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Comment by ZephyrBlu | Hacker News Reader

The juice doesn't seem worth the squeeze. 40% margin, maybe less and you need a shit ton of machines to make decent money.

You also have to restock all the machines, so it seems like a difficult business to scale that actually gets harder the larger scale you are.

250 machines with 500k in revenue for 2 people doesn't seem like that much. With 40% margins, that's 200k and assumes you have no employees which seems unlikely given the number of machines.

Perhaps I'm way off though, since my perception is probably skewed by tech companies.

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It's good money for something accessible to almost anyone.

It doesn't require much capital, doesn't seem very regulated and needs no deeply specialised skills to get started. No franchise. No middleman or supplier lock-in. No fixed rental payments.

Easy to pull in friends & family labour if you need to scale, and if you miss restocking it's no biggie. Nobody yelling at you. Flexible hours. Rarely have to talk to people except about new sites.

Actually not that easy to think of things with all those properties.

If this business is so lucrative, why isn't organized crime involved? It seems like a field where they have a number of comparative advantages:

1. Good at negotiating with local businesses. 2. Good at motivating low-paid employees to handle large cash sums without pilfering. 3. They love cash businesses. 4. More tax efficient than people doing 'side hustles'. 5. Good at managing kick-backs to eg. motel staff.

My guess is that the most 'gold mine' locations are already controlled by entrenched players who defend them using a variety of legal and illegal methods - vandalism of competitors' machines, high rents, kickbacks, threats to landlords.

Then all the marginally profitable locations are competed over by amateurs who routinely lose money and get disillusioned.

The US mafia was for a time at least. Used to be common knowledge.

https://www.reddit.com/r/explainlikeimfive/comments/5f5lph/e...

This comment sounds like the inspiration for an Anchorman style comedic exploration of the dark underbelly of the vending machine world.

I did hear one of those factoids saying more people are killed by vending machines than sharks...

https://freakonomics.com/2011/09/08/how-are-sharks-less-dang...

Sure, but how many people are killed by mafia thugs when trying to muscle in on their vending machine territory

If anything you should be surprised such a thing is profitable, it's a textbook case of "the free market should have squeezed profits to zero".

Agree.

Also surprised it hasn't been feudalised somehow. Some company owning all the machines and then uber-ing out the hard work of siting them and restocking them. Gamifying the process of monitoring, "your fleet", the "ching" on your phone when someone buys a bottle of water or candy bar. Special deals for site owners. Branded supplies. An app for customers to talk to the vending machine. Loyalty points. A snack radar. Etc.

I think it's great the market is mostly independent operators.

The parts that can be feudalised already are. The big companies make the machines and sell them. Big companies make the software. What is left is the physical efforts of finding a location, putting the machine in place, and then tending it regularly. There isn't much to be gained by adding a layer of management over the top of that, so big players can't really skim off the top by good management making things better.

Also big companies have too much to lose to fraud. The route operators are alone with big piles of cash. It is very easy for someone who knows what they are doing to "discover" a broken a machine (read they break it) and it was dispensing the J row without payment, then take the extra cash.

All in all it is best to leave route operations to little players.

I would imagine locations are somewhat "sticky". Your local auto repair shop isn't interested in booting their vendor for another one that charges 65c for a soda instead of 75c, as long as they're not getting bad service. And they're not interested in the conflict and confusion of allowing a 2nd operator to put a competing machine right next to it at a slightly lower price.

I dunno, I'm fairly sure Coke machines are all owned / franchised by Coca Cola; after all, you can't just use their brand on the outside of your machine. I think.

I've seen plenty of branded machines for sale at auctions and craigslist. They may have been connected to Coca Cola at one point, but they aren't necessarily connected now.

Everything seems to suggest that this has already happened. The reason this works as a 'side hustle' is because it's only lucrative if you ascribe a very low value to your time (and your car mileage, and the stress of doing admin for your 'business').

The fact the big players don't bother, the number of 'entrepreneurs' doing this in their spare time, the fact that they repair, move and restock the machines themselves, the calculations which ignore the presumably high risk of vandalism or theft, the presence of a landlord who can charge you as much as they like. And finally, the existence of 'mentors' who will charge you to be taught how to replicate their business.

I'd add that what people here are calling a "side hustle" is something that quite a few people without a lot of marketable skills would call a job/income stream. And, yes, there are a lot of jobs/income streams that work for individuals who lack a lot of alternatives that don't work for companies that have offices, accountants, etc.

I think what makes it a "side hustle" is that it is practical to do on top of a full time job (multiple jobs). Obviously if you scale the number of machines up it starts to look more like a small business, but it looks practical to do one or two machines in your "spare" time.

There are a lot of opportunities like this. However, when you look at many of them in detail, they pay very very poorly.

As a sole operator though the pay is better because you don't have overhead. If you pay a helper, some of the net income goes to you as the manager, and some to them (you can split that up however you choose). In some businesses management is hard and so the manager can skim off the top of their employees and yet their great management skills can pay the employees more than they would get along. This isn't one of those business where skilled management is required though, so a manager is just skimming off the top and a good employee will soon figure out they can start their own business and make more money without the manager.

Parent says "the free market should have squeezed profits to zero." Theory says that the free market should squeeze economic profits (not accounting profits) to zero. That has already happened: $500,000 (annual revenue for 2 people) - $250,000 (COGS: 50% of revenue) - $50,000 (commissions: 10% of revenue) = $200,000 (gross profit) - $62,500 (cost of capital: 5% of 250 * $5,000) - $50,000 (economic depreciation: 250 x $5,000/25) - $100,000 (cost of labor: 2 x $50,000, including benefits) = - $12,500 (economic profit)

Slightly pedantic comment here, but in economic theory, even in a perfectly competitive market, profits never drop to zero. Profits need to be high enough that owners of an enterprise don't decide to do something else with their time and money. These businesses may not make enough in profits to attract venture capital, but that doesn't mean they aren't more lucrative to the people running them than their other options.

Even more pedantic, but in economic theory in a perfectly competitive market (edit: at equilibrium) economic profit exactly equals zero. This is because the owner not doing something else with their time (called opportunity cost) is accounted for as a cost. What you're describing would be called "accounting profit" instead of "economic profit" by an economist to specify it only takes into account costs on the books, not opportunity costs.

Edit: See https://en.wikipedia.org/wiki/Zero-profit_condition

Economics includes opportunity cost, so yes, in competitive markets profits will drop to 0.

> Perhaps I'm way off though, since my perception is probably skewed by tech companies.

Where you're standing makes a massive difference to your perception. Using your back of the envelope calculations, 200k or even quite a bit less is a lot of money to many, if not most, people. The median USA income is apparently 50k, so they'd be earning more than most other people. Compared to a hard working minimum wage job, which can have longer, inflexible hours, this is definitely worth the squeeze for many people.

The only thing missing in OP's calculation is the cost of employees. Maintaining a fleet of 250 vending machines alone doesn't seem very possible.

If we assume that the restock is 3 times a month (close to the once every 2 weeks that was mentioned in passing), that leaves around 25 visits per day. If they're in close geographic proximity, that seems like it might be doable.

It would also be a lot easier if the majority of your machines were identical. The majority of vending machine products have a LONG shelf-life. So if you stock a truck with all of the things that all of your machines carry, you don't have to take the step that the article alluded to where you take stock and then go get the supplies. You'd just have all the possibilities on hand and restocking the truck only happens maybe once a week once you get a good idea of the flow of the individual products. It seems very feasible to me that 2 people could service that many machines. Especially if you're willing to work 12-16 hour days some days.

Assuming a time to restock of 30 minutes per machine, it would still require a workload of 90+ hours per week.

I guess a team of two could do that.

I think these businesses are impossible to scale because of the trust issue. You can pay someone a decent wage to empty the machines but you lose all your profits. Or you pay them rock bottom to drive around with thousands of your dollars in cash and merchandise. Then they rip you off in various plausibly deniable ways.

From the article:

> All costs considered, an operator who makes $5k per month in revenue might take home something like $2k in profit.

That's actually not bad at all.

The issue, as you mention, is that it may be difficult to implement economies of scale. But even 200k for 2 people is something the majority of people would be quite happy with out of a full time job, and considering that this does not require any special degree or training this is very good.

You're right. This is why (as they said in the article) there aren't any massive players in the market. It's viable if you have a few machines in your area that you restock as a hobby, but the minute you add in any sort of overhead, your margins will dry up immediately. Plus, the numbers in the article are actually a little high. 25% margins or less are more common, and generally a single machine will only bring a few hundred or less per month in profit.

You also need to find a place to put the machine. The article mentions paying up to a 25% comission to the owner of the place. Even if you somehow get amazing margins on the machine itself like 70% (assuming you refill the machine for free) it will turn into 45% margin after actually putting the machine down.

>We surveyed 23 vending machine owners with various-sized operations and found that the average operator in our sample owned 13 machines that gross $309 per machine per month.

Warning: napkin math.

$309 x 13 x 45% = $4017 x 45% = $1807.65 profit (excluding cost of machine)

It's just a side hustle. Even with higher margins you can never go above $4017 so it's never going to turn into a scalable business. Once you consider the cost of the machines of around $2k each (very low estimate) your first 14 months will net you nothing.

You can make more by having more machines. How many machines could one person restock? A lot more than 13. Let's say I have to visit each machine once a week on average (seems reasonable given it's sold $75 worth of stuff), I could stock 100 machines spread out over a small city. A lot more if I have many machines located together in say a university or an office park.

The average operator has 13 machines and views it as a side hustle. But that's true for a lot of entrepeneurial businesses. (The average SaaS owner, the average Youtube personality...). That doesn't mean you can't scale the business to where it provides a very decent income stream.

"Average" (of 23 survey respondents) might not be a particularly great measure. I can imagine many operators would have 1-3 machines on the premises of the business they are actually focused on (a pizza shop or an office cafeteria with a drink and a snacks vending machine), while others might have 75 or more.

(How much does the average mobile app make? Does that low 4-figure amount (edit-to-add: per year) mean that app development is a dead end?)

Do you need to put aside money for insurance, ongoing repairs/maintenance, restocking physical goods, vandalism/loss of the machine for apps?

I think vending machines are not really a realiable income when looking at the costs that might occur.

So, I'd take any 4-figure app over any amount of vending machines.

Gross is the income, not the profit, so you need to subtract the cost of the goods going into the machine to get the profit which will be a lot less than $1807.65/month.

I'd agree, but its one case study. One of my best friends told me recently he has about 150 vending machines(in the sf bay area), he is the silent partner, providing capitol and his other partner does the stocking and collecting/refilling of coinage. I didn't want to pry into how much he was making but after reading this article it seems like it could be a lucrative side business for a non tech employee. (he is a manager primarily(non-tech)). There must be a number of machines that would be a limit where taking on additional workers/partners ceases to make it a profitable venture.

Seems like a partnership like that would be based on unconditional trust.

If the other partner is responsible for restocking and collecting the cash, you have to take their word that revenues are what they claim.

>The juice doesn't seem worth the squeeze. 40% margin, maybe less and you need a shit ton of machines to make decent money.

Literally every industry is like this. Ease of entry, margin, stability, pick one.

This is a bit myopic - $200k for two people for what's basically a no-skill gig is a pretty decent income in most of the country. At that scale it's not a side gig anymore, it's your primary income, and I can imagine the hours are probably comparable to a normal job. And really, I can think of way less appealing jobs that pay worse with less flexibility.

It's not really $200k in income. That number ignores the initial investment (and thus its associated cost of capital) as well as the economic depreciation of the machines (since you have to replace them after, say, 25 years). As I calculated in a different comment, the actual economic profit is negative.

If you're considering depreciation then you don't need to account for the initial imvestment, just the financing costs thereof. You're adding an asset and depreciating it, rather than considering it as 'money spent'.

The initial investment (and its associated cost of capital) is quite separate from economic (as opposed to accounting) depreciation: if you could get a valuable asset for free (doesn't matter how) whose market value falls every year thereafter, you have no initial investment and thus no cost of capital. However, you have economic depreciation. On the other hand, if you buy a valuable asset that maintains its value forever, you have a cost of capital, but no economic depreciation. In real life, you have both for most assets. As an aside: the financing cost of the initial investment is irrelevant. What matters is the opportunity cost: what profit (or return) could you have made by investing the money in a different asset of the same risk instead (which is the cost of capital)?

No, the initial investment is negligible. Article has the high end of brand-new machines at $8k.

It's not $200k in income because you have to stock the machine.

But you subtracted the wage if I remember correctly. I would consider the wage as a profit.

Why wouldn't you just contract a service company to stock and maintain your machines? I don't see how this isn't an excellent entirely passive opportunity. If the returns are low, that's still money you didn't have last month and money you could potentially spend on another machine to exponentially increase your business. If you are contracted with a service company you could scale infinitely.

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