Hey there, Vendpreneur!

Welcome to Becoming a Vendpreneur—where every week I help you navigate the challenges of running a vending machine business, whether you’re just starting out or looking to expand your operation.

This week, let's dive into the 5 reasons why vending machine businesses fail (along with some tips on how to avoid these mistakes from someone who's been there 😉 ):

• Reason #1: Poor Location Choices

• Reason #2: Unrealistic Expectations

• Reason #3: Low Profit Margins

• Reason #4: Changing Customer Preferences

• Reason #5: Lacking Customer Support

But before we jump into more details, I want to share a few quick updates on my vending business, Pod Plug:

Business Updates

• 💰 Secured a major deal with a lending company for machine rentals, eliminating the need for $5k+ upfront investment in new smart vending machines for our future franchisees. Estimated rental cost: $200/mo. Is this more appealing?

• 📱 Interviewed a social media candidate - exciting content for TikTok, IG, and YouTube is in the pipeline as we prepare to launch our Pod Plug Exclusive line.

• 🎬 Extended an offer for my first personal video editor, set to join our team on September 16th.

• 🤝 Welcomed our first Operating Partner, Heather, in Dallas! Her nightclub industry connections will be invaluable as she manages and expands her 20-machine route.

• 💼 Had 4 investor meetings, with 2 showing strong potential for investments exceeding $200k. Three more meetings scheduled for next week.

• 💊 Met with LiQure, an innovative hangover gummy company. Should I stock them in our machines?

• 👥 Our Operations Manager has moved on (he couldn’t take constructive feedback), presenting an opportunity to bring in new talent. We already have a promising candidate with an impressive background lined up for an interview next week.

• 🎨 Developed custom machine wraps for premium bars and nightclubs, tailored to match their unique branding.

PS. What if you could secure your first vending machine location in just 60 days?

That’s what I’m helping people do in the Vending Machine LaunchPad Community, built by me and YouTuber Jaime Ibanez (500k+ yt subs). Spaces are limited, launches in under 2 weeks.

Join the waitlist below for an exclusive early bird discount 👇

Now, let’s dive into this week’s newsletter!

🔗 Best Links

Curated picks for Vendpreneurs

📱 Top Reads

• Best-Selling Vending Machine Items in 2024: Discover what’s flying off the shelves this year! 📈 (Nayax)

• A 12-year-old is making headlines in the vending world with 3 machines already under his belt. 🏆 (Yahoo Finance)

🛠️ Must-Have Tool

• I swear by this tool for closing deals with location owners. I’ve used it consistently for 5 years. 📄 (DocuSign)

😱 Trending Now

• A bold new trend—machines that dispense emergency contraceptives. Are they coming to a location near you? 🚨 (STAT)

• Harm Reduction Vending Machines on the Rise: Narcan vending machines are becoming vital tools in public health. 🏥 (Tiktok)

❗Around 10% of startups fail within the first year, but vending machine businesses?

They have a much brighter outlook with a success rate over 80%.

It’s mainly due to low startup costs (you can finance your first machine with as little as $0), which make it a great choice for new entrepreneurs.

Despite the potential for solid returns (with some earning back their investment in 12 to 18 months) vending isn’t foolproof.

Keep reading as I share my top 5 reasons vending machine businesses can fail and what you can do to avoid these common pitfalls (from my own experiences). 👇

🚨 Reason #1: Poor Location Choices

Poor location choices are a major reason why vending machine businesses fail.

Choosing spots with low foot traffic can cripple sales, sometimes earning as little as $50 per month. Vending thrives only in high-traffic areas.

Key considerations include:

• Low Foot Traffic: Machines in low volume locations like the local doctor’s office with 8 employees isn’t worth your time. Make sure your machines are in locations with at least 75+ there at all times.

• Accessibility: Machines that are hard to reach are difficult to restock and maintain, often resulting in empty machines and lost sales.

• Environmental Conditions: Machines exposed to extreme conditions suffer more wear and tear, increasing maintenance costs and hurting sales (ie: outdoors).

• Demographic Fit: Selling the wrong products to the wrong crowd? Sales will suffer. Tailor your stock to fit the location (whether it’s an office, school, or gym).

I learned this from experience.

Initially, I placed my first few machines in locations that were convenient for me (a biker bar with a predominantly older demographic), rather than ideal for my target customer.

After a few months of poor sales, I realized I needed to change my strategy.

I discovered that machines stocked with items like vapes, phone chargers, condoms, tampons, gum, and mints performed much better in busy bars and clubs catering to the 21-35 age group.

This pivot was crucial for my success.

This is also the reason why building “The List” first is important. It helps you avoid common pitfalls and target the right spots from the start.

🚨 Reason #2: Unrealistic Expectations

Another major reason why vending machine businesses tank is unrealistic expectations.

Many owners dream of passive income and quick riches. But, the reality hits different.

Here's the scoop:

Vending machines demand regular check-ins. You've got to maintain them, collect cash, restock, and fix any issues.

Let these slide, and you'll face broken machines, empty shelves, and a sales nosedive.

There are costs to consider too: product costs, machine upkeep, transport, and labor. Miss these in your budget, and you're looking at slim profits and stress.

Avoid falling into this trap.

Do your homework.

When I started my vending business, I figured the big costs would be just machines and stock. That was a misstep.

Here's a breakdown of the costs that hit my bottom line hard:

• Commission: Typically, vending doesn't involve commissions. If it does, keep it under 10% of sales. For specialty vending, 10 to 20% is normal.

• Credit Card Processing Fees: Aim for 5.9% on transactions under $5, and 2.5% plus 10 cents for those over $5, according to my dealings with Nayax.

• Inventory and Sales Tracking Software: This runs about $10 a month.

• Maintenance and Parts: Set aside around $30 monthly for these.

• Inventory Cost: In regular vending, inventory can swallow about 50% of your revenue; in niche vending, it's more like 30%.

🚨 Reason #3: Low Profit Margins

Traditional snacks and sodas usually offer net profit margins around 20% to 25%. In contrast, fresh food or gourmet snacks can push margins to 30% to 45%.

Sticking to low-margin items can be risky. Here’s why:

The cost of goods (AKA inventory cost) typically consumes about 50% of revenue. With low-margin items, your profits might not be able to cover your expenses like commissions, maintenance, and restocking.

Operators often double prices to maintain margins. However, if the base cost is low, this strategy may not be enough.

For example, selling an item purchased for $0.50 at $1.00 barely covers operational costs.

That’s why I prefer specialty vending…

• Better Margins: Specialty machines offer about 75% margins compared to traditional vending’s 50%.

• Lower Spoilage: Less than 1% spoilage rate versus 15% in traditional vending.

• Simpler Stocking: Stock every two weeks instead of 1-2 times per week.

• Easier Management: Manage less than 20 SKUs instead of over 100.

Specialty vending means more profit with less hassle.

🚨 Reason #4: Changing Consumer Preferences

Consumer preferences are always changing, and vending machine operators need to keep up or risk falling behind.

Here's the lowdown:

• Healthier eating is big right now, and dietary needs are a deal-breaker too. 36% of Americans were following specific diets like gluten-free or vegan. Machines without these options are missing out on a big slice of the market.

• Younger folks want unique, trendy, high-quality snacks. Millennials are more likely to buy from vending machines with specialty or gourmet items. If you don’t keep things fresh and exciting in your vending machine, you’ll lose their interest.

• Eco-friendly is the way to go. A 2023 survey revealed that 58% of consumers would pay more for sustainably packaged products. Not offering this could cost you a growing customer base.

Operators need to stay sharp. Here’s a personal tale:

I once stocked up on a popular vape brand, thinking sales would keep booming. Just three weeks later, sales tanked. I had to find out why.

I chatted with customers at several Austin locations. Out of 75 people, 85% were all about a new brand called Geek Bar.

The market had shifted fast, and my stock was now outdated.

Lesson learned: The customers call the shots. It’s crucial to listen and adapt, or your vending business might just stall out.

Which brings us to the last key reason why a vending machine business fails. 👇

🚨 Reason #5: Lacking Customer Support

When customers struggle with vending machines, they're less likely to come back.

Machines with poor design or unclear instructions lead to confusion and frustration. Bad lighting, unclear labels, or complex interfaces can stop customers from buying.

That’s why all my OG classic vending machines have stickers with clear instructions.

But, machinery is never perfect. So when it comes to refunds, you need a quick and easy capturing system.

That’s where ZippyAssist comes in.

Here’s how it works:

Feel free to use discount code “ETHAN” for 50% off for the first two months.

And That’s a Wrap!

Thanks for reading this week’s newsletter.

Hit reply and let me know what you found most helpful this week—I read every single reply and I’d love to hear from you!

See you next Saturday!

-Ethan

Whenever you're ready, here are 3 free resources that can help you:

1. 📚 Ultimate Guide to Starting a Vending Machine Business: a 90-page comprehensive and actionable guide on kickstarting your vending empire.

2. 🎭 Cold Call Scripts: Boost your confidence and convert conversations into contracts with my field-tested approach to reaching out to potential vending locations.

3. 📄 Location Contract Template: Now once you’ve secured your prime spot using the cold call scripts, it’s time to use my lawyer-built contract template. All your bases will be covered here.