While a vending machine business requires relatively low capital, vending profits for yourself depends on several factors. 

Vending machines look like the ideal business for lazy entrepreneurs. 

All you have to do is just get a machine, plonk it somewhere where people can see it, fill it up with drinks, snacks, food or other stuff that everyone needs and watch the money flow in.

Well, such an automatic wealth-generating model probably only works if you’re selling supercars to Gen Z trust fund babies for whom conventional showrooms are so ‘boomer’.

For the rest of us, things are not quite so straightforward. 

A vending machine business can cost up to S$16,000 in the first year

Starting a vending machine business isn’t particularly costly, all things considered. Depending on the type of machine you need, you may need between $9,000 to $16,000 in seed capital. 

However, this is assuming your business involves only one machine. Additional machines will obviously increase the capital required.

Also, we have not factored in miscellaneous and business support costs, such as marketing, office rental, and labour (in our calculations, we are assuming you are restocking the machine yourself). 

You will also need to set aside some capital to pay a supplier or manufacturer for the products you want to sell, unless you manage to work out a consignment deal.     

Stage 1: Registering your business

The first step is to register your business and obtain the necessary license.

Self-registration, which you can do via BizFile, is the cheaper option. It’ll cost you $115 at the most. 

If you require additional services like a virtual address, or prefer to have an experienced party handle the paperwork, you can sign up for a business incorporation package. These will cost you between $300 to $1,000, depending on the services offered and the complexity of your application.

Vending machine businesses are pretty straightforward, so you should be able to successfully register your business on your own. 

The next thing is to determine if you’ll need a license or not. This depends on the actual product you’ll be selling via your machines. 

So, if your products fall in the left-hand column of the table above, you’ll need to apply for a Food Vending Machine license from the Singapore Food Agency. It costs $195 and must be renewed on a yearly basis.

Only one license is required even if you intend to operate multiple machines.

Stage 2: Sourcing your vending machines and products 

The bulk of your cost will come from your vending machines. New machines can cost anywhere from $2,000 to $8,000 or more, depending on specifications like capacity, temperature control, design and format. 

Take note that if you want any payment systems like contactless and mobile payments, you’ll need to add specialised card readers and hook up your vending machine to the Internet – all of which will cost you a pretty penny.

Used vending machines are also available on marketplaces like Carousell, and if you find a suitable model still in good condition, that’s one way you can reduce your startup cost.

Another way is to go with a rental or lease programme instead of outright buying a machine. You can expect rental costs to be around $500 per month per machine. 

Of course, the type of vending machine you’ll need boils down to the kind of product you’re looking to sell.

Canned drinks and snacks are among the cheapest products to sell via a vending machine, and you can approach wholesalers and distributors for merchant prices.  

As for hot food dishes, you’ll need to work out the per portion cost after factoring in ingredients and labour. 

Cooking and preparing the dishes yourself will result in a lower cost, but you can only do so if you don’t yet have high demand. As your orders increase, you’ll need to hire a central kitchen to ensure adequate supply. 

Other products such as face masks and mobile phone cases will cost more, depending on their quality and features.

Given how sophisticated vending machines are these days, the sky’s really the limit when it comes to what you can sell. The important thing is finding that sweet spot where your stock sells quickly while providing a decent profit margin.

Stage 3: Running your business

As your vending business gets into full swing, there are some additional costs to look out for.

Because nobody’s going to put their money into a dirty, broken and run-down machine, your machines will need to be cleaned and maintained regularly.

Vending machines, being out in public, may also be subject to vandalism, damage from attempted theft, and other such acts. It may be worth your while to protect your investment with a commercial insurance plan to cover repairs and replacements.

In order to increase the rate at which people buy your products, you’ll need to place them in areas with high shopper density, such as shopping malls, void decks, schools, sports halls and the like. 

These locations are invariably commercial or public areas, and as such would require a rental fee. You’ll also need to ensure your machine remains well-stocked, which means having to factor in transport and labour costs. 

And finally, don’t forget to factor in miscellaneous costs, such as marketing and operations.  

You may not have to pay for all of these costs. If you’re leasing your vending machine, your rental package may come with maintenance, restocking and insurance. 

Are vending machines profitable?

On the surface, vending machines seem like a pretty simple and straightforward way to make money. Just get a machine or two, load it up, and watch people slot in money to you. 

But the reality is, like any business, success and profitability depend on a few factors. 

1. Popularity of product or item

Popular items may enjoy high market demand, but once the fad fades away, so will your earnings. Hence, you have a limited time to sell enough units in order to recoup your capital and turn a profit.

If you choose to go with proven staples, such as face masks, hand sanitisers, mobile accessories, canned drinks or packaged snacks, you are likely to face high competition from owners of other vending machines selling the same things – and maybe even from other nearby shops too.

2. Number of vending machines

Let’s say you run a vending machine selling ice cream at a neighbourhood mall, which receives a steady stream of business. However, the turnover from one machine is simply too low to cover your overheads, much less earn you a profit. 

In that case, you’ll need to invest in more machines in order to increase your revenue. However, that means raising extra capital to do so.

3. Location of vending machines

Placing your vending machine in a good location is important for success. Nobody’s going to buy from your machine if it’s situated at the end of a long, dark and creepy hallway, but customers are just as likely to pass over your machine if it’s placed next to other, more enticing-looking vending machines. 

The ideal location is one relatively far away from competitors, while still enjoying a healthy foot traffic from consumers. It also wouldn’t hurt to have a reasonably secure location, where there is enough surveillance to deter vandals from trashing your machine trying to get a freebie

Most locations suitable for vending machines are found in public or commercial spaces, such as schools, sports halls, offices and malls. As such, you’ll have to budget for space rental fees, which can be quite high for particularly lucrative spots.

4. Profit margin

Another factor that will affect your profitability is the profit margin of what you’re selling. If after costs and fees, your profit margin is razor-thin (common in the F&B sector), you will need a high volume of sales to generate enough revenue. 

This, in turn, may mean more frequent restocking, increased machine maintenance, and maybe even additional vending machines to help you increase your customer reach. 

On the other hand, if you increase your prices to raise your profit margin, customers may not be willing to buy from you. 

Don’t forget, with a vending machine, your brand has limited ability to woo customers and convince them to make the purchase, unlike, say, a brick and mortar shop with knowledgeable and friendly sales staff. 

And, if you’re selling products that can be commonly found or with many substitutions, you’re pretty much stuck following the prevailing market price. (Unless yours is the only vending machine selling Coke on Mars, or something.)

This article was first published in SingSaver.com.sg.