vending machine business plan

vending machine business plan

Vending machine business plan

1. Introduction

A vending machine is quite an amazing bit of gear. It’s a machine that a person puts money into, and in return the vending machine dispenses a product, generally a drink or a snack. When most individuals think of a vending machine, the first thing they consider is the on the spot, can or bottle. You deposit it on the slot, press the button, and then your drink drops into the vending machine and you drink it. That is what most people take into consideration the traditional kind of vending machine. However, a modern vending machine will do so much more. It would dispense change. It might probably take note of the money you put in and tally it up until it reaches the value of the product. If the machine is out of change, the vending machine may return the cash and refuse to dispense the product. Some vending machines can help you pay through the use of a debit card. And lots of vending machines are networked to help you remotely monitor the inventory of your merchandise and the state of your machines from your computer. This kind of machine is quite complex, but quite interesting as well, and particularly so if it’s your machine. That is what a vending machine normally is, a tool to dispense a product to a consumer. So what then, is a vending machine business? A vending machine business is a relatively passive means for a person to make money. He or she purchases a vending machine, and then locates it in a specific area. Preferably, this location could be a place that has a number of foot traffic, akin to an airport or a workplace building. Then the owner signs an agreement with the landlord or the institution. Typically this could involve paying the establishment a certain share of the money earned from the vending machine, with the understanding that the owner will keep the vending machine well stocked. With this done, the owner is ready to make money with little work. The vending machine itself will do most of the work, and as long as it’s kept well stocked, the owner can have a passive source of income. Typically the owner would even hire someone else to keep the vending machine stocked, and so increase his or her earnings even further.

2. Market analysis

It’s important to remember that vending machines are consumer products as well as capital units, so careful thought and consideration must be put into location analysis as near to much of the machines’ success. In order to enter into a new market segment, the company will need to pay attention to social and economic factors in addition to features of the potential locations. Socio-cultural factors to be considered include: leisure time and work habits of a particular location, average disposable income, social class mix and distribution in the area, etc., going along with statistical data suggesting that greater than average amounts of any assigned demographic pertaining to income level, employment level, or social class will likely increase sales revenue. Remember vending machines are an impulsive purchasing device, so an increase in consumer spending or attraction of purchase to a particular product is always a good sign. Economic factors include relative prices for products in the vending machines (i.e. federal minimum prices for tobacco products), price elasticity for vending food items, and ease of utilities installation for vending services. Due in part to the economic and new nature of our industry, projection of vending machine industry performance in any location is difficult to predict, so any data collection to back up current speculation would be useful for analysis. For domestic market analysis, location selection should be organized as expansion of services to current or former customers, or an attraction of new customers. Any location convenient to current company facilities and/or employees is a decent location for vending machine placement, and again similar economic-socio variable analysis should be applied. Omission of data from control groups in test location and ignorance of control group experimental principles in market testing is one of the most common mistakes in vending machine industry analysis. Always changing one variable in an attempt to test it against an original ideal is a sound strategy, and tracking change in variable and machine sales will yield data useful to predict return on that given change. A potential change in customer sales will be best recognized through customer feedback, and it may come to pass that specific locations may require machine product changes to cater to a specific customer base.

3. Business strategy

We plan to position ourselves within the Wilsons Carparks in Colombo where many businesses are located. The advantage of being placed in a Wilsons carpark is that people are already in the mindset of spending money. People would have spare coins in their pockets and are more willing to purchase items from the vending machines. There is a total of 9 Wilsons carparks in Colombo. It is possible that each vendor can oversee 2 carparks. This is the simplest business plan. Vending machines can also be placed in offices, factories, schools, universities, hospitals or other public locations. We have already made strong contact with The International School in Colombo and the family that runs the business has many business contacts. A meeting with as many heads of organizations as possible will be organized to market the vending machines. Follow-up calls with these organizations will determine exactly where the vending machines can be placed. The beauty of the vending machine business is that it can be tailored to suit the needs of the owner. The owner can choose exactly where to place the machines. This business requires the initiative of the owner to acquire locations. There are no specific limitations to where these vending machines are placed. This SBU’s aim is to develop consumer brand loyalty and also identify what sorts of products sell the best. With the information of where the best locations are and what products sell the best, we can customize a vending machine product line to suit the needs of that specific location. This will increase revenue. Revenue can also be increased by cutting costs. The cheaper the cost of purchasing products to fill the vending machines, the more the revenue. Since we have many business contacts, we can deal with suppliers from factories. This group has considered forming a small partnership with a factory to develop an action plan for distribution of the factory’s products into the vending machines, promoting costs to an all-time low. Advertising can also be sold on vending machines. With advanced technology, it is now possible to place advertisements on vending machines. This can be in the form of LCD displays or poster ads. The earnings of these ads will be shared with the vending machine owner and the products’ something as a commission.

4. Operations and logistics

By purchasing directly over the internet, we are able to save money from not having a middleman and receive the vending machine at a cheaper price. The vending machine will be located at the owner’s business premises. This is excluding the owner’s entrepreneurship cost of time and location cost. (In time to come once the business grows, we will then locate the vending machines at a different location with higher traffic)

A cost and revenue structure has been designed to indicate a cash flow forecast covering a period of 5 years. After considering all the initial and ongoing costs, a break-even chart and revenue expenditure projection has been drawn to assess the financial feasibility of the vending machine.

To start our vending machine business, we will be starting with the acquisition of one vending machine and grow our business from there. As per our SWOT analysis, we can anticipate a good deal of strength and weaknesses except for the threats and opportunities. We will use this analysis to our advantage by following the strategies created. By only starting with one vending machine, we are able to keep our opportunity cost low as well as the financial risk.

5. Financial projections

Return of Investment: Projected to be made by the 6th month of the 2nd year. The return of investment, calculated with reference to the amount of invested capital, is essentially increasing the efficiency of our vending machine company. Simulation states that in year 2002, when there are 20 machine locations, we would have a profit of $1,500 per machine. Thus, the total net profit is $30,000 for the entire year. The return of investment is gradual, meeting its peak in 2005. The 3rd year yields a net profit of $60,000 with reference to 30 machine locations. A total net profit of $90,000 where hence we would invest capital equivalent to revenues earned in that year in order to increase the amount of capital revenue in the subsequent year. This would essentially increase the profit per machine. Hence, in the 4th year, we would invest only $50,000 of the $90,000 to yield a net income of $75,000 and a total net income of $150,000 in the 2007 year with an efficiency increment to 80%. This would allow us to invest $120,000 for the following year to yield a total net income of $180,000. Step by step increasing the efficiency and capital revenue with the ultimate goal of being to increase the profit per machine location.

As we plan to have over 50 machines in 2004, that would amount to a $1,250 net income for each machine location, thus a total of $62,500 in net income. This is where a huge gap is created between cash flow and net income. The difference of $54,200 would be the loan repayment back to the bank.

In 2004, there are a few different factors that cause the operating income to skyrocket. We plan on taking out a $50,000 loan. The difference in cash flow is due to the fact that cash flow depicts the annual increase in cash and cash equivalents. The net profit in 2003, with reference to the machine locations in the Holiday Inn and Perry, the net income was $300. Therefore, the net income calculated for each machine location is $75.

We project our cash flow, like our revenue, to rise significantly throughout the course of the five years. The increase in revenue is due to the expansion of the company. As we increase the locations of our vending machines, our revenues will increase as well. Operating expenses would essentially decrease as the percentage of commissions that we would have to pay to entice a company to have our vending machines in their facility would decrease due to the fact that we would be the dominant vending company in the area. Also, as we increase the number of machines we have, our fixed costs would be covered many times over. Essentially, the more machines we have, the lower our costs will be. This will cause the operating income and the cash flow to continually increase every year.