How to Determine if a Vending Location Be Profitable – Before Committing

vr4The importance of researching and scouting out your locations beforehand has been noted a few times up to now, but what SPECIFICALLY does one need to look for and know to figure out if a location can be profitable, and how best to go about it?

If you’re actually scouting out these places in person, either yourself or a colleague/employee do it, then it is quite mandatory that plenty of time is spent at each location, over a single duration or through multiple visits (this latter is preferable so as to get a better view during different days and times, as opposed to collecting all one’s data on a single circumstance). One can just as easily skip this step by relying on placement companies, searching for a  place that has already collected such demographic and traffic information, or basing everything on pure assumption and estimation. But these will either cost money, impart risk of inaccurate information, or both. Whether any of that is a greater or lesser ‘cost’ than sacrificing your own time is up to your own opinions and calculations. But if you do end up setting yourself to personal scouting, here are the things practice.

Traffic Counting

The simplest and most vital concept to look into for gathering information on the expected income over time, basically just figuring out how many people actually come through and purchase from vending machines. It requires a good amount of vigilance, fast work with a clicker-counter, abacus, and/or notepad, and plenty of time, but the data from this is simply invaluable.

There’s little that needs saying for this. One simply needs to take note of 1: how many people, on average, travel through or take residence through the particular location during a certain time period/day/etc. And, more importantly, #2: how often and how many of these purchase from other residing vending machines (if there are any there), and how much is purchased. Taking this, you’ll need to further make a personal estimation of traffic and purchases throughout an extended period of time, from a whole day to a week, month, year, etc, making sure to consider changing traffic patterns depending on time of day, season, and other factors. This is why I certainly stress the idea of checking the place out through multiple periods as stated previously, to better estimate.

Once one gets an idea of overall traffic in their time period, they can use the information on how many purchased throughout the study as a percentage based on expected crowds. So if half of the people waiting inside a shop consistently got something from a machine, one can assume 50% of estimated people in throughout the year will look into your machine (as for how many of THOSE purchase from yours needs further looking into, calculation, and much dependence on your product to attract their interest in that environment to boost).

Pro Tip: You’ll find even more tips on finding that ideal location in this post at VendingHow.com.

Seeing Needs and Wants

After noting how MANY people come through and do or don’t buy from the machines (if there are any), we can focus on what’s actually getting selected. Which drinks and snacks are getting more attention, which are being ignored? Is there any food that people are bringing IN, or traveling to swiftly from the area (going to certain mall restaurants/booths), or otherwise seem popular and in demand in the area yet aren’t available via machine? Take a look at the actual machines there, is there any category missing that could be filled with a unique opportunity which your product could fill? Figure out these needs, and you’ll further figure out how likely people are to buy your product, and thus refine the sales number and percentage from the previous figures.

Survey Collecting

vrAt the end of the day, estimating this sort of information through watching crowds can only take one so far. Sometimes one might simply want or need more to get a full picture of people’s interests, and for that reason we can consider the next step: taking a survey. Simply go out and ask the people going by some questions about their interests; preferably with a clipboard in hand for ease of introduction.

It helps to target different groups with different questions: talk to some people who you recently saw purchase something from a machine, asking why they chose that and what other foods they’d enjoy having in a place like that. Subsequently, one can discuss with other passersby if they frequent machines, and if the answer is yes move onto some more probing questions about interests, what would gain their attention, acceptable price points, etc.

Obviously just walking up to random people for this might not be the best method to go about; one wants comfortable and willing participants to gather information over. Besides a successfully-delivered introduction, one may want to consider having some samples of your product to tempt over. One can then use that to generate common opinions, see how many people enjoy and would actually be willing to purchase.

This method works particular well in office break rooms where you’re dealing with selling to the same group of people every day, heavily cutting down on research time.

Profit Estimation

Now that data is collected, and you’ve figured out a predicted sales and gross income throughout a certain time period (suggested minimal 3-6 months, a yearly prediction is ideal), you can go about calculating whether it can make a profit and, more importantly, if it’s making enough to be WORTH it.

vr2Start by subtracting all the Continual Fixed Costs: product costs, tax, amenities used to run the machine the location isn’t paying, etc. Basically figure out how much money is being made off the product alone.

Then subtract Expected Variable Costs: gas, storage/transportation fees, repairs, replacing expired product, and other things that usually make you keep an extra $100 or so to the side every couple months to help cover.

If you still hold a profit at this point, then we’re on a good track; there are the chances and situations where you may NOT be, however, leaving you with one of two choices. Can either give up on this location and move to another, or find a way to adjust costs; usually adding an extra 20-50 cents to the asking price can cause a notably large effect on your earnings, and is usually small enough to not be a bother for the consumer. Then again, if possible, one could explore methods of reducing your other costs… but we won’t discuss that area of ‘study.’

With profit figured out, we can now tackle the final costs (debt costs); mainly the notably higher costs of the Machine itself and its Installation. Take that set cost and divide it by your final expected Profit-per-Month average. That will calculate how many months it takes to ‘break even’ before starting to officially make that much profit each month from that location.

vr3Obviously the shorter period of time that is, the better, but we cannot make a statement on what the ideal minimum actually is; that’s going to depend on what your needs are, how many other locations you’re looking to put in at the same time, how much backing money you have to survive on and, as such, how long term you’re looking and willing to get into with this. As time goes on, though, you’ll most certainly be able to learn and identify which profit margins, waiting times, and other such things are optimal for your business, making it easier for you to cut out the effort in riskier low-reward areas and focus purely on ideal locales. Heck, if you’re in the game long enough you’ll likely be able to discern a profitable area without even having to do any of the research.

For now, though, new vending machine owners can only focus on getting their heads down and learning from the start. You’ll get it soon enough. Here’s an additional resource you can use to find locations when just getting started.

See Also:  Vending Machine Business Plan – Determining Value of Potential Location

About Andrew

A graduate in Bachelors of the International Culinary School at the Art Institutes, Andrew Steifer has spent his days obsessing over everything food and drink. While working towards his Wine Certification, he started writing his own Food Truck Blog focused on reviewing all the mobile vendors of Minnesota.Being the first person to stubbornly pursue a blog like this for their newly budding street food scene, it's safe to say Andrew's love of food trucks is almost dangerous, at least to his wallet. He's been writing since 2013, drinking since 2010, and consuming every delicious morsel he can find every chance he gets.