The first thing people say to me when they find out that I own a bulk candy vending business is, “have you looked into snack and soda machines? I know a guy who’s making a ton of money off those things.”

I just humor the person with a smile and a nod, knowing that they would never understand why I’d never touch one of those machines.

The Passive Income Mindset

In my way of thinking, the problem with large vending machines that sell packaged products is that they require too much maintenance. They might make four times as much per month, but they require about a hundred times more maintenance.

Just think of the time you would have to spend every day loading heavy crates of soda cans at Sam’s Club, hauling them to locations, and fending off onlooking customers who want the dollar back that the machine ate yesterday.

There’s nothing wrong with working for your money, I’ve done it all my life. There’s an endless supply of people who are willing to do the work for the right price. I’ve just reached a point in my life where I value time over money. I now seek businesses that don’t require my presence to operate.

Is Vending Passive or Not?

A lot of people try to argue with that vending isn’t passive. To them, I say, it is what you make it. It can be an extremely labor-intensive venture, or it can be something that you do once a month. If you wanted to work even less, you could hire someone to make it even more passive.

If you do it my way, you only work one or two days a month. You use it as an excuse to travel, to get out of the house, to explore the neighborhood, to eat a business lunch at one of your locations, or to listen to a book on tape.

Here are a few ways to make vending as passive as possible. Even if you aren’t in the vending business, you might be able to take away something about reducing maintenance in any kind of business.

Use Triple-Vend Machines

I choose to only work with triple-vend bulk candy machines like the one in the photo at the top of this post. For me, these machines offer the right mix of affordability, volume, and capacity.

Affordability

You can find a single triple-vend machine at Sam’s Club for less than $200, or get a block of 10 on eBay for around $120 a piece. If you’re a bargain hunter, you can always find used machines from ex-vendors who bit off more than they could chew.

Volume

A triple-vend machine has three choices and therefore covers a wider market. The machines aren’t so big that they’re intrusive on a store owner’s space, but they out-sell single head machines all day. Plus, they’re small enough to fit in the trunk of your car.

Capacity

Triple-head machines carry 15-20 pounds of candy, enough to yield $150-$200 in revenue. In order to make your business as passive as possible, you need to minimize the number of service visits and maximize your yield per visit.

Choose the Right Triple-Vend

Make sure you choose a machine that is all-metal. I’ve used machines by Amerivend and Seaga, both have worked well for me. I know people who have been happy with XYZ Vending also. Don’t succumb to the temptation to buy a plastic machines. They look cheap and are more likely to break down, requiring more of your time.

Think of these machines as assets. It’s better to pay a little more for an asset that will stick around for awhile and make you money. Plus, you can sell it when you’re ready to retire and get at least half of your money back.

Control The Size of a Single Vend

You can adjust the size of a single vend on all the machines I just described. It’s important to put some thought into your portion strategy to maximize your return and minimize maintenance. You don’t want to give out so much candy that you run out every week, but at the same time, you don’t want to leave you customers feeling cheated.

When I bought the vending route that I described as The Best Deal I’ve Made Yet, the previous owner had set all of his machines to give out the maximum allowable proportion for each vend. Maybe he thought he was being generous, or maybe he didn’t realize that the machines were adjustable.

I quickly realized that he had done this when I was having to return to some locations very often and I wasn’t making the margin that I was used to. Profit margins on a bulk machines should be about 75% or more. This guy’s machines were closer to 50%.

It may seem like a selfish thing to do until you realize that there is a point of diminishing returns with generosity. People have a set expectation of what they can buy for 25 cents. If they get less than they expect, they will definitely notice (and tell you if you’re present!) On the other hand, if they get more than they expect for 25 cents, they probably won’t notice; or worse yet, they might even be annoyed!

“What am I going to do with all this candy!” “Are they trying to get me fat?”

The type of clientele also makes a difference. I have machines placed in employee break rooms with college-aged workers who expect a lot of candy for their quarter. I also have some machines in family restaurants where most of the customers are below the age of 8! These kids don’t miss the extra candy and their parents are happy to limit their sugar intake.

Experiment a little, but commit to a strategy. It is a pain to adjust the size of the vend once the machine is placed and full. It usually requires a trip back to your shop.

Find a vend size that is big enough to keep customers coming back, but small enough to make it worth your while.

Time Your Service Schedule For Maximum Yield

When I make a vending stop, I want to take home at least $50 in cash, preferably $100. If I’m going to service 20 machines in a day, I’d much rather make $100 per machine than $10.

Some people think that they need to service their machines often, even if they don’t it. Try to get away from an arbitrary service schedule and move to a smart strategy that treats each location based on it’s volume.

The ideal time to service a machine is when it’s about 1/4 full. Think of it like a gas tank. If you always filled up when the tank dropped to 3/4, you’d be filling up all the time.

Don’t ever let any one compartment on your triple-vend go completely empty. It looks tacky and it’s not making you any money. Try to time it out so you hit it before that.

If one candy is selling like hot-cakes while another is barely moving, maybe it’s time to replace the slow-mover with another candy. You might even consider doubling up on a hot candy, just so you won’t have to come back so often.

Most of my locations can go 2-3 months without service. I have a few hot-spots that need it every month, but most can wait. I don’t like to let a location go more than 4 months, because I like to know that it’s still in working condition.

Fill Your Machines to the Top

When the previous owner of one of my vending routes handed me the keys, he told me that he never filled the machines over 1/3 full. He said it was because he heard a rumor that too much candy could jam the gears.

I was shocked when he told me this. Why would a vending machine manufacturer make a machine that couldn’t handle it’s own load? He was letting superstition create a ton of extra work for him. No wonder he was selling.

I fill my machines to the top. Mainly so I don’t have to return as often, but also because it makes it easier to know how much I sold since the last time I visited. I keep careful records of how much each machine sells, and compare it to the income so I know my margins.

My Best Location

My best location is in a high-volume family restaurant. I had no idea that it was going to be such a great location until I showed up the first month after 4 weeks to find it bone dry! I was both excited and terrified, mainly because I was moving to Los Angeles and wasn’t planning on coming back to Austin but once every two months.

My initial solution was to install another machine. I convinced the store owner that demand was such that we needed to offer another option. I walked away satisfied, and returned a month later. To my surprise, four of the six compartments were… bone dry again!

What a nice problem to have, huh! I knew I was going to have to get clever. I noticed that the gumball compartments on both machines were dry. I replaced one of the slow movers with a 3rd gumball compartment, replaced peanut M&M’s (which run out faster because they’re bigger) with regular M&M’s, and adjusted all the serving sizes down (the clientele was mainly kids).

Now, when I go back there every two months and open the money hatch, quarters spill out like a slot machine.

One man’s trash is another man’s treasure. The more my mindset is focused on creating wealth, the more I realize the wisdom in these words. If you use a little creativity, you’ll find overlooked opportunities everywhere.

In How to Start a Bulk Candy Vending Business for Passive Income I promised to write about the biggest deal I’ve made yet. I wrote:

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…

Here’s the whole story…

When we lived in Austin full time, we decided to start a candy vending business to supplement our income. The more locations we found, the more we fell in love with the business. Since most machines only require service about once every two months, I considered it passive income.

When we moved to Los Angeles to pursue careers in the movie business, I started thinking about expanding our operation to the west coast. Since our business in Austin was such a low-maintenance gig, we decided to keep it and just fly back every two months to maintain it.

I had a keyword alert setup on eBay that sent me all the listings that mentioned the words candy vending machine. Every other day or so, I would get an email with the latest listing for used candy machines from people that bought too many and gave up on their business.

Two months before we were set to move, one listing caught my eye. A man in Los Angeles was selling his whole operation including twenty active locations profiting $500 a month, and twenty machines in storage. Isn’t it funny how synchronistic life can be when you set your mind to something?

I put the listing on my watch list and counted down the days until the end of the auction. In the meantime, I calculated what I thought the business was worth.

Book Value Method

There are several different ways to value a company. The most basic way is to calculate the “book value,” or what the assets of the company are worth.

This is a good way to find the low end of the value range since it doesn’t take into account any value that the owner has created by putting those assets together. It’s the salvage value of the company.

This company owned 40 machines
A used machine is worth around $100
40 x $100 = $4,000
Discounted 50% for risk = $2,000

Cashflow Method

Most companies on Wall Street are valued based on their cashflow. Have you ever heard of a price to earnings (PE) ratio? It’s the price that investors are willing to pay based on the company’s profits.

A PE of twenty means that investors are willing to pay twenty times the company’s earnings. If a company makes $1 million a year, investors would be willing to pay $20 million for it. Since they would be cashflowing $1 million a year (assuming earnings remain the same) on their $20 million investment, their rate of return would be 1/20 or 5%.

I wanted to make at least 20% on my investment.
20% = 1/5 = PE of 5
I used $250/month as a profit figure in case he was exaggerating.
$250/month = $3,000/year
5 x $3,000 = $15,000

The key to this method is factoring in the amount of money required to manage the investment, even if you plan on managing it yourself. You should always value a company as if it were a completely passive investment. Subtract out the cost of hiring someone to run it for you. Otherwise, you’re just buying a job, and you can get those for free.

20 machines = 10 hours of work per month
10 hours x $10/hour = $100
$200 x 12 months = $1,200/year
$1,200 x 5 = $6,000
$15,000 – $6,000 = $9,000

Once again, I discounted the value by 50% because of the risk involved with eBay purchases.

$9,000 x 50% = $4,500

My new negotiating range was $2,000 to $5,000. My bidding strategy was to wait until the last minute and bet the house. I anxiously counted down the days.

With one hour to go, I kept nervously reloading the auction page to see if anyone had bid. I was surprised that no one had. Maybe they were waiting till the last minute like I was.

With two minutes to go, no one had bid. I put in a proxy bid of $4,000, which broke his reserve at $1,500. My heart thumped loudly as I kept clicking refresh. I was prepared to bump up my bid to $5,000 if absolutely necessary.

Ten seconds to go, no bids. Five, four, three, two, one…

I won.

As the only bidder, I got it for the reserve price of $1,500!

Now What?

After several minutes of celebration, I started to have a few doubts. Why didn’t anyone else bid? Was I missing something? What if he was full of it? What if all the machines were in a bad neighborhood?

I reassured myself with the fact that I could sell off all the machines for $4,000 in the worst case.

I made arrangements to meet the seller on one of our scouting trips to Los Angeles.

I Get the Keys

We met at the storage garage where he was keeping the twenty unplaced machines. He was an interesting character, kind of geeky with a nervous dislike for silence. He was a really nice guy, and was bending over backwards to make sure I was happy.

I was a little worried that he was going to be sour that he didn’t get more for the company, but it turned out that he was happy to get rid of it. He casually mentioned that he had paid $20,000 for the company several years before, when there were 40 locations. He must have lost interest in the business and let it dwindle to 20 locations.

A quick scan of the machines confirmed that they were in decent shape. The storage garage was cluttered with tools, boxes, and parts; a reflection of his disorganized business.

As he handed me the list of locations and the keys, he added one important piece of information:

“By the way, I didn’t mention this in the listing, but there is something else you should know. There are about twenty additional locations I am throwing in with the others. I’m almost embarrassed to tell you because I have let some of them go.

I haven’t been to any of these locations in the last six months and I’m not even sure if the machines are still there. You can take them or leave them. Here’s the list.”

What! I couldn’t believe it. Not only had I acquired $4,000 worth of machinery, and $6,000 worth of cashflow for $1,500; but there were potentially twenty more locations and machines!

Treasure Hunt

When I got in my rental car armed with the location list, I felt like I was on a treasure hunt. I started plotting locations on my map and formed a plan. I battled Los Angeles traffic to start tracking down the locations.

I went to the abandoned locations first to see if I could salvage anything. I ended up finding about ten of the twenty “inactive” locations to be salvageable. Even more shocking was the fact that they had money sitting in them!

I don’t know if he was just lazy, crazy, or disorganized, but he didn’t feel the need to go pick up the money that was sitting in these machines. By the time I had hit all the locations on the list, I had about $750 in quarters!

$1,500 – $750 = $750 initial investment!

This deal just kept on getting better. With the money I picked up in the first day, I had cut my investment in half.

Perma-Grin

I flew back to Austin in total shock. We had found a great place to live, and had an income stream waiting for us. Two months later, we made the move.

As I got familiar with the vending route, the previous owner’s mismanagement became more and more obvious.

Cleanliness

It looked as if he had never cleaned the machines in his locations. There was melted candy, dirt, and dust all over the machines. He had let many of the candy selections run out, which exposed the gears and cost him money.

The first thing I did was cleaned up the machines and made sure they were filled to the top.

Settings

The amount of candy dispensed for a quarter in these types of machines is adjustable. The idea is to give out enough candy to satisfy your customers, but not so much that you kill your profit margin.

He had all of his machines set for the absolute maximum. Now, there’s a certain amount of candy that people expect for a quarter, and any more than that is wasteful. I adjusted all of the machines to more reasonable levels and increased my profit margin.

Storage

The biggest waste of all was the storage garage. Not only were those machines losing money by resting idle, but he was paying $250 a month to keep them there. This knocked out half of his profit!

I moved all of those machines into my kitchen until I found homes for them. It was annoying to have them there, but not $250 worth of annoyance.

A Deal to Remember

I first started thinking about creating value out of other people’s trash after I read Robert Kiyosaki’s Rich Dad Poor Dad. His perspective helped me to be able to see value in overlooked places.

After I read his book, I bought the game that he created called Cashflow 101. I would highly recommend this game to anyone who wants to learn to think like Robert Kiyosaki. It’s one thing to read about a concept, but it’s an entirely different thing to practice the concept over and over with fake money.

I played Cashflow 101 as much as I could so that I would make this new way of thinking a habit.

In the game, there are small deals and big deals. Candy vending is just a small deal, but I have learned that it takes a few small deals to trade up into a big deal. Now I have my eyes open for the big one!

Several years ago, my girlfriend and I were both full time bartenders in Austin, TX. We had dreams of getting into the movie business (her as an actress, and I as a director), but we were slaves to our jobs at the restaurant. We quickly realized that the rat race we lived in wasn’t allowing us enough time freedom to pursue our creative interests.

We decided that the only way we were going to be able to regain control of our lives and achieve our dreams was to start collecting passive income-producing assets and move to Hollywood. (Read Three Steps to Success for Creative Geniuses for my strategy.)

The First Piece in the Puzzle

Since we didn’t have any money, we started small. We saved $250 to buy a bulk candy vending machine and the candy to fill it. We used our connections to place it in the lobby of the restaurant we worked at. (Read How to Start a Bulk Candy Vending Business for details.)

We watched it every day, but resisted checking how much money it had made until about a month later when it was about halfway empty and we couldn’t wait any longer. When I opened it up late one night, after closing down the bar, quarters spilled out everywhere onto the floor! We quickly rushed home and counted up the money: over $100 in quarters!

Expansion

With the success of our first location, we began using the profits it generated to buy more and more machines and finding locations around Austin. Our improved financial situation allowed us to buy a piece of cashflowing real estate. We were finally getting closer to our goal of time freedom.

Then, in the summer of 2006, we reached the point that we had been waiting for. We had saved up enough money to move to Los Angeles and pursue our film careers full time. To make things even better, we found a man who was selling his L.A.-based vending business on eBay and bought it with capital from our existing business.

Hollywood, Here We Come!

Even though Austin has a thriving independent movie scene, L.A. is still the only place to be if you really want to go for it. Most people have to live in one city or the other, but we were about to get creative.

Everyone wanted to know what we were going to do with our vending business when we moved to L.A. They were shocked when we told them that not only were we keeping it, but we weren’t hiring anyone to run it!

How We Live in Two Cities at Once

You see, we worked all our locations so they could go about two months before needing service. We had built up enough locations to pay for plane tickets, rental cars, and lodging to get us back and forth.

Even though these expenses cut deeply into our profit, they allow us the freedom of living in two places at once. We are able to keep our ties to the Austin film community as well as keep our eyes on our rental property there.

We love Austin, and it gives us a nice vacation away from the congestion of L.A. at timely intervals. We keep in touch with our friends and enjoy the time we spend there.

The real estate market in Austin is great compared to Southern California, so it gives us a chance to keep our thumbs on the pulse of a market that’s still affordable. Also, we’re accumulating airline miles that will amount to one or two free vacations a year depending on location.

Business for Opportunity, not Just Money

I look at business as more than just a way to make money. I see it as a way to allow us the opportunities and circumstances that we want in our lives. We would keep our candy vending business in Austin even if we were just breaking even after travel expenses. The perks that it provides us are worth something more than money can buy.