at a fair commission rate, and waiting for the ROI. However, financing can help to lower the upfront costs, and you can recoup your costs and start turning a profit if you land a good location with a product-market fit.
How profitable is owning a vending machine?
Vending machines often bring in about $75 per month, but can earn up to $400 in high-traffic areas with a great product-market fit.
How much does a vending machine make in a day?
On average, vending machines bring in about $2.50 per day, but highly profitable ones can earn closer to $13 per day.
Can you put a vending machine anywhere?
You can’t put a vending machine anywhere you want. You’ll need to request permission from the location’s property owner and make a deal before you can place your vending machine somewhere.
How much maintenance do vending machines require?
Most vending machines last about 10 years and require cleaning and maintenance checks at least every three months. Additionally, you’ll typically need to restock and check them weekly.
How can you finance a vending machine and your inventory?
If you’d like to lower the upfront costs of starting a vending machine business, you can look into getting a business or personal loan. It can be hard to get a business loan as a brand new business because you won’t have business credit or a revenue track record yet. However, the SBA does offer startup loans. An equipment loan could also be a good move here, as this type of loan often allows you to use the asset you’re purchasing (in this case, a vending machine) as collateral.
On the other hand, you can turn to personal loans or credit cards to finance the purchase. Going this route, you’ll need to have decent personal credit to get approved. Further, it will intermingle your business and personal finances which isn’t ideal. However, it may be the only option to get started.
ProTip: To jumpstart your business credit file, you can get a secured credit card that reports to the business credit reporting agencies. By using the card and paying it off on time, you can establish positive credit that will open the door to more business loan options as soon as possible.
Want to learn more?
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