Vending Business Planning Means Success

Vending Business Planning Means Success Before you undertake any venture, it is wise to do initial planning. How are you going to run your business?  Write a business plan. Think through all of the potential problems with running the business. Understand that you are fully responsible for the outcome of the business.

Remember the rule of cause and effect: If I do this, then what happens? And what does that cause? And what does that cause? Think at least 4 or 5 steps into the future, keeping a long-term perspective on you business.

Vending Business  Planning Means Sucess  Attainable, measurable goals are key
Develop business goals that are long-term, clearly defined and measurable. Divide your business into its components and create short term goals for each section. Be methodical. The time you invest in planning is far less expensive than the cost of engaging in a failed business.

Vending Business  Planning Means Success  Know your customers – and your prospects
Invest time in developing a marketing plan. Marketing is the entire process of selling product, from demographic research (who will buy), what they will buy (product selection), where they will buy (commercial location, street corner, school), to how they will they buy (cash, credit, check), and why they will buy (price, selection, color). A sale is the process of taking money and delivering product; marketing determines what you will sell.

In the vending machine business, management has to make these critical decisions. What will you sell, what kind of machines will you use, where do you set pricing, where will you sell? Our market is broken into two groups, each having different concerns. We have the account market – focusing on where to place machines – and the end user market, determining who will spend money and what will they buy. This article will discuss the account market, and the account sales process.

Vending Business  Planning Means Success  Plan for the unforeseeable
As much as we enjoy planning out sales, it’s also important to consider the impact that problems, issues and catastrophes could have on the business, things like:

  • Equipment destruction
  • Pricing decisions
  • Placement fees and bad placements

Like any business, vending machine operations can be enjoyable and profitable – provided you do your homework ahead of time.  More Vending Business Show Blogs  Vending Machine Technology

Equipment liability forklift vending machine crash

Equipment liability forklift vending machine crash   Proper handling of equipment damage incidents starts at the time of placement. Accidents, vandalism and theft will happen, so I discuss these issues during the sales process and negotiate terms for dealing with them. You need to be comfortable with the placement terms. Generally, our company carries most of the liability – unless malice is involved. We do not tolerate theft or vandalism.

Equipment liability fork lift vending machine crash  We actually have had forklifts crash into our machines on 2 occasions. One instance was a driver mistake; he bumped the machine and bent the door. It was obviously an accident, and we repaired the machine at our expense.

Equipment liability fork lift vending machine crash  What if a forklift crashes into your vending machine  The second incident was radically different: An employee lost $0.65 in the soda machine, climbed on the forklift, skewered the machine and completely destroyed the piece of equipment. This was done in plain view of the other employees. We demanded that the account replace the machine and terminate the employee. They were one step ahead of us, had already terminated the employee, garnished what wages were due him, and had contacted their attorney to sue for malice. (They won the suit and garnished his wages for the cost of the machine.)

Simple refund policy
Another much more common scenario involves an employee losing money and wanting reimbursement. We empower our route people to handle this situation themselves; they simply log the refund and add it to their paperwork. We use this policy because we found that it is better to keep the vending account management uninvolved – don’t give them reasons to replace you.

Eventually, you will have an employee who always loses a dollar, every visit, and upon interrogation, cannot really justify why he lost money. I call this “working the route driver.” When we realize an employee is working a driver, we contact the management with our concern, and set up refunds through an account management program. This does one of two things: (1) It stops the problem immediately (because the employee does not want to be caught stealing), or (2) it alerts us to an equipment problem. Nine out of ten times, the first option is what occurs. We always discuss this possibility during the sales process, precisely because it is so common.

And then there’s vandalism
Employees will bump, grind, beat and damage your vending equipment. Product hangs, or, invariably, the machine will malfunction just as that employee (who is starving to death) has deposited his last 50 cents. Take these actions in stride: they happen; it is a part of the industry. Offer a refund policy that allays the employees’ fears.

But what if an employee breaks the glass or does significant damage? I look to malice for responsibility. If an employee goes to his tool box and grabs a hammer to break the glass, the account is responsible. (Actually, the employee is responsible and we have had several companies garnish the employee’s wages to pay for the repair.) Because most companies don’t want people with this kind of behavior, I present the situation by saying, “If they are doing this to our equipment, what are they doing to your equipment or, worse yet, your customers?” Writing on machines, leaving nasty notes and other forms of vandalism are handled in a similar way; keep it professional and impersonal. Give the account solid business reasons to support your position.

Disasters and other losses
What about catastrophic loss of equipment, such as if the building burns down and destroys my equipment? We also cover possibilities like this during the sales process. Catastrophic losses are usually covered by the account’s insurance, added into their loss. Our company has had several incidents where the account location has paid for equipment due to catastrophic loss.

A word of advice: When placing an account, make sure you have some sort of agreement with the location about your liability and their liability. It is best to have this agreement in writing, prepared by a lawyer, to protect yourself and your investment. But this process often raises a red flag and can cost you an account. I usually discuss the issue during the sales process, and send them the agreed-upon terms after equipment is installed. After installation, the agreement is usually just filed in the vending file and forgotten. We rarely need to refer to the agreement after the initial sales process; when we do, we are usually losing or removing the account anyway. Equipment liability forklift vending machine crash    Preparing for incidents early, discussing the possibilities during the sales process, and coming to terms beforehand can save you a great deal of aggravation.  More Vending Business Blogs  Vending Machine License: Is It Something You Need?

Vending machine evalulation

Vending machine evaluation   The valuation of vending machine equipment is based on several factors:

  1. Storage value
  2. Collector’s value
  3. Scrap value
  4. Parts value
  5. Operational value
  6. Market value

Vending machine  evaluation  In trying to value machines, each of these valuations is significant.

1.Vending machine evaluation  Storage value: Machines in storage are generally considered liabilities, and they cost you money each month. Even if you store the machines in your garage, they’re taking space that could be used for something else (like your car), which leaves them a liability.

2.Vending machine evaluation  Collector’s value: If you have an extremely old vending machine, you might have a piece of equipment that is collectable. The most notable examples are rounded top soda machines. These machines were made in the 1950s, and are examples of the initial entry into the cold drink vending era. They were usually purchased by bottling companies and painted with a brand of soda (Coke, Pepsi, Crush, etc.). They were usually single-selection (one flavor) and operated with primitive coin acceptance. Snack machines are much the same; they were usually a mechanical vend process with primitive coin acceptance. To be valuable, they need to be working and in pristine condition. Few of these machines still exist; just because a machine is old does not mean it is valuable.

3.    Vending machine evaluation Scrap value: All old vending equipment has a scrap value, if nothing else. Scrap is the lowest value available and is calculated by weight. Because vending machines are generally made of steel, they’re heavy. The scrap value of steel fluctuates frequently, based on world demand. Scrap value is best figured by calling a local shredding facility that deals in scrap metal. Make sure to figure in the cost of transportation, as this figure can make it unprofitable to scrap machines. I personally use a local man who takes a truck and trailer load (pickup with a flatbed trailer) to the scrap yard; for his efforts, he keeps the revenue. Unless the value of steel is extremely high, we do not generate revenue from this process, but at no cost, we remove junk from our facility. We do not “junk” a machine until we have used all the available parts.

4.   Vending machine evaluation   Parts value: Old vending equipment also has salvage value in the form of parts. The cost of replacing individual parts from vending machines can often be recouped by scrapping parts from other machines. Replacement parts can be costly and requires time to obtain. If you have a compromised machine, the parts value can far exceed the machine value. Vend motors, compressors, switches, computer boards, changers, validators, spirals, coin chutes, glass, etc., are all available if you salvage the machine. Our company has purchased machines (usually one that’s been vandalized) intending to use it strictly for parts. Repair parts are immediately available at a reduced cost. For example, snack machines have 30 to 40 selections, which means 30 to 40 vend motors and spirals. New vend motors start at $10, spirals at $5 – so one machine yields $600 worth of motors and spirals. The glass is worth $50; trays are worth $15. Nuts, bolts, specialty parts have some value. Changers and validators are worth $50 each. If you have the need, the parts value can add up quickly.

5. Vending machine evaluation  Operational value: Vending machines on location develop cash flow; they produce cash for your operation. The amount of cash generated depends upon the location, but if placed properly, one can expect positive cash flow from vending machines. The operational value is the amount of single net cash flow that can be generated by the vending machine in 9 months. Single net cash flow is the total revenue minus the cost of goods sold. Let’s do the math:

Account A: $400 per month gross sales                $400.00
$50 Cost of goods sold (100% margin)                  $200.00  –
Single net cash flow                                            $200.00  X
9 Months                                                            9           =
Equipment Value                                                $1,800.00

This formula is a quick guide to equipment placement. If you can accurately forecast your sales, you can determine how much to spend on equipment. Your goal should be to violate this formula by spending less on your equipment. This will make your accounts more profitable.

6. Vending machine evaluation  Market value: Market value is the amount of money you will pay for a machine in the open market. Market value falls into two categories: new and used. New values for vending machines are determined by the manufacturer and sales organization. Like all value, the value of new vending machines depends on options, name brand, warranty, reliability, standardization, versatility, and so forth. Not all vending machines are created equal; some brands have features that are superior to others, and it is critical that the dealer stands behind that equipment and honors his warranties. Used equipment can be purchased several ways – through want ads, vending companies going out of business or updating equipment, and from dealers. Used values are determined by many of the same factors, but also include the seller’s motivation to move the equipment.

When choosing a vending machine dealer, remember that your dealer will become your unofficial partner in the vending machine business. A good dealer will have a solid business record (dealers that have run vending machine companies are preferred), should be honest, and have a list of satisfied (and dissatisfied) customers you can call. A quality dealer will carry several lines of new equipment and have a service and refurbishment department for used equipment. Most quality dealers offer several levels of refurbished used equipment to help you best meet your needs. They usually have some type of financing available, as well. Shop your rates and terms, because vending equipment is very difficult to finance; ask your accountant for your best finance solution. The dealer’s service staff should be available by telephone for quick suggestions on repair. They should have delivery services. Generally, a quality dealer has the ability to help you with all facets of your business and should be able to guide your decisions in an unbiased way. Of course this all comes with a cost: most quality dealers will be slightly more expensive than their competitors.

Keep in mind, though, that you don’t want to be “penny wise and pound foolish,” as the old saying goes. The added initial cost of your equipment will be overcome by the added service you will receive, and avoiding one simple mistake can generate thousands of dollars in added income. Use your dealer as a source of information and capitalize on that information. Vending machine evaluation  More Vending Market Blogs  FDA Requirements for Vending Machines: What You Need to Know

Finding Good Vending Machine Locations

Finding Good Vending Machine Locations  What is a good location? This question is relative, based on your company’s size and goals. A national vending concern considers a good account to have gross sales over $240,000 per year ($20,000 per month), whereas a small vendor working out of his garage might consider an account with sales of $6,000 per year ($500 per month) to be a good account. Start with your goals. What kind of vending machine business do you want? How much capital do you have? What are your operational plans? Is this a full time venture for you or a part time income?

Finding Good Vending Machine Locations  For example, a vending machine account that generates $20,000 per month probably will have at least 6 vending machines (3 sets, snack/soda). These vending machines would need to be late model or new, an investment of at least $15,000 in equipment. To service an account of this nature, a vending machine operator would require:

  • $2,000 in parts for immediate repair – Customers like this expect service calls to be completed within 4 hours of the initial call.
  • A running daily inventory of $5,000 in vending machine product
  • Service 2-3 times a day
  • Fully insured – liability, workers compensation, etc.
  • Paying a commission
  • Driving a late model vending truck ($40,000)
  • Extremely professional demeanor
  • $62,000 in initial capital investment, plus ongoing expenses (telephone, office expense etc.), before the first dollar is generated

As you can imagine, this type of account is very rare, could require even more equipment than we discussed here, and is highly desirable.

Finding Good Vending Machine Locations  A vending machine account that generates $500 per month can have as little as a single vending machine, which could be older and might even have been free. Servicing this account is much easier, requiring 2 route stops per month, service calls handled in a reasonable amount of time (within 5 days), could be run out of a car or pickup truck, would not be a commission account (unless you are crazy), and would have little ongoing expense. These accounts are much more plentiful and, therefore, less desirable.

Each type of account appeals to different levels of business expertise, and the rules of economies of scale do apply. Large organizations lose money in smaller accounts because of larger overhead costs. Smaller businesses can make money in smaller accounts by keeping overhead low. Where do you want to be? What is your skill level? How much capital do you have?

Now it is time for the market analysis. Once you have determined your goals, study the marketplace. Look for accounts that can generate the amount of money you desire within the framework of your investment – both time and money. Find out which operators service those types of accounts and study their operations. Analyze what you perceive to be their profitability. Are they making money in these types of accounts? Keep in mind that just having a vending machine account doesn’t mean they are profitable. Be conservative with your estimates and include all costs. Do not forget to include wages – your time is not free. If you can’t make more than your current hourly wage, do not enter the business.

So there it is, XYZ account, and your analysis determines that you can be profitable in the account. How do you get the XYZ account? ABC Vending has the account now and you have studied ABC’s operations. You have advantages over ABC and you know you can get the account. What do you do now? Go selling.

Thousands of good books have been written about successful selling, and I will not get too specific, but I will give some pointers that were successful for my vending machine operations.

  • Timing is critical for two reasons:
  1. Most sales occur after the 5th sales call. Be consistent and do not give up. If you have never called on XYZ, there is a certain amount of time required for the decision-maker to determine if you are “real.” How often do you personally purchase from an unknown company? Do you tend to purchase the first time? Of course not. Most people are afraid of making a bad decision and want to “get to know” the operator (or at least see that he/she has the desire to earn the account).
  2. The nature of the vending machine business is that machines will break down, service can get sloppy, machines get old, management changes, and a host of other situations. If you are consistent, you have to wait for one or more of these factors to open the door of opportunity for you. Every vending machine operator has lost an account due to a malfunction in his/her machine that was followed by a well-timed sales call from another company. I have personally obtained accounts while the decision-maker was in the process of reporting the loss to his current vendor. (He himself had just lost money, was sick and tired of hearing complaints, and replaced his vendor on the spot.)
  • Under-promise and over-deliver. If you make a commitment, you must keep it, so don’t over-commit. Ever purchased anything where the salesperson says they can do this, that and the other thing, but the product only delivers “this”? What do you think of the salesperson and their company? On the other hand, have you ever purchased something where the salesperson says they can deliver this and that, then they deliver this and that – and include the other thing at no additional cost? How do you feel about that salesperson and his company? Under-promising and over-delivering will get referral business for you. It also strengthens your position with the decision-makers, building a win win situation for everyone.  Finding Good Vending Machine Locations  More videos of the Vending business show  Vending Machine Technology