January 27, 2022
According to Vending Market Watch, 2019 was the strongest year for vending machines and convenience services to date. In 2020, however, the pandemic played a huge role in the performance of vending machines as we saw offices and work spaces close their doors to the public and shifted to a remote work style. Vending Market Watch referred to the office marketplace as “a vital demographic to the convenience services trade,” in the 2021 end of year issue of the Vending Market Watch magazine as they shared stories from vendors around the country and how they have been able to succeed despite the “several false starts to the long-awaited recovery of the office marketplace”.
The 2021 struggles and shifts by no means indicate that starting a vending machine business in 2022 is out of the question though. On the contrary, starting a vending machine business can still be an incredibly lucrative operation. We’ve done quite a bit of research, and here’s what we think you need to know about starting a vending machine business, generating sales, and making a profit.
First of all, we have created a vending machine business financial projection spreadsheet that is perfect for helping you get financially organized to start your vending machine business. I have created a demo video that will walk you through what to put in each section of the spreadsheet in order to have realistic, industry standard projections that you can include in your vending machine business plan or SBA loan application. You can check out the demo below:
We’ve done quite a bit of research, and now that you’ve had a chance to look at the income and expense excel spreadsheet, here’s what we think you need to know about starting a vending machine business, generating sales, and making a profit.
How Much Does It Cost to Start A Vending Machine Business?
To figure out how much it costs to start, you’ll need to know what type of vending machines you want to buy. To know what type of vending machine you should buy, you’ll need to know what products you’ll be offering in your vending machine. So your first step is to choose what type of vending machine business you want to run.
The breadth of vending options these days is remarkable. Vending machines aren’t just for food and soda anymore. Depending on where you are, you might find yourself buying anything from a t-shirt to nail polish to dog treats, all from a vending machine. So when you are looking to start your vending machine business, you’ll want to make sure you do plenty of research to see what type of vending machine is going to be the most profitable in your area and chosen location.
For today’s article, we are going to proceed as though we are starting a vending machine business for snacks.
THE VENDING MACHINE
When preparing financially for starting your vending machine business, the most important part to consider is the vending machine itself.
There are multiple types of vending machines with prices ranging anywhere from $500 used to $5000 new. The Vending Group has put together a small guide to the types of vending machines to consider and what their general prices are here.
For our purposes, we will go with a Selectivend SV3000 Vending Machine, with a card reader from Sam’s Club, priced at $3,560. (Keep in mind though that you can also go with a refurbished machine that probably works just as well for starting your vending machine business. It might, however, create more expense for repairs and maintenance.)
The next thing you’ll need to figure out for your financial projections is what snacks you want to include in your vending machine and how much it will cost to stock without over purchasing.
This particular vending machine has 23 different slots for snacks, candy bars, gum, etc., and each row holds 8 packages. So in total, your vending machine can hold 184 packaged snacks.
For startup purposes, you should be careful not to overstock the machine. You’ll find it’s helpful to monitor what snacks get purchased the most frequently and adjust your inventory from there.
A good starting vending machine inventory might look like this:
- 15ct Wrigley’s 5 Gum Wintermint Ascent—$11.28
- 15ct Wrigley’s 5 Gum Cobalt Peppermint—$11.28
- 15ct Wrigley’s 5 Gum Spearmint Rain—$11.28
- Snickers, Twix and More Assorted Chocolate Candy Bars Bulk Variety Pack (30 ct.)--$19.98
- HERSHEY'S, KIT KAT and REESE'S Assorted Milk Chocolate Candy, Holiday, Bulk Variety Pack (45 oz., 30 c.)--$21.44
- Skittles Sour Fruity Chewy Candy Full Size Bulk Pack (1.8 oz., 24 ct.)--$16.68
- Skittles Original Full Size Fruity Chewy Candy (2.17 oz., 36 ct.)--$27.98
- Kellogg's Rice Krispies Treats (1.3 oz., 25 ct.)--$8.48
- Pop-Tarts, Variety Pack (32 ct.)--$6.68
- Total: $135.08
Based on that total, we estimate that after taxes it will cost about $150-$175 to stock your vending machine and have some extra inventory to refill. All of these prices are based off of current listed prices at Sam’s Club online.
THE BUSINESS LICENSE
Another starting cost to consider when starting your vending machine business is the cost of a business license. The cost may vary from $50-$100 depending on your state regulations.
So, what does it cost to start a vending machine business?
- Vending machine–$3,600
- Starting inventory–$175
- Business license–$100
By our estimates, you’ll need around $4,000 to start your vending machine business. This amount would change significantly if you decided to lease a vending machine instead of buy, or if you choose to buy a used vending machine instead of new.
Also, you might want to start with an entire fleet of vending machines which would increase your startup costs accordingly.
Using our vending machine financial forecast spreadsheet will help you organize those expenses to see how much you’ll actually need to start your vending machine business.
How to Buy a Vending Machine Business
Wouldn’t it be nice to jump ahead in the vending machine business and just get started by buying an existing vending machine business that already has machines placed in locations that are performing well? By purchasing an existing vending machine business you can start with a steady base that will allow you to get cheaper bulk pricing on the products you place in your machines, it will also allow you to show new potential customers that you already have experience operating existing vending machines.
There are a handful of questions that I have about buying a vending machine business, so I did some research for you. I looked into:
- Where to Find Vending Machine Businesses for Sale?
- How Much to Pay for a Vending Machine Business?
- How Long Will it Take to Recoup Your Investment in a Vending Business?
- Starting New vs. Acquiring an Existing Vending Business
- How to Get a Loan to Buy a Vending Business?
Let’s take a closer look.
Where to Buy a Vending Machine Business?
There are many websites that list businesses for sale. BizBuySell is one of the largest business listing platforms. I was able to search by the keyword “vending machines” and was able to immediately find a handful of listings for sale:
You can browse public listings like BizBuySell which I kind of think of as the Zillow for looking at businesses for sale. When you are buying a house, you might hire a realtor because the realtor might know about additional properties for sale that you can’t even find on Zillow yet. Likewise, you could hire a business broker that can help you find a vending machine business for sale. Just like a realtor, a business broker will earn a commission on the sale of a business. You can search for a business broker near you on the International Business Brokers Association website.
How to Value a Vending Machine Business?
A vending machine business will typically sell for 70% to 100% of annual sales according to Vending Connection.
Once you find a vending business that you would like to acquire, the next question is how much should you pay. If you are paying 70% to 100% of sales that means a vending machine business that generates $1 million annual revenue would cost you $700,000 to $1,000,000 to acquire.
This begs the question, is it worth buying an existing business or should I just buy new machines and start from scratch. I wanted to dig into this a bit more.
How Long Will it Take to Breakeven on a Vending Machine Business?
Typically it takes a vending machine 12 to 14 months to recoup the initial startup investment according to VendSoft.
Starting New vs. Buying an Existing Vending Business
So it turns out that whether you buy an existing business or start a new business it looks like it should take about a year to recoup the initial investment. Since you would be paying 1 year of sales to buy an existing vending business, and VendSoft says it will take 12 to 14 months to breakeven on your initial investment if you buy a new machine, it looks like the math comes out roughly the same.
I still think there are some pros to buying an existing business. If you buy an existing business you know that the placement of the current machines is already working and generating revenue. If you are starting from scratch and placing a machine into a new location, you are taking the risk that the location will not perform well.
How to Get an SBA Loan to Buy a Vending Machine Business?
Let’s say you found the perfect vending machine business to buy for $500,000, but the problem is that you don’t have $500,000 laying around. You can look into getting an SBA loan to finance the purchase of the business. A couple things you will need to know about getting an SBA loan to acquire a business:
Not all SBA Lenders are Alike
I spent 10 years as an SBA lender, and I can tell you that the SBA programs can be complex, and some SBA lenders just have much more experience than others. You should find a lender with experience. My advice is to look at the list of most active SBA lenders and then reach out to a few of the top lenders on the list.
Here is a list of the top SBA lenders by loan volume.
In 2022 Live Oak Bank, Newtek Small Business Finance, and Huntington Bank were the top SBA lenders, but you can check out the full list and see if there is a lender on the list that also has a local presence in your area.
Your SBA Lender will Need Financial Projections for the Business
As part of your loan application, whenever you are buying a business, the SBA is going to want to see pro forma projections that will demonstrate that the business can cash flow the loan payments. In other words, the SBA wants to make sure you can afford the loan payment. Our vending machine business financial model will produce exactly what you need and provide some nice charts and graphs that you can include in a business plan as well. You can see some examples from the financial model below:
You Should Expect to Make at 10% Down Payment / Equity Investment
Lastly, you should know going in that you will likely need to come up with 10% of the purchase price of the business as an equity investment. This should come from your savings, not borrowed. So if you only have $25,000 available to invest into this business, then you should be looking for deals of $250,000 or less.
What are the Operating Expenses for a Vending Machine?
Starting a vending machine business requires a little bit more cash on the front end, but once you start turning a profit with your vending machine, you’ll find that the operating expenses are significantly lower.
If you have purchased your vending machine outright and are not leasing or renting, some of the fixed expenses you can expect may include:
- General liability insurance ($50/mo)
- Regular inventory restocking ($900/mo–assuming your vending machine needs restocked 5-6 times–highly depends on volume of sales)
- License renewals (yearly)
- Permits (state specific, yearly)
- Placement fees / rent for a vending machine spot - up to $50 per month or up to 25% of sales according to bizfluent.
There would also be a few variable expenses to consider.
- Upkeep/Maintenance/repairs of equipment (if not rented)
- Fuel for transportation to and from vending machine location
The financial impact of these expenses will depend greatly on the choices you make when starting your vending machine business, like where to purchase your inventory from, and how near or far you are from the location of the vending machine. By our estimates, you may want to budget for about $1,000 of fixed monthly expenses, and account for around $200 per month for the variable expenses.
Now, according to Healthy YOU Vending, “most vending machine business owners don’t just source their products through one channel.” They recommend that you compare prices for different brands through different distributors, and once you have established a relationship with a distributor, you might even be able to negotiate pricing to benefit your business. Healthy YOU Vending has a neat guide on starting a vending machine business that you might find pretty helpful.
How Much Can You Generate In Sales from a Vending Machine?
The average vending machine generates just over $300 per month in sales according to Naturals2Go.
The amount you can generate in sales largely depends on the location of your vending machine, price of snack items, and making sure that you are aware of the purchase patterns of your target market. You don’t want to keep stocking a machine with snacks that nobody buys–so you really need to consider your snacking options and pay attention to what sells and what stays.
Something else you may want to consider is that people rarely carry cash on them, so it might be prudent to buy a machine with a card reader so that customers can more easily purchase their snack of choice.
How Much Profit Can You Make from a Vending Machine?
$18,000 might sound like a nice amount of passive income, and it is, but don’t be surprised when your profits don’t match. So, if you are able to make a solid $18,000 per year of revenue, you have to then consider how much you are spending each month on fixed and variable expenses.
If your vending machine is dispensing 40 snacks a day, you’ll need to refill it 5-6 times a month. Our basic estimates for the starting costs of stocking your vending machine allow us to calculate that it might take about $900 each month to stock your vending machine. Of course, this could change based on the market research and establishing relationships with distributors.
Based on our monthly expense estimates, you could be spending about $1,200 per month on upkeep and operation. $1,200 multiplied by 12 months in a year, comes out to $14,400. That leaves you with $3,600.
Not only do we have to account for inventory and restocking, but you’ll likely have to pay the location owner a percentage of your sales for rent/electricity usage. According to The Balance Small Business in their article about starting a vending machine business, “the average commission is around 7%,” and “as the owner of the machines, you will be obligated by contract to provide a statement of sales and commissions to the business or property owner at regular intervals.”
7% of $18,000 is $1,260.
$3,600 - $1,260 = $2,340 in profit per vending machine per year.
This is just one example, and profits will vary. There are tons of factors that go into what your profit margins could be for starting a vending machine business.
The expense spreadsheet will allow you to input all of your projected monthly costs, both fixed and variable, along with your estimated monthly income to help you see what your profits could be in a month or year based on your own research.
And if you want a few more examples about what all to consider when figuring out how much profit you can make, we recommend checking out this article by Vending One.
Vending Machine FAQ's
A lot of people have a lot of questions about starting a vending machine business. These are some of the most common questions we found.
How can I buy a vending machine?
Buying a vending machine is actually pretty straight forward. You can look for new vending machines online with retailers like Sam’s Club, or https://vending.com/. Or if you’re looking to buy a refurbished vending machine, you might be able to purchase one from Ebay or even Craig’s List.
Do I need a business license to own/operate a vending machine?
In short, the answer is yes. If you’re making a profit, you’ll need to get a business license and a tax ID number for your vending machine business. Different rules exist in each state, so you want to do your research and understand the state and local regulations, as well as small business regulations for owning and operating a vending machine business. Corpnet has put together a helpful article with a large focus on obtaining your vending machine business license.
Where can I put my vending machine?
Vending machines can be placed in most commercial spaces with no issues, assuming that you follow the state and local regulations. NerdWallet helpfully mentioned in this article that some locations may be subject to ADA compliance standards as well. As long as you have drawn up and signed a contract with the location owner though, you can generally place your vending machine where you believe you’ll get the best return for your investment.
A vending machine business is one of the more safe businesses to start, especially if you’re just getting started in the business world. With its low operating costs, and need for minimal extra labor outside of buying inventory and stocking your machines, it’s a great idea for someone looking to make a little extra cash on the side. And if you find success with one machine, it’s a pretty similar process if you decide to scale your business.
If you are looking to grow your business or want to start with more than 1 vending machine, our vending machine financial projection template can be helpful in projecting your total startup costs, revenue and profit potential.
And of course, if you have any questions about our estimates or how our spreadsheet works, feel free to reach out at firstname.lastname@example.org