After graduating with my undergraduate degrees in 2015 I began working as a software engineer. Now, software engineering is typically a pretty lucrative field. However, I choose to stay close to home (Montana) and took a position as a developer in North Dakota. The salary and benefits package were good, but not quite at the top of the industry. So, being a fresh graduate, weighed down with a lot of student loans and a small amount of credit card debt, I began looking for ways to make extra money outside of my working hours.
I didn’t want to get a second job since I already devoted most of my time to work. Also, as mentioned above, I was just released into the wild; I didn’t have a ton of capital to jump into real estate investing or other high startup cost revenue streams. Fortunately, after browsing business classifieds for a few months one opportunity caught my eye. Someone was selling 12 vending machines, most of them currently placed, for $100 each. These turned out to be pretty nice machines with the retail value for new units being in the hundreds. They were similar to these but not quite the same (pictured below). Everything on them was metal and well-built, unlike other cheaper plastic machines that are often used. The only problem I had was that I didn’t have $1,200, but I did have ~$500 that I could commit to the enterprise.
Thusly, I met with the man selling the machines and, as luck would have it, two machines were placed in my workplace and two more were placed just down the road from my office. I offered $400 for these 4 machines and a fifth machine for spare parts. The offer was accepted and after a quick trip to Sam’s Club to buy candy my short career as a candy salesman began.
My first year in industry as a software developer was a little interesting. I liked my job (in fact I still have it to this day) but I felt like I wasn’t quite done getting educated. So within a year, I had decided to go back to graduate school. Because of this, my vending career was rather short since after moving I was caught up with school and working full-time, remotely at the job I had just started a year earlier, and ended up not placing the machines in new locations.
I purchased the machines in August of 2015 and removed them from their locations in July of 2016 when I moved back to South Dakota for graduate school. This made my foray into the vending business very short-lived. However, I still think it’s valuable to look at a few things that happened during this time as a learning experience for those interested in this type of passive income. Within a year I was able to experience the pros and cons of owning the machines, establish a history of profit margins, and determine the level of time investment required to maintain this type of business. Details of these experiences are outlined below. My experience also goes to show that you don’t have to start big. This small action could have snowballed into something much larger given enough time. Starting small allowed me to learn the ropes without making any grand commitments.
Getting started was fairly easy. As mentioned above the machines I purchased were already placed at two different locations (two machines at each location). So, for me, I just need to buy some candy, fill the machines, and watch the cash roll in. This might not be a typical case though so for completeness here’s a short list of places that might do well with these types of machines:
- Tire Shops: Although it’s likely most of these already have vending machines, I swear it’s a requirement in the industry.
- Shopping Malls: Like tire shops, these locations are probably already taken
- Business Campuses: As I mentioned in the introduction two machines were placed in the business office that I worked at. Pretty much any business with a lunchroom/break room would probably be a good choice.
- Bars: Again, competitive location.
- Hotels: Some hotels already have contracts that disallow new vending providers though (which I found out when trying to place my 5th machine).
- Apartment Complexes: This would be an ideal location if you also happen to live in the complex.
The above list is not exhaustive by any means. Essentially the types of business you’re looking for are ones with a lot of foot traffic, maybe by many different people every day. For example, the second location that the machines I purchased were placed was a gas distribution plant. There was a small building that the truck drivers were required to stop in before filling or emptying their tanks. I had two vending machines right next to each other in that location and they almost always got bought out. It doesn’t get much better than having a tiny location people are REQUIRED to go to.
Filling the Machines
With the machines placed it’s time to buy the product. The cheapest place I found to do so was Sam’s Club (there was no Costco where I lived at the time, but that would probably work just as well). The type of candy is a little hit and miss. I mostly stuck with Hot Tamales, Skittles, M&Ms, and Peanut M&Ms. The person who sold me the machines said he’s had luck with Boston Baked Beans and a few others as well. As I said, it’s hit and miss, try some for a few months to see what sticks (it also doesn’t hurt to change it up from time to time).
The amount of time to maintain this small business was pretty minimal. I only checked the machines once per month which took about 1–1.5 hours. This timing is a little off though since the gas plant that two of my machines were located at had some pretty heavy security. I spent about 20–30 minutes each month waiting to get clearance to be able to enter the area where the small check-in building was situated. So I’d say, on average, each machine takes about 10–15 minutes to maintain each month. Of course, you will need to tack on travel time, especially if your route covers a large area. This small time commitment, along with the reasonably high profit margins (discussed below) make the entire enterprise a good way to spend one Saturday afternoon or Friday evening each month.
Income Statement and Margins
Below is a table of the income and expenses from day one of operating the business. Note that, 8/1/2015 is the day I purchased the machines. On this day there was no income but I recorded the cost of purchasing the machines and the product as an expense. This was done primarily to help determine when the start-up costs were paid for in full from the profits of the business. Similarly, in the last month (7/31/2016), I was removing the machines from their locations so I didn’t refill them. Therefore there were no expenses at this time.
Tables are a little boring so here’s a quick rundown (which is also in table format):
One problem with these numbers is the inclusion of the first and last month of operation. During these months the expense and income were unusually high or unusually low which caused some abnormalities in the averages. Below is a similar rundown of the averages but excluding these two rows.
Looking at this table we see the average net income and profit margin are fairly substantial when adjusted for the size of the business. Like I mention above, servicing these machines only takes ~1–1.5 hours each month so on an hourly basis that breaks down to $31.42–$47.14/hour. I believe these numbers will scale fairly linearly when adding more machines but that will depend heavily on how close the machines are, i.e. how long the route takes to traverse.
We can take these numbers and attempt to extrapolate for a situation in which I had purchased all 12 of the machines. On a per-machine basis, the service time is approx. 18.75 minutes (60*((1 + 1.5)/8) => average time to service machines divided by the number of machines and converted to minutes or (((1 + 1.5)/2) / 4)*60) and the income per machine is $9.82 per month (determined in the same way). Assuming 12 machines, this would give a profit of 117.84/month which would take 3.75 hours to earn. Quickly, a little start-up capital and a small time investment once per month can bring in a considerable amount of income, respective to the size of the operation.
Some Lessons Learned
What I learned, first and foremost, was that you don’t need to start big to get started. In this endeavor, I risked very little startup capital, made some money (not much), and learned some very important lessons. Truth be told, even if I’d lost all of my investment it would still have been worth it for the lessons learned in the end. This statement holds true in any endeavor. Likewise, I’ve heard about people who thought they need thousands of dollars to get started with investing in the stock market, which simply isn’t true. As a matter of fact, it’s probably best to start small since you’ll have little to no experience when starting. This will minimize the total amount lost during your initial foray into any new financial experience.
A second lesson I learned was patience. It’s easy to see from the numbers above that the first month didn’t look too promising. If I’d continued to see that same level of income from those same profit margins it would have taken me more than 11 years to get my initial investment back. Fortunately, this investment was lacking by way of liquidity so I was forced to tough it out for a couple more months. The subsequent months were much more lucrative and I saw substantially more income and much better profit margins.
All in all, this was a good experience for me. It ended up being quite profitable (on a percentage basis) and I learned some valuable lessons (two of which are mentioned above). I would certainly recommend this form of extra income to anyone, especially those with little capital and little time. What’s more, it’s not noted above but I still own these machines. So, even though the total profit listed above is ~$70 I still have assets on the balance sheet that are probably worth the initial $400 I spent when purchasing them, or at least a few hundred dollars if not.