4 replies to this topic

[Mr Breeze]

Hello folks,

 

I'm new to the forum.
Been looking into starting up a small vending business for a couple months. I live alone in an apartment. So it would be just me doing all the work. Now, I worked many years ago as a Route Driver for a large Vending operation in my area. So I have a general idea about the physical work involved. Just not the management portion of it. I'm particularly interested in having all my machines accept credit cards, and having telemetry software, so I can track all machines remotely.
Anyhow, finally got around to visiting my local vending machine distributor. Being that I'm new to the scene and don't have untold thousands to invest, they suggested starting out with Leasing machines?

The manufacturer we discussed is USI. They have a 48 month Lease program with option to buy at the end of the Lease term. Similar to buying a car on a Lease. I'm looking at starting with 1 location, with 50-90 employees, so I'd start with a 2 machines (1 snack, 1 soda).

The friendly salesperson filled out a little worksheet giving some hypothetical numbers based on a location with 75 employees. Her numbers seemed a bit inflated to me, as she figured such an account would bring in $2,600 per month.

Anyhow, long story short, she was figuring my lease payment over 48 months would be about $400 per month. If I averaged $100 per week per machine (from what I have read other people average), that's roughly $800 per month, minus 50% COGS. Not much profit there...

Am I missing something?

Is this a reasonable way to go to get started?
Should I buy after the Lease is up? Or trade-in the machine to the latest and greatest, staying on the Lease program?

 

Regards,

 

John

 

[AZVendor]

This is a prime example of the lack of understanding of how vending really works.  As you recognize, having been a route driver before taught you nothing of the actual workings of a vending company.  You need to be cautious because you are getting sucked in to the USI way of selling machines.  They are famous for their 40 year old presentation of showing you the potential profit you'll make based on fictitious units sold per day.  It has worked for decades on uninformed individuals who don't have any point of reference in the matter and simply have to take the numbers on faith.  The result is OFTEN that the sales don't come anywhere near the projections, no profit is realized, the machine payments don't get made and the machines get repossessed.  This is not a what-if but a reality.  A significant number of machines sold to unsuspecting buyers in this manner get repossessed by USI.

 

It's good that you are suspicious of the number shown to you.  I hope you didn't share the location name with this person as they will probably call on it themselves.  USI distributors are only interested in selling machines and if they have a lead on an account they will even stoop to placing machines there themselves and then trying later to sell the location to someone.  They are also known for overselling equipment to customers and locations such as frozen machines which will never pay for themselves in marginal accounts.  

 

Now on to your location.  There is a large difference between 50 and 90 people at a location. Which is it?  If it varies then you should use the 50 number which makes it a very marginal account, even with used machines which I would suggest you use. Forget the card readers and telemetry - those are only for vendors that have profits to reinvest in technology. Each of those technologies come with monthly costs on top of the $400 or so per machine cost. You haven't made a dollar yet and you are already spending your profits.  If you're bent on this get-rich-quick scheme then find a couple of thousand dollars to spend and buy two used machines and give it a whirl.  If you don't have $2000 then you should not be in this business.  Have you planned where you'll get your products, how your machines will be moved, who will repair them, where you'll bank?  

 

Step back and look at all of these factors.  I'm not sure that vending is going to work for you.  

[Mr Breeze]

AZVendor, sounds like you have had a bad personal experience with USI before?

 

Let's forget about brands. Let's talk about a location with an average of 75 employees.
 

I have already considered all the logistics. Not going into this as a get-rich-quick scheme. It really comes down to sales projections.
Mainly interested in thoughts about whether a location with 75 employees could generate more than $200 per week between 2 machines (1 snack, 1 soda)?  Is there a reliable way of estimating the gross revenue from locations based on the number of employees?  I realize it could vary depending on the hours of operation, like a 5-day week vs 7-day week vs 24/7. For the sake of example, let's go with a 5 day workweek office environment with a break/lunch room.
 

What do most people do? Just plug in a couple machines blindly, then adjust up or down based on actual sales?
 

[AZVendor]

I haven't had a bad experience with USI, I just know how they work having been around their distributors through the years.  I know how USI sells and what their tactics are.  White collar locations do less than blue collar.  Those employees are more likely to bring lunch from home, be on a diet or have someone "looking out for them" and requiring healthy items which don't sell.  There is no hard rule-of-thumb to predict sales and it's always a crap shoot in any location.  The more employees you have the more likely you'll do well but that's about it.  Years ago the only estimate we made was 1 to 1 1/2 sodas per person per day and 1/2 that in snack sales.  You will sell more soda in the summer and more snacks in the winter.  But those are generalities and your experience will be different.  There's no way to predict if you'll make money in this location.  There is also no "adjusting up or down" if you're referring to prices.  You can only go down (unless your costs rise) so you want to start high but not so high that you will expect to lower any price.  That's bad form and you won't make money trying to drive sales with lower prices.

[Mr Breeze]

When I said "adjusting up or down", I meant the size of the machines, not the prices. You know, like a 6 selection soda machine vs a 12 selection. I think the only time I might change pricing would be if a location requests commissions, or my costs increase dramatically in some other way.

 

I have seen all kinds of "formulas" for predicting sales.

For instance, the lady at the vending distributor figured you take roughly half the employees, multiplied by 26 days per month, then times average sale per employee (she used $2.50, based on $1.50 soda and $1.00 chip/candy). This would be your Gross Sales per month.
40 x 26 x 2.5 = $2,600!

Very ambitious numbers indeed!

 

Another formula I have read about depends on the type of employees. You calculate $2 per "white collar" employee per week, or $4 per "blue collar".

But yeah, there are so many variables to consider. Each location could vary widely. Especially with fewer than 100 employees. I'm sure demographics like ethnicity and gender could even play a role.

Seems my best bet starting out, would be to get a few good locations with no less than 70 employees. Get those machines paid off as soon as possible, then expand.