The first things you must consider when making a business plan is, "What are your goals?", and "Does the math work?" Many people first get the idea to get into vending because the notion of passive income and controlling their own destiny is so compelling. While this is true, they forget to calculate if it even makes sense for them.
Without a proper business plan, you can set yourself up for failure from the start. This is because, in vending, there is a significant delay between your actions and your financial results. Whether you make the right or wrong decision, you don't see your outcome for a while. So much money is moving from place to place in vending that it can be hard to track. There are many sources of income: Cash from machines, free vend, subsidizations, renting machines, rebates from corporations, and more. Expenses are varied, including but not limited to: Rent on a warehouse, insurance, vehicle repair and maintenance, machine repair and maintenance, buying product, accounting, and acquiring new accounts. Revenue from the business is the result of thousands of small transactions. In general, your profit is not immediately obvious.
Why create a business plan?
It may seem straightforward, but in a business where the average operating profit is 45%, but the average net profit is just 2%, you can’t afford not to plan. Creating a business plan will help you price your product, set up service schedules, set minimum sales requirements for locations, determine how much you can afford to invest in new business, and it lays the groundwork for your future success.
If you don't create a business plan, you could be working for less than minimum wage in a job that is supposed to give you more time and freedom.
Where do I begin?
A business plan can only be effective if it reflects your specific goals. If you haven't already, ask yourself some of these questions:
- How many hours are you willing to work?
- Are you looking to build it and sell it or give it to your kids some day?
- Is it a retirement vehicle?
- Will you need to train someone to eventually run it for you?
- Do you have cash to invest in it or are you building it from scratch?
- Do you want a flexible schedule or time to travel or spend with loved ones?
- What resources do you already have? A person who is well connected will have a lot easier of a time starting out than a person who has just moved to the area.
- Do you have warehouse space or a vehicle you can use?
I strongly encourage you to really consider these questions and how running a vending business will fit in with your overall lifestyle goals. This could take you days or even weeks if you haven't consciously thought of it before. Once you seriously answer all of these questions, you'll need to start doing some math.
Doing the math
The exact math you need to do will be reflective of your specific goals and the resources you need to achieve those goals. As such, it's beyond the scope of this article. If you need help deciding what's realistic for you, I suggest seeking the help of a professional in the vending industry.
What you need to keep in mind is that vending machines have a significant up front investment. It could take a year for the sales of a machine to recoup the cost of buying and installing the machine. This means that, although you will be making cash money immediately, you will not likely profit from those vending machines for at least a year.
This reality needs to be reflected in your business plan. If it takes each of your machines one year to pay off their debt, those machines are not making money for you right now.
How are you making money right now? Do you have this as a side job? Do you offer a service, such as installation or repairing machines for other vendors? Do you have office coffee service where the cost of installation is potentially much cheaper and the per item value potentially much higher?
On the other hand, can you afford to not turn a profit on this machine for the allotted time? Can you afford to add at least 15% to that number to account for maintenance costs? If you can absorb these for the time being, great! If it's not making you a profit, it still may be a good idea, as long as you plan for it.
Growing your vending business
Planning for the future is also part of your business plan. How do you plan to grow your business? Do you plan on making lots of cold calls? Do you plan on generating a referral based business?
Learning vending is a fantastic way to learn how to run any business. This is because, instead of running one giant entity like a restaurant, you are running dozens or hundreds of tiny machines, each with their own cash flow. In doing this you will get really good at recognizing good business opportunities and bad opportunities because you can automatically do the cash flow in your head.
Like many other businesses, a vending business has an economy of scale. Vending supply companies, such as a cash and carry, sell products in cases, so if you only have one snack machine and you buy a case of chips, unless that company only buys one kind of chips then I guarantee your chips will expire before you sell them all.
A case is 64 chips. In an average snack machine, a row for chips is between 10-12 spaces. This means that you will need 6 rows of one kind of chip to sell in no more than two months, because chips usually expire in two months. You will most likely have expired chips in this scenario. If you are in this situation, then you should probably take away your snack machine until you can find a location with a higher volume of sales. A vending business profits immensely from a certain scale, because you can get and utilize cases to offer a variety, get rebates from manufacturers, begin hiring employees so you're not doing as much route driving yourself, and get deliveries from vending supply companies instead of going to them to get product. These are just some of the benefits of scaling up your business.
Since scaling is so important, you must decide if you’ve gotten started in the business too small. If this is your problem, you might be better off selling your route to someone with a larger business and working under them on a contract basis. Otherwise, you will have to secure a large loan in order to purchase a lot more equipment if you want your business to scale up quickly. This debt will then be subtracted from your profits. If you can still make a profit after subtracting all of your business operating costs and paying back the debt for starting the business, then great!
The difficulty of creating a sensible business plan is why so many small time vendors go out of business so quickly. More and more the little guys get squeezed out because the cost of running a business is much harsher for a smaller business as it is for a slightly larger business. This is because often time your fixed costs (rent, insurance, product cost, etc) remain the same whether you have two machines or two hundred machines.
This is just barely scratching the surface. If you feel lost, I suggest seeking the advice of someone in the vending industry. I also recommend speaking with Robert Cornelius. He's our resident vending consultant at Vending How. No matter what you choose to do, it pays to plan and plan well.