Bulk Candy Vending for Passive Income
by Brian Lee. (Visited 38675 times) (183 comments) :: Print This Post
Posted: January 24th, 2007 under Bulk Vending, Entrepreneurship, Money, Passive Income.
Often the best ideas are right under our noses. How many times have you walked past a quarter candy machine in a restaurant lobby or break room? Did it ever occur to you that starting a bulk candy vending business could give you a source of passive income?
If you do it right and avoid the scams, bulk candy vending is an excellent way to take your first step toward financial freedom by collecting passive income producing assets. While it won’t get you rich overnight, consider these benefits:
The startup costs are extremely low, the return on investment is fantastic, and the amount of maintenance required to sustain a consistent cashflow is so low, I consider it passive income. Plus, everyone loves the candy man!
Passive Income
When I was first enlightened to the idea of passive income, I immediately wanted to start collecting it. What I really wanted to get into was real estate, but I had horrible credit and no money in the bank for a down payment. While the gurus will tell you that it is still possible to purchase properties under these conditions, I didn’t have the time it would have required to find my diamond in the rough.
The beauty of passive income is the freedom it gives you from trading your hours for dollars. At most jobs, you get paid based on how much you work. Since you can only work so much, your income potential at a regular job is severely limited.
A passive income producing asset, on the other hand, pays you whether you work or not. This means that your income potential is only limited by the number of assets you are able to collect.
While the idea of unlimited money got my attention, the thing that really got me excited was the idea of time freedom. If I could collect enough passive income producing assets to cover my expenses, I could do whatever I wanted with my time. Since my dream was to be a filmmaker (a profession where most people don’t make a dime), time freedom sounded like a dream come true.
What I needed was what I call a crowbar, which is a burst of productivity to get me out of a financially distressed state and onto a stronger platform from which I could start my career in real estate. I wanted to find an income-producing asset in the hundreds of dollars instead of the thousands so that I could continue my debt repayment plan and start producing passive income at the same time.
The Ah-Ha! Moment
At the time, my girlfriend and I worked as bartenders at a restaurant. Every shift, she would take a few quarters out of the tip jar to get a few handfuls of candy from the vending machine.
One day, I was teasing her about how much money she had put in that thing over the course of her bartending career. As soon as I had finished my sentence, her eyes lit up. “How much money do you think those things make?”
Over the rest of the shift, we took notice of how many dollar bills we changed out for quarters. We started to hear the clack noises the machines make when someone puts a quarter in and turns the handle. The machine was taking in all kinds of money and the owner was nowhere in sight!
Levels of Passive Income
Passive is a relative term when it applies to income. No investment requires no effort at all after the initial setup. Even if you own a stock portfolio that someone else manages, you still have to manage your manager from time to time.
What I have found is that there are different levels to how passive an income stream is; and usually, the more expensive the asset, the more passive the income.
Income from stocks is pretty high on the passive scale, but it takes a lot of money to make a significant return. Real Estate can be pretty passive, especially if you have a property manager, but often requires a down payment, good credit, a steady job, a creative mortgage broker, Jerry McGuire negotiating skills, or some combination of these things. Unfortunately, creative types don’t often have any of these things.
Bulk candy vending is the least passive of all of these examples, but is also the least expensive to get into. For me, it was the perfect gateway asset into passive imcome.
If I were to calculate an hourly wage for the maintenance I put into my business, it would be about ten times higher than I could get from a decent job. I consider this passive income in my current position. As I roll more and more of my profits into bigger assets, and my time becomes more valuable, I will eventually either sell the candy business or hire someone else to run it.
So, What are we Looking at?
The question everyone wants to know is: How much money do you make from those things?
While the income varies wildly from location to location, I conservatively average about $25 in profit per month per location. Some of my locations earn as little as $5 and some as high as $150.
Gumballs cost about 2 cents a piece and are sold for 25. The profit margins on other types of candy hover around 70%.
You can buy a brand new triple vend candy machine like the one on the picture at the top of this post at Sam’s Club or on the internet for about $200 on the high side and about $100 if you are buying in bulk or used. This means that each machine should be able to pay for itself in about six months or less.
Think about this: If you paid $150 for a machine that earned you $300 over the course of one year, the ROI for that machine would be 200%! Most business and real estate investors are happy with a 20% return and you just earned ten times that!
Now $300 isn’t going to make you rich, but if you had 20 locations, you would have $6000 at the end of the year to put down on an investment property. If you really went crazy and secured 100 locations, you might be looking at $30,000. Even better, that income would keep coming in as long as you had your locations.
Time Commitment
Most of my machines can go about two months before they need service. Servicing them takes all of five minutes plus drive time, candy shopping, coin counting, and accounting. Really, I only spend a couple of days a month on my candy business, and I can take a six week vacation if I want without a sweat.
Why Bulk?
The comment I always seem to get from well-meaning acquaintances is, Have you ever thought about those big soda and snack machines? I bet those make a lot of money.
The answer is I thought about it until I realized that those things need constant maintenance. While they also make a lot of money, this sort of vending is more of a job and less of a passive investment. I am perfectly happy collecting multiple streams of income that are smaller, but passive; and add up into something to talk about.
How to get Started
If you feel like bulk candy vending is up your alley, I would suggest starting out by buying one machine and approximately $50 worth of candy to fill it at your local warehouse store. What ever you do, don’t fall for one of the thousands of scams out there that want thousands of dollars to start this really simple business. You can start it for less than $200.
Don’t get greedy and buy a lot of ten, twenty, or forty machines up front expecting to conquer your local vending world. I see people like this all the time trying to dump all of the machines they didn’t place on eBay. Getting locations can be a challenge. It’s best to see if you have the stomach for the cold calls before you dive in.
One month after you place the first machine, you could take the $25 it made and add another $175 of your own to buy your second machine. In the third month, you take the $50 those machines made plus $150 of your own for the third machine, and so on for about six months and six locations.
Once you have six locations, you should be making about $150 per month which should pay for an additional machine each month if you have found a cheaper source than Sam’s Club. You might even hit a couple of high-volume locations right off the bat that really get you rolling.
Once you have proven that you have a knack for getting locations, only then would I suggest that you let your earnings accumulate to buy your first lot of ten. I never buy in larger lots than ten unless I am getting an incredible deal from someone who has given up on their business. The rates of return are so high, it doesn’t matter if you are paying an extra ten or twenty bucks a machine.
Money Matters
Please, don’t go into debt to start this business. It isn’t hard to put aside $50 a month until you have enough to buy your first machine. Have patience and you will avoid getting in over your head. This is supposed to be passive income, not a stressful job trying to pay back your credit card interest.
Make sure you have a separate checking account to handle all of your business transactions. Buy your candy and machines out of this account and deposit your quarters. This way, you know when you have made enough to buy more machines by checking your account balance.
Check with an accountant or lawyer to set up the proper business structure and to get the proper licenses in your area. Since this is a business of small chunks of income, it is even more important to keep good records to make sure that you are turning a profit. You’ll also want to be on top of your business so you can accurately report your income and tax deductions to the IRS.
How to get Locations
Now for the hard part: getting locations. It can be tricky at first, but after a little practice, it will become second nature.
When you get up the courage to walk into a place of business, ask for the decision maker and say something like this: My name is Brian with Cool Candy Machines, and I was wandering if you might have an extra few square feet for a candy machine like this (produce picture) that is a free service to your customers and employees at no cost to you. To which they will reply, What’s in it for me?
While I truly believe that my machines add value to a place of business by pacifying kids, giving employees a quick treat to keep up their spirits, and offering a product that the owner doesn’t have to hassle with; this usually isn’t enough to convince them.
You could offer a commission, but the way I see it, 10% of $25 doesn’t mean a thing to a business. The business owner might even come back by suggesting that he just buy his own candy machine. True, you say, but is the hassle really worth an extra $25 a month? I am a professional vending operator. This is what I do for a living. I know the right candy, the right time to fill it, the right amount, the right presentation, and the right way to fix the machines when they break down. It’s only because I have dozen’s of locations that it begins to be an income for me.
Mr. Business Owner, you continue, I have an arrangement with a local charity, XYZ. Most business owners are happy to donate their 10% commission to this charity.
Charity
While there are national charities that have programs specifically designed for vending operators, I would suggest forming a relationship with a local charity that actually means something for you. This will help motivate you to get locations and also provide a way for you to actually contribute to charity instead of putting it off until you make enough money.
Two Kinds of Locations
The two basic types of locations that you might get are front of the house (restaurant lobbies, carwash waiting rooms, etc.), and back of the house (employee break rooms). While front of the house locations tend to be harder to get, the advantage is that you have access to their employees and customers. Back of the house locations usually don’t make as much, but are much easier to sell.
Here’s a big secret: There is a certain kind of back of the house business that can be both profitable and welcoming: clothing stores with high school and college aged employees. People in this age range love candy, and the manager’s of such places will usually welcome a machine in their storage room to keep them happy.
What Kind of Candy?
I usually give the location the option of picking from a few pre-selected candy offerings to get them even more invested in the project. I tend to have good luck with Gumballs, Reese’s Pieces, Skittles, M&M’s, Peanut M&M’s, Peanuts, and Runts. Hot Tomales are okay if the location is well air-conditioned, but they tend to go bad after a few months.
I try to always have one of my vending slots dedicated to gumballs because of the profit margin, but some locations don’t want the chance of gum stuck to their floors. I also like the combination of a sugary candy on one side with a chocolaty candy on the other.
Candy Settings
Most bulk candy vending machines have a setting that allows you to choose how much candy will dispense for a quarter. This setting is important because it is closely tied to your profit margin. If you set it too high, you will cut into your profits. If you set it too low, your customers will feel ripped off.
The Maintenance Routine
The essence of a good maintenance run is stealth. Good vending service means the owner should be able to forget about you. Never let a machine go empty and turn into an eye sore.
I try to get in and get out quickly without causing a stir. I don’t want to give them a chance to rethink my welcome. If I have a little bit of candy left in a bag, I give it to whatever employees are around. This keeps them on my side!
I keep a big cooler in my car with the candy and carry individual loads in my backpack. I also carry rubber gloves, a screwdriver, cleaner, paper towels, keys, extra business cards, zippered money bags, and some clear tape in the backpack. Once I’m back in the car, I move the quarters from the zippered bag to a zip-lock bag that I label with a sharpie. I take note of how much candy I used and any other notes in my route log and head to the next location.
Keep your Eye out for Deals
Like I said before, there are a lot of people out there who bought a bunch of machines with good intentions, but ended up being lazy and just wanting to get rid of them. I have a keyword alert set up on my eBay account that alerts me whenever a listing has the words candy vending machine in it.
A keyword alert like this tipped me off to the biggest deal I had ever come across at the time. I found a listing that enabled me to buy out an entire vending route with locations for less than the machines alone were worth. I’ll tell you the whole story in another post, but the guy just got tired of the route and basically gave it to me.
Happy Vending
Bulk candy vending won’t make you rich, but it can provide the bridge you need into a life of passive income. It’s a simple, low-maintenance business that even a kid could run. In fact, it’s a great way to teach kids about how a business works.
If you are considering starting a vending business, I hope this article helped! Our business has been a blessing for us. It has been one of a collection of passive income streams that has allowed us to pursue what we truly love: creativity!
Check out The Bulk Vending Blog for more articles on bulk vending.
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- How Passive is Your Income?
- Five Ways to Create Passive Income With Little or No Money
by Ronnie Talent. I found it to be very helpful and enough to get me started.
Comment from John Wesley
Time: January 25, 2007, 12:54 pm
Interesting post. It’s cool to see the actual mechanics of setting up a small business.