Total Cost of Ownership – The iceberg below the water level
Owning and operating a vending machine is good business. More than 2/3rds of vending machine owners and operators are micro businesses and individuals. They do not have the “big-four” accounting companies keeping their books. Suppose you are a small business or individual owner-operator of vending machines. There is a high chance that you will have to keep a tab of your collections and earnings yourselves. Most of us do it, too, but what we often tend to lose focus on is the cost. While buying the vending machine is a clear capital investment, there are other costs during the life of the vending machine that will define your profitability. As an owner-operator, let us see how you can understand these costs of owning a vending machine and ensure maximum profitability from your devices.
The costs across the lifecycle
Vending machines typically have a long cashable life. This means that adequately maintained vending machines can generate revenue for several years. Depending on the type of goods, location, maintenance and technology, machines can last anywhere between 5 and 15 years. The cost of owning these vending machines is also incurred over the product’s life. As the age of the machine increases, so does the cost of owning it. That is why used machines are cheaper to buy, but more expensive to own. It is also easy to forget that a non-functional machine means a loss of revenue. So, the decision to invest in a new machine or buy a used one should be made after carefully considering the following costs.
Cost of Buying – The cost of new machines can be a few thousand dollars. The cost of buying a used one might be much less. This is a one-time expense and is considered a capital spend.
Cost of Installation – If you buy a machine, you will also incur charges to transport the machine to the location. Then comes the cost of setting these machines up and getting them up and running. You may have to pay for such services if you are not an expert.
Cost of Owning – Operating the machine includes the cost of the goods sold, energy cost, the cost involved in stocking or replacing goods, and other operational costs.
Cost of Upgrading – Depending on the age of your machine and the advancements in technology, you will incur expenses to upgrade your machines. Cashless payment systems are a good example. While many machines have card readers, modern cashless systems, like NFC and mobile wallets, may need upgrades.
Cost of Retiring – If your machines reach end-of-life, you will need to remove them. Malfunctioning machines or ones with obsolete technology will continue to cost you while generating no revenue. There will also be a cost of disconnecting, dismantling and disposing of such machines.
Understanding all the costs incurred during the entire life of the vending machine will help you decide several aspects. You can choose to buy a new or a used machine. You can also calculate the returns from your machines better.
In each stage of the life cycle, several factors contribute to the cost of owning a vending machine. Calculating these costs meticulously can help you estimate the profitability of each machine you own and operate. Let us discuss these cost components.
- Machine Cost – This is the initial investment that forms a big part of your upfront cash, but this is not the most significant component of your total cost.
- Installation and Commissioning Cost – The size of this spend depends on your expertise, availability of professional support, and your deal with the machine supplier. Some manufacturers bundle this as a part of their machines to make it easy for buyers.
- Cost of Accessories and Peripherals – The performance of your vending machines can be improved by adding peripherals. Accessories can also help upgrade old machines and extend their life.
- Energy Cost – Machines need lighting, refrigeration, heating, handling payment transactions, or connection with back-end platforms.
- Location or Real Estate Cost – This cost depends on your agreement with the owner of the location. Machine operators pay fixed fees, a commission on the sales made, branding on the machine, or a combination of these options.
- Maintenance Costs – The maintenance cost includes servicing outages or repairs and preventive maintenance scheduled at regular intervals.
- Merchandise Cost – This is the highest cost of owning any vending machine. This can be a few hundred dollars or thousands of dollars per stock replenishment, depending on what merchandise you sell.
- Insurance Cost – General liability insurance costs are also a component that runs into a few hundred dollars per year.
- Warehousing Cost – You will incur this cost to store your inventory before stocking your machine.
- Consumables, Parts & Supplies Cost – Your machine will consume resources to operate. Some of them are your coolant in your refrigeration unit and lubricant in your mechanical unit. These will need periodic replacement or replenishment.
- Taxes on Earnings – Taxes on your income from the vending machines are based on what and how you report in your earnings statement.
- Cost of Downtime – All the above costs are direct costs that can be measured. The cost that cannot be measured is the cost of downtime of your machines. This is the revenue lost when your machine is not usable. If your stock includes perishables like fruits or packaged meat, downtime will also cost you the spoiled inventory.
Recovering Total Cost of Ownership
It is now clear that the cost of owning a vending machine is just the tip of the iceberg, but do not let that scare you. Vending machines are a very lucrative investment with a low barrier to entry. The returns from this investment are fast and help you recover your total cost of ownership quickly. Every transaction your machine makes can give you a decent markup on the product sold. Depending on the location and merchandise, operators markup merchandise prices by anywhere between 50% to 200%. This is the fee that the consumer pays for convenience and accessibility.
Further, reputed machinery manufacturers also support their customers in the buying process to make investing in a vending machine even more attractive. They also have tools that help you estimate your returns from investing in a vending machine. You can call the experts from Vending.com at 1-855-929-1042 to learn more about the costs and benefits of investing in your next vending machine.
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