How to Start a $58K/Month Vending Machine Business
February 25, 2024
Have you ever been super thirsty and unable to find a drink? Starting a vending machine business can be a great way to make passive income with low startup costs. Are you ready to learn how to start a vending machine business?
Adam Hill told us:
The corporate world was trying to make me bounce around a lot and I wanted to stay in my strip of paradise. I decided to leave my job, buy a vending machine route, and have been doing this ever since.
He bought his first vending machine operator for $120K in 2014 and Hill Vending was born.
Hill Vending lost its biggest client shortly after the change in leadership because the location wanted to start running its own vending machines. That didn’t stop Adam!
He rose above the discouragement to grow the business into a $600K passive income-generating machine. He’s even started his own vending training course. We’re going to share the secrets of his success.
We’ll cover the four keys to running a successful vending machine business, plus everything below. Click on any of the text below to navigate to that part of the article:
- Step 1. Is The Vending Machine Business Profitable?
- Step 2. How Much Does a Vending Machine Cost?
- Step 3. Write a Vending Machine Business Plan
- Step 4. Form Your Vending Machine Business
- Step 5. How to Buy a Vending Machine
- Step 6. How Much Does a Vending Machine Make?
- Step 7. Where to Get Products to Fill Your Vending Machine
- Step 8. Where Can I Put a Vending Machine?
- Step 9. Where Should I Store the Products for Vending Machines?
- Step 10. How Do I Maintain Vending Machines?
- Step 11. How Often Should I Check the Vending Machines and Empty the Money Collected?
- Go Start a Successful Vending Machine Business
Let’s dig into the vending machine industry first!
Step 1. Is The Vending Machine Business Profitable?
Adam told us:
You need to link up with an education platform like UpFlip. You’ll be running your business by making mistakes if you don’t. There’s no college courses for this.
Check out our interview with him below:
ATTENTION: Watch Adam Hill unravel his decade-long experience & help you launch a 6-figure vending business today in his free masterclass.
Vending machine business owners have the ability to make a ton of money if they can land their vending machines in the right places, but you need to understand the market to play the game right. We’ll give you some background information.
Who are the major players in the vending machine market?
IBIS World, the United States vending machine industry, is highly fragmented, with over 18,200 businesses sharing $9 billion in revenue. According to the same report, the largest vending machine operators in the vending machine market are:
- Compass Group PLC: They had $14.4 billion in revenue in 2021 and a 5% net profit. They are the owner of Canteen and Canteen One, with more than 200 health vending locations throughout the US.
- Aramark Corporation: The US revenue for Aramark is $6.8 billion (page 34), with an operating income of $131.8 million (page S-53) in their annual reports.
- Wittern Group: They are solely focused on vending. They are privately owned, so their income is private information, but Dun & Bradstreet (a 200-year-old analytics and risk management company) estimates Wittern Group had $71.2 million in sales in 2021.
- Swyft (formerly ZoomSystems): Swyft is turning the retail industry on its head with vending machines for everything. Want to buy a computer from a vending machine? No problem! They also create lockers for packages.
These major players are also where to buy a vending machine.
Trends in the vending industry
The vending machine offerings are becoming more sophisticated. Vending machine businesses accept more than quarters today. Vending machine owners still accept quarters, but vending machines also accept cards, ApplePay, and Google Pay
In addition, the average vending machine has seen other advancements, including:
- Automated shops
- More than just food and drinks
- Eco-friendly solutions
- Field management software
- Personalized products in vending machines
You don’t need all that, though. A lot of people overcomplicate it… All you really need is box trucks and machines plus service agreements. You can get carts, lifts, and other tools that make your life easier as you go. You don’t need a warehouse.
Later in the interview, he told us:
I think vending is the future. If you look at it, even Amazon is going towards unattended retail.
How much does a vending machine make?
Adam told us:
I aim for $2,000+ per month from each location.
Profits vary dramatically based on what you stock and how you purchase machines and inventory. At first, you’ll probably have slimmer margins because you might not qualify to work with major distributors, but as you grow, so can your margins.
If you figure a 24-pack of Coke bottles is $13 from Sam’s Club, and you can sell each one for $1.50 to $3.50, that’s over a 64% gross margin. That’s pretty good for checking your machines, collecting the money, and restocking.
Adam broke down the costs for us:
• Products: 50%
• Taxes: 20%
• Wages and profits: 30%
We talked to another vending business owner, Ben Smith of Friendship Vending Co., who told us:
Use the online ordering with store pickup whenever you can. It saves time.
Check out our interview with him below:
The more vending machines you own, the better you’ll do in the vending machine business. As you add more machines, margins will increase because your route will become more efficient, and you’ll qualify for bulk discounts.
Vending machine company profits per product
eVending specifically states that their machines can be paid for by selling 7 to 10 products at a profit of $.50 per product. That is probably a good target for the minimum acceptable profit margin.
How much does it cost to start a vending machine business?
One of the biggest considerations when considering how to get into the vending machine business is the cost. You can start by buying a vending machine for as little as $500, or you can buy routes that normally start around $5,000 per machine.
If you have a vehicle and a bit of extra money and are comfortable approaching business owners, go for it! It could change your life.
Sounds like a great industry, doesn’t it?
There’s more! You can find a vending machine for anything.
Step 2. How Much Does a Vending Machine Cost?
I wasn’t kidding when I said there’s a vending machine for anything you can imagine. Besides the standard food vending machines, you can start a vending machine business selling books, electronics, clothes––anything your mind can conjure.
Let’s look at some of the most common types of vending machine businesses and what the vending machines cost.
How much is a vending machine for food?
Food vending machines can come in a variety of styles. You can have the old-school machines that hold the food with longer shelf lives. These are great for candy, chips, and cookies.
Vending machines are commonly found for less than $1,000 used or $3,000+ for a new one (but financing is available for new ones.) We’ll discuss whether you should buy new or used later, but let’s look at some of the vending machines available on the market.
Snack Food Vending Machines
You can sell snack food that doesn’t need to be refrigerated out of vending machines, which is the most common style. Consider these features as you research:
- The number of snacks it can hold. Expect to spend an extra $25 to $100 for each additional snack dispensing section.
- The type of payments it can take. Expect to spend $300 more on card readers.
- Whether it’s refrigerated. Expect to spend an extra $400+ for a chilled vending machine.
- The technology inside it. Expect a learning curve as you get started.
Just to give you an idea of how we came to these numbers, check out the comparison of new snack vending machines from A&M Vending Sales.
What about gumball machines?
Kids love gumballs and candy machines. I know my kid used to ask for quarters for one every time we went into a store. Fortunately, you can buy these vending machines for cheap.
They sell them on Amazon for anywhere from about $50 to $1,000. Check out some of the most popular ones:
I loved the spiral gumball machines when I was a kid. I’d suggest looking on other sites before going with the Amazon spiral one.
Often called bulk machines, these can also be used for trail mix or nuts.
How much are vending machines for healthy food?
An organic or vegan vending machine business should expect to spend on the higher end. The food will be more costly, and the machines will be refrigerated. The vending machine cost online is between $5,000 and $10,000 for this type of machine.
Healthy items will normally need refrigerated machines, and you’ll normally have higher costs and prices for inventory.
How can I buy an ice vending machine?
We’ve all seen ice vending machines. They sell big bags of ice. Some also sell water. You can check out the following sites to find ice vending machines for sale:
They don’t disclose their prices online, but other sources say these machines can cost between $20,000 and $150,000. If you can find them used, have a licensed refrigeration tech check it before making your purchase.
Search “ice vending machine business for sale” to find used ice machines.
How much is a pop machine?
You can find used pop machines for under $1,000 and new ones for $3,000 to $7,000.
How much is a hot beverage vending machine?
If you’re brewing hot drinks like coffee, espresso, cappuccino, and hot chocolate, expect to spend $5,000 to $8,000 per new machine. They can also heat soup.
Can I sell electronics out of vending machines?
Selling computers, phones, and other electronics is an option in some of the higher-end machines. They can make a great profit but probably won’t be as high-frequency purchases. You might find some success convincing electronic stores to rent the machines to make it easier to sell some of the products quickly.
Have you considered a book vending machine?
A vending machine for kids’ books and other books makes a lot of sense in places like airports and pediatric hospitals. Learn about other types of vending machines.
Step 3. Write a Vending Machine Business Plan
Adam teaches a concept he calls the 4 Keys of Vending Machines. It is effectively a business plan that includes:
1. Location
2. Machines
3. Service
4. Pricing
He explained it like this:
If you’re in a slow location, it doesn’t matter how good your machines, pricing, and service are. You won’t make any money. You have to have all four keys to be successful.
Let’s dig into the 4 Keys of Vending Machines and how they can drive your new vending machine business to profitability.
Key 1. Location: Where To Put A Vending Machine
The first key to starting and running a vending machine business is choosing locations. Adam told us:
You have two choices, go door-to-door or purchase an existing route.
In either scenario, you’ll want to consider traffic at the location. Adam told us:
You need at least 50 people to pass by the machine to make money. Less than that I consider low traffic, meaning 50 people and $500 per month.
Adam also warned us:
Don’t put machines outside. It wears them out faster.
He also gave us some advice about whether to go door-to-door or find an existing route. We’ll discuss each next.
Door-to-Door
Adam explained that trying to find new locations to put vending machines can be difficult. Chances are that existing locations already have a service contract. He also explained that most people make the mistake of talking to the general manager.
The GM is the busiest person in the building. The gatekeeper (receptionist) is specifically instructed to brush people off politely.
He went on to explain:
The Facility Manager is normally much less busy and will accept your visit. He’s often sitting in an office and will enjoy your company. Once they like you, you have an in. Then you can propose replacing the service contract.
Buying an Existing Vending Machine Route
Buying an existing route can be highly profitable, but you also need to be careful. You don’t have to worry about finding the route and can focus on the other three keys. On the other hand, you risk paying too much. When asked whether he would have bought his first route again, Adam told us:
I would not have bought that route knowing what I do now. I paid too much for it. Plus, I lost the largest contract pretty quickly.
He went on to explain that the route is also the reason he succeeded.
I didn’t dabble in it. I had to dive right in. I borrowed $120K and had three years to pay it off. I didn’t have the option to fail. I had quit my job. I had to figure it out.
Key 2. How to Get a Vending Machine
The second key to starting a vending machine business is choosing the right machines. Adam told us:
Automated Merchandising Systems (AMS) are by far the best machines I’ve used. Stick to a brand. You need your parts to be interchangeable to be profitable.
He also explained the features you’ll need in machines:
• Credit Card
• Apple Pay
• Tap Pay
• I-Vend (guarantees the product comes out)
Some locations have 70% card sales. There are still machines out there without it. If you buy a machine that isn’t credit card compatible that’s a huge loss.
While there are a ton of YouTube gurus who suggest buying a used vending machine, Adam told us:
Go talk to an AMS and Vendo distributor. Find who has the best price in your area and buy new ones. Once you know the machines, then you can go on [to] used markets.
Key 3. Customer Service
Adam told us the third aspect of running a vending machine business is customer service. You need to have a plan for how you will handle it. He explained:
The last thing you want is for the account to call and say the machine is empty.
You also need to make a commitment about how soon you’ll be there when they need service. Put it in your contracts and make sure to provide them with a little cash and a log in case they need to provide refunds. People shouldn’t need refunds often if you are using I-Vend, so the amount can be small.
He also explained that there are benefits to staying small:
Everyone I talk to says scaling past about $1 million becomes a real headache and I’m not looking for that. I don’t want to go past $70K a month.
We asked Adam what he’d do if Aliens took over the world. He told us:
Everyone needs to eat. I’d feed them!
Attention Earthlings!
We come to you from the planet Nimrod to tell you that invaders are coming to eat all your food. The only chance for survival is to start a vending machine business through UpFlip’s Online Training Course. We have partnered with them to ensure your safety.
Talk about customer service! He recognizes that aliens need food, too.
Key 4. Pricing
The final key to success in the vending machine industry is pricing. Adam primarily sells food but also owns a cigarette vending machine. He explained:
We got killed with inflation. A can of Coke went up 30% in one year.
He explained that it’s essential to follow the 50-30-20 rule to make a good living. As a reminder:
That’s 50% product, 30% wages/profits, and 20% taxes.
He went on to explain:
You should charge three times what you pay on drinks and two to ten times on snacks. Snack machines have more room for good deals because there are different promotions you can save money on.
All the drinks are made by the same people, so there’s not much room for variation.
If you’re more comfortable tackling a standard business plan for your vending business, check out the information below.
Use a Standard Business Plan
Write a business plan for your vending machine business to help you stay focused and manage your vending machines and inventory. Your business plan should include:
- The name of your vending machine business
- Measurable goals such as:
- What kind of machines your vending business will purchase
- Whether you’ll buy new or used vending machines
- What types of business or property owners you’ll want to approach
- How you plan to purchase the machines
- How you’ll reach your target marketing plan
- Your financial projections
- What funding is needed
You can learn more about these subjects on UpFlip Learn. I suggest watching our interview with Mike about how to write a business plan to get started. Check it out below:
A business plan is often the difference between a successful vending machine business and an unsuccessful one. In fact, if you want to get financing to start a vending machine business, you’ll have to have a business plan.
Step 4. Form Your Vending Machine Business
If you want your own vending machine business, you’ll need to do everything to run it legally. Given your vending equipment will likely be on other property owners’ locations, you’ll want to make sure you have the following:
- An LLC or Corporation
- State, county, and city business licensing
- Business insurance
- Any food handling requirements
All of these have legal and tax implications, so I’d highly recommend talking with your local Small Business Administration office or a lawyer before starting a vending machine company.
If all this sounds intimidating, you might want to check to see if you can buy an existing vending machine business. Check the following sites:
- UpFlip: Businesses for Sale
- Craigslist
- Facebook Marketplace
Be aware that you’ll need vending machines with credit card or analytics software to make the most profit. If you are buying a route that you cannot personally service, it’s even more important because it helps protect against employee fraud. Given many machines are cash businesses, it would be easy for employees or subcontractors to steal from the machines.
Keep reading for more on how to become a vending machine business owner.
Business Structure
Normally, I would tell you that you can have other forms of business structure, but you really need a Limited Liability Company or a Corporation as your legal entity for vending sales as a small business owner.
I suggest this because you’ll most likely be selling food products on somebody else’s property. That means a sole proprietor would be personally liable if someone gets food poisoning or is harmed by the machine. That’s too much risk for the money made per vending machine.
Check out our blog about how to register a business. We go through the process of business registration as an LLC and getting your Employer Identification Number (EIN) from the Internal Revenue Service.
Business Licenses
Get the necessary business licenses for starting a vending machine business. These will vary based on your location. Start with a quick search about business licensing in your area, or talk to your local Small Business Administration office.
Business Bank Account
You’ll need a bank account for your small business because it is required to keep personal and small business funds and expenses separate to avoid personal liability. For more information, read our blog about business bank accounts.
Business Insurance
If you start a vending machine business, you’ll need insurance to protect the company if someone is injured. I’d recommend having general liability at a minimum and potentially restaurant insurance if you plan on placing vending machines throughout a city or region.
You may also want to offer to put the property owner on the insurance so that their own business isn’t at risk if your vending machine has a lawsuit. They’ll appreciate it, and if you are working with more prominent companies or governments, they’ll require you to add them to the insurance.
I usually recommend starting by getting a bid from Simply Business.
Food Handling Requirements
Many cities will require food handling licenses if you work selling food. If you are starting a vending machine business, check if you need special licensing from the health department. Just search “health codes near me,” and it should bring up your local health codes for a business entity in your location.
Keep reading for information on buying a vending machine.
Step 5. How to Buy a Vending Machine
When buying a vending machine, remember to evaluate vending product options to establish which vending machine is suitable for you. Then, you’ll want to inspect used and refurbished machines. Let’s look at where to buy vending machines
Where to find vending machines for sale
I’ve separated the following places to purchase vending machines based on if you want:
- A new vending machine
- Used vending machine offerings
- Custom vending machines
- Refurbished vending machines
- Bulk vending machines
Where can I buy a vending machine new?
If you want to buy a new vending machine, you might be in luck because there are plenty. Most of them will offer to finance as well. Adam encourages buying new vending machines from an authorized AMSVendo dealer, while Ben discourages buying new ones because they are more expensive.
Given the benefits of selling snacks over drinks, I would probably go for a machine like the AMS Multitasker or Low Temp Combo
You’ll want to compare the vending machine price and features before deciding where to buy one, but some of the places you can buy machines include:
- Vending.com has the largest variety of machines, including specialty vending. The only option that isn’t on their list is ice machines, which makes Vending.com a great place to start.
- Sam’s Club has 12 Vending Machines for snacks, beverage vending machines, combo, and single-brew coffee (coffee maker not included). Based on the product listings, they don’t sell chilled, refrigerated, or freezer vending machines.
- Swyft has two main vending products and lockers. These are high-tech, specialty vending machines with analytics, inventory management, and multiple cameras. They are meant for locations doing $36K in business or more. Swyft also offers placement assistance and maintenance services.
- eVending.com has hot and cold beverage machine options, plus food and beverage machines, and specialty machines called a Sani-Center that offers masks, gloves, and sanitation wipes. They have diverse offerings based on the ten sites that were reviewed for this blog.
Alibaba also sells vending machines, and they are far less expensive, but that’s before shipping from China. I would only suggest using Alibaba if ordering in bulk.
Some places also suggest Vending World, but I am hesitant about websites where the pictures don’t load on a computer. It may be a temporary issue, but I can’t recommend it for that reason.
If you only need a few vending machines, I would go with one of these providers, but consider buying used machines when buying bulk vending machines. The reason I suggest this is because the savings can be tremendous as long as they all have interchangeable parts.
Purchase a vending machine used
You can buy a used vending machine or even full routes. Places to buy a used vending machine include:
• Craigslist
• eBay
• Going out-of-business sales
• Government auctions
• Search the web for vending routes for sale
Ben told us:
When you’re just starting off, you might want to use the used route. It will save you a lot of money when you start up. Make sure to test everything and negotiate prices based on repairs.
Make sure to inspect the machines very thoroughly when buying used machines. Business owners are notorious for poorly maintained machines. I actually have a story about this.
When I worked in HVAC, part of the job included maintaining and repairing ice vending machines for motels, schools, universities, hospitals, and other locations.
Business owners wanted to keep their profit margins as high as possible, which meant they didn’t regularly sanitize their ice vending machines.
That’s great for maintaining your overhead costs, but it can (and does) allow mold to grow. Mold remediation is far more costly than routine maintenance by a few thousand dollars.
The moral of the story is to maintain your machines to provide top-notch customer service.
Inspect Used Vending Machines Before Purchase
Make sure you check the vending machines before you buy them. Test:
- Each dispenser
- The coin and bill acceptor
- The credit card reader (if there is one)
- Compressor and fan for cooled machines
- If the unit is meant for indoors or outdoors
- If the machine feels cool (You can’t have candy and coke machines in the heat without a cooling system.)
- Dates on the packaging
- Look for frayed wires
- Look for mold, signs of bugs, or rodents
Used healthy snack and drink machines have refrigeration units to check. Be careful when buying them second-hand. If you aren’t mechanically inclined, bring someone who is when you look at the machines. Used machines will typically be purchased as-is.
Most of the companies that sell new ones also sell used machines. If you’re concerned about buying used vending machines, consider refurbished machines.
Find a Refurbished Vending Machine for Sale
Buying refurbished is an established business model where companies accept damaged products, fix them, and then resell them. If you’ve ever gotten a replacement phone with your warranty, it was most likely refurbished.
Buying a refurbished vending machine is the best of both worlds. You have low startup costs, but a warranty is typically half as long as buying a new vending machine. Anywhere you can buy new vending machines will often have refurbished options, but it will probably be much slimmer pickings.
Custom Vending Machine Options
If you need custom machines, your best options are Swyft, Vending.com, or reach out to one of the manufacturers on ThomasNet. Lead times are longer for custom vending machines, and you’ll be paying more. If you want to develop brand recognition, it may be the way to go.
Can I Get Financing for a Vending Machine Business?
Yes, the majority of vending machine suppliers offer financing options. Their terms vary, but many give estimates of the cash flow or profit that will cover the machine’s price. Don’t forget that Adam suggests only using machines that include:
• Credit Card
• Apple Pay
• Tap Pay
• I-Vend (guarantees the product comes out)
He also prefers food machines because they allow for more profitable options.
Step 6. How Much Does a Vending Machine Make?
It’s hard to give a solid answer as to how much a vending machine makes, but Swyft states that their machines require $36,000 a year to break even and that their typical machines make between $70,000 and $250,000 a year in high foot-traffic machine locations like airports.
In slower locations, you might only make a few hundred dollars a month. That’s still not too bad for a couple of hours per machine.
Ben told us:
Our slowest machine makes about $600 per month and our best one is about $2,000.
How much do vending machines make?
It should be noted that owning multiple machines comes with significant benefits.
A single machine might only make a few hundred dollars per month at a low-traffic location. Meanwhile, a high-traffic location like an airport can be up to $250K per year. In addition, your passive income can skyrocket as your vending machine business grows.
Adam described what he considers a solid location:
A 120-bed nursing home will make $2K-4K per month with 2 to 3 machines.
Let’s look at revenue and profits for different numbers of machines.
As you can see, your revenue and profits can vary dramatically depending on how you run your business and where your machines are located.
Step 7. Where to Get Products to Fill Your Vending Machine
Part of learning how to start a vending machine business is buying the products to sell. Most people will buy their products from places like Sam’s Club or Costco, but depending on how many machines you have, you may qualify to work with a distributor. Given the speed of Amazon, you might also look for deals there. We put together a shop of vending machine products inspired by this blog. Check it out.
Adam told us:
I got a warehouse to have distributors ship to once I started going to Sam’s Club twice a day. It’s really saved me time and money, but you don’t need it when you first start. You can store the product in your living room.
Ben told us:
Check on a daily or weekly basis to see who has the best prices… Don’t forget to check wholesale restaurant warehouses and your local store promotions.
He also suggested using the online order functionality and just pick it up when you’re ready.
If you want to sell Coca-Cola products, go to the Coke Solutions website to get registered to purchase from distributors. PepsiCo Partners website is the link for Pepsi.
For other providers, go to ThomasNet.com.
The next step in starting a vending machine business is finding places to put your machines.
Step 8. Where Can I Put a Vending Machine?
You can put a vending machine anywhere a property owner will give you permission. Common locations for a vending machine include:
- Buildings with office space
- Grocery stores
- Malls
- Hotels
- Hookah lounges
- Hair salons
- Gas stations
- Fitness centers
- Barbershops
- Apartments
- Airports
- Hospitals
- Concert venues
Ben told us:
Start by asking friends and family. Then just go talk to the management of places that have a lot of people.
He also told us:
We look for locations that make $2,000 a month.
You also want to look for locations that have:
- Fifty to 100 people walking by per day
- Forty or more employees
- No competition preferably within two miles (grocery stores, gas stations, and restaurants)
Almost anywhere with lots of people is a great place to put a vending machine. That’s good to know, but how can you find specific places that need a vending machine?
How should I market a vending machine business?
Marketing is a big part of how to start a vending machine business. You’ll need to find property owners willing to let you put your vending machine on their property. That means you’ll need some common marketing tools!
- A website: Learn how to build a website with our easy-to-follow guide.
- Vending machine business cards: You need to have professional business cards to hand to business owners.
- Social media: Sign up for social media business accounts and market to business owners.
- Car decals: Once you have vending machines, car decals can help you get new clients because you’ll be driving around and parking at places with lots of traffic. You never know when someone will see it and need your services.
- Google Paid Ads: Successful businesses often use them.
- Product brochures: Have a pamphlet to tell business owners what you offer.
- Walk-ins: You can ask to speak to a business owner in person, but it’s lower success and higher cost than other ways of marketing.
Adam told us he spends $100 to $200 per month on Google Ads, and Ben suggests using marketing that says:
Get a free vending machine in your business.
Make sure to sign contracts
You’ll need a contract to protect your machine, outline the responsibilities of each party, and commission (if applicable). One video I reviewed said 10% was normal to pay to have a vending machine at a property, but don’t volunteer it. You might be able just to offer the service and not have to pay for it.
Adam discourages paying to put your units on the property. It reduces your profitability.
LawDepot for quick, easy contracts tailored to your business.
How much does a vending machine weigh?
Empty vending machines weigh between 400 and 900 pounds. Climate-controlled machines like drink machines, ice cream machines, and combo machines, weigh closer to 900lbs. While snack and candy machines are much lighter. Make sure to use a dolly to transport them.
Step 9. Where Should I Store the Products for Vending Machines?
In a YouTube video about how to buy vending machine products, the business owner suggested keeping them at your house in a container that can be locked. If you don’t lock the products up, expect your family to eat them.
He was quite entertaining! Check out his YouTube below:
Both Adam and Ben suggest using a storage facility to store your snacks, drinks, and extra vending machines.
Step 10. How Do I Maintain Vending Machines?
When you start a vending business, you’ll need to maintain your machines. You can either learn to do this yourself or pay subcontractors to monitor them. Join the National Automatic Merchandising Association and take some of their certification courses to learn about:
• Level 1: Job fundamentals
• Level 2: Refrigeration
• Level 3: Electronics
They also have selling and business courses.
Ben also told us:
You’ll also need a dolly, a trailer, and straps to secure it down while traveling. Make sure not to put it on its side. They need to travel standing up.
Step 11. How Often Should I Check the Vending Machines and Empty the Money Collected?
It depends on how busy the locations are. Most locations will need to be done weekly or every other week. If it’s a busy location, you may need to check them even more frequently.
Adam told us:
When you get a new location, you want to go at least a couple times a week until you get a feel for how busy it is. The best way to lose a location is for them to have to call you because they ran out of stock. Once you understand the traffic flow, you’ll be able to go less.
Ben gave some advice too:
Give the store owner your phone number and be responsive. Stores change vendors if you aren’t responsive. That—and don’t bother them. They are busy.
Ben also told us
We have one machine we have to replace every three days.
He also said:
We integrate our card readers with analytics, so we know when we need to refill. We also integrate it with QuickBooks to make accounting easy. Also, set alerts and keep it above 60% full and never let the favorites be empty.
Definitely use automation to help you improve your profit margins.
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Go Start a Successful Vending Machine Business
After you get your first location, start putting the revenue into more machines, and you’ll scale in no time. If you enjoyed this article, share it and leave a comment.
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Brandon Boushy
Related articles
Have you ever wondered how to start a boutique business?
Lee Smith started Urbanity in 2009 after traveling to New York City and realizing that Bellevue, Washington didn't have a clothing store where you could go to select full outfits of designer clothing and accessories in one place.
Today it's making over $1,000,000 a year.
We're going to walk you through the process of starting your own boutique and share advice from Lee throughout. If you're ready to join a group of successful small business owners making more than $1,000,000 annually, keep reading!
It's important to know what business model will work best for your own boutique. There are many different models to choose from.
The most common business models are:
There is a ton of work that has to be done before opening a boutique. Whether you are wondering how to start a boutique from home, online, or opening your own retail location, you'll need to consider the following:
Common funding paths include:
You’ve created a name and business plan. It’s time to establish the legal structure. For best results, hire legal representation that has experience starting a business, like an attorney, accountant, or tax specialist.
They’ll help you get your business started quickly so you can focus on opening your own boutique.
Each location has different licenses, permits, or tax forms required. Use the SBA License and Permits page to identify what your boutique needs. Keep reading for information on different legal structures.
Most states have a sales tax, and you need to adhere to their requirements. This blog isn't the place to discuss the permits for all 50 states, but Avalara has a guide on Sales Taxes. Check it out.
While you are learning about sales taxes, consider using AvaTax with Shopify Plus to make your tax compliance super easy.
Product pages are dedicated to selling a specific product online.
Customers expect certain information from a product page. Anyone who wants to sell products to their customer base should follow these best practices:
Marketing is the trick to growing a business. You have to get your business and products in front of people to sell them.
Marketing should be considered in all parts of the business. Some of the most important aspects of marketing include:
When writing the business plan, you should have written a marketing plan. Make sure to use it. As you learn which strategies are working and which aren't, you'll need to adjust the plan.
Make sure to include what strategies you want to test, what you consider a success, and what you consider a failure.
You should also define what percent of the budget should go to each initially and a point where you should cut off the funds to that channel of marketing.
Hiring employees is primarily focused on hiring people who represent the brand well. Lee told us:
[su_quote]When I am hiring employees, I consider whether they seem to fit the style of the clothes we are selling, whether they are pleasant, and whether I trust them. As a small business, trust is big. I don't have the resources of major corporations to catch people stealing, so I need to trust my employees.[/su_quote]
When hiring employees for a boutique, you’ll be required to:
Typically used in sales to give employees a percentage of revenue. It is a strictly performance-based compensation model.
Retaining customers is primarily about customer service and making it easy for them to interact with you via methods they are comfortable with.
Lee suggests spending a lot of time in the stores.
[su_quote]I don't have to be in the stores, but if I'm not, I won't have my ear to the streets. I get to hear everything customers ask for and talk about, which helps me make better inventory decisions. Getting the brands customers love keeps them coming back.[/su_quote]
If you are running an online boutique, you should be thinking about aspects of the user experience like:
What is an online boutique?
If you are thinking about starting an eCommerce business and staying up to date on current fashion trends, you should consider starting an online boutique. The boutique sells everything you need to make an outfit complete. This is a niche market of the clothing industry. To properly start a boutique, the boutique owner should have styles that work together to create an outfit. This includes brand name:- Shirts
- Shoes
- Pants
- Accessories
- Shopping bags
- Purses
Defining the Idea
Before we start looking into the logistics of starting a new business, let's consider some of the aspects that may impact whether you want to start a clothing boutique. When you are starting any business, you should consider the following things:- What type of business models are used in successful boutiques and which is best for me?
- Who are the major players in clothing boutiques?
- What is the industry outlook?
Which Business Model is Best for a Clothing Boutique?
It's important to know what business model will work best for your own boutique. There are many different models to choose from.
The most common business models are:
- The traditional retail boutique
- An online boutique
- Both a retail boutique and an online boutique
The traditional retail boutique
For new business owners, it may be difficult to start a clothing store with a physical location due to the additional costs involved with a physical location. Lee told us: [su_quote]The buildout of the store was $150k, which was split between me and the mall owner.[/su_quote] If you have the funds to rent a space in a high-traffic shopping area, starting a boutique with a physical shop can be beneficial because the location introduces you to prospective customers. Lee also told us: [su_quote]The high-end clothing line industry won't allow you to sell their products online. If you plan on conducting business with these suppliers, you can only sell these products in your stores. You can show them in your social media though to entice people to come into the store.[/su_quote] Check out our interview with Lee from Urbanity below. [su_youtube url="https://www.youtube.com/watch?v=_wUc28d8KkE"]An online boutique
An online boutique uses an eCommerce platform such as our partner Shopify to sell clothing. It’s far easier to start a successful online boutique because your online store can be seen anywhere in the world for a much lower cost than starting a successful clothing boutique with a retail location. When you start an online boutique, you may be able to benefit from reduced starting costs by using dropshipping options that are easily available via Shopify, like Printful or Oberlo. An online business also reduces or eliminates the costs of a physical location. While a small business will see cost-saving benefits when you start an online boutique, the small business owner will also see some increased costs compared to retail spaces. You should expect higher business expenses around:- Increasing brand awareness
- Shipping
- Having higher cost-per-item with drop shipping because you are not ordering in bulk
Both a retail boutique and an online boutique
While new boutique owners may not be able to start a retail boutique early in their journey of starting a fashion business, the ones that can afford to will benefit more from having both your own store and an eCommerce website. As Lee pointed out, there are some items that he can only sell at the store location. In addition, clothing stores will increase their revenue from their existing customer base, while an eCommerce website will increase brand awareness by having a physical location.Who are the major players in the clothing boutique business?
The largest online boutiques include some major players. You've got major Chinese retailers like JD.com and VIP.com with revenues of over $10B per year. Then you've got some of the US retailers, like Macy's and Kohl's that, make over $5B/year, but here are some of the largest revenues that are only boutiques:- Asos $2.5B/year in revenue
- Revolve $479.5M/year in revenue
- NastyGal $167.7M/year in revenue
- Lulus $385M/year in revenue
- Francesca's $34M/ year in revenue
- Urbanity $102K/month in revenue
- Portland Gear $120K/month in revenue
- Check out our interview with Marcus
- Throwbacks NW $25K/month in revenue
- Trendy & Tipsy
- LF Stores
What is the industry outlook?
Everything points to retail sales going more and more to online sales. In fact, Tech Crunch expects 2022 to be the first year that eCommerce sales in the US hit $1T. According to a Presearch about the "percentage of clothing sales online," online store sales are increasing by 3-4% every year. However, they are currently less than 30% of the $369 Billion dollars that Statista attributes to the US apparel and footwear sales. That means you can expect a successful online boutique to benefit both from the increasing trend of retail sales going online and the increasing sales from people spending more money since most places have abandoned Covid restrictions. Because of the growth in the industry and the move to online sales, people should expect higher revenue, more competition, lots of new entrants, and increased marketing spending.Starting a successful boutique
There is a ton of work that has to be done before opening a boutique. Whether you are wondering how to start a boutique from home, online, or opening your own retail location, you'll need to consider the following:
- Writing a Boutique Business Plan
- Purchasing Inventory For Your Boutique
- How Much Does It Cost To Start A Clothing Boutique?
- How to start your own clothing boutique with little or no capital
- Funding Your Clothing Boutique
- How Profitable is a boutique?
- Naming Your Clothing Boutique
- Getting a domain name
- Meeting the legal requirements for a boutique business.
Write a Boutique Business Plan
You need a business plan for your boutique. A business plan helps you define your vision while starting a boutique. Small businesses should use the plan to refine their business idea, guide decisions, secure financing, and develop partnerships with other businesses. Boutique owners should have a flexible business plan so their process can evolve as their online boutique grows and fashion trends change. Here are some resources to help with this step.Templates
We’ve gathered templates to help you develop your business plan. Here are some of the best:- One-page business plan
- U.S. Small Business Administration (SBA) Business Guide
- State-specific templates
- Business Plan Template for a Startup Business
Resources
It gets better! Here’s some free and low-cost education on business plans:- UpFlip’s blog on How to Write a Business Plan
- SCORE’s free business plans and startup assistance resources
- The Complete Business Plan Course (Includes 50 Templates)
Where to buy clothes for a boutique
When you're a small business owner, it can be a challenge, but you have to figure out how to get inventory for your online boutique. Do NOT buy clothes from local department stores — you may want to consider wholesalers online. Wholesalers are retailers who sell clothing in bulk at wholesale. Price and quantity requirements to buy from a wholesaler are much less than buying from manufacturers. These types of companies are perfect for boutiques looking for affordable inventory without sacrificing quality or style options. Let's get even more specific about where to buy boutique clothing. Here are some ideas:- Check out resellers like Goodwill and other nonprofits. Sometimes you can find steals for a low cost.
- If you frequent other boutiques, you can sometimes find improperly priced items. A friend of mine has sold over 1,500 items on Poshmark this way.
- Magic Fashion Events are a great way to keep up with trends in the fashion industry.
- Dropshipping companies which I discussed earlier.
- Check out Brands Gateway's blog about 70 wholesalers for a great list of wholesalers to contact.
How Much Does It Cost To Start A Boutique?
The cost of starting a boutique can vary dramatically based on your location, target market, and whether you are starting an online boutique or retail shop. Online boutiques can be started for as little as $1,000 assuming you use dropshipping, an eCommerce platform, and free social media platforms to target customers. When you are opening a retail store, you can expect it to cost at least $50,000 to start a boutique. Talk to other boutique owners in your area to get an idea of how much money they invested in their space. If your boutique ideas involve creating your own product lines, you can expect to spend $10K-$100K per product between design, manufacturing, inventory, ordering SKUs, and more.How to start a boutique with no money
As I mentioned previously, if you want to know how to start your own boutique without money, you'll need to start an online boutique. I would use the following solutions:- Shopify - 14-day free trial, which is plenty of time to set up an online shop and sell some products.
- Dropshipping - Check Shopify's app store for options that sell the brand-name clothing you want to sell.
- Amazon - Connect Shopify to Amazon Marketplace to increase exposure to potential customers
- Instagram - Create an Instagram shop and connect your Shopify to it.
- Use social media marketing to start selling to potential customers.
- Reinvest earnings to get some inventory for photoshoots and paid advertising to start marketing and attract even more customers.
Funding Your Clothing Boutique
Common funding paths include:
- Personal funds/personal assets
- A loan from family or friends
- Funds from a business partner
- Government programs
- Crowdfunding
- Credit cards
- Home equity loan
- Business loan - check out our partners
- Rollover for business startups (ROBS)
How much profit can a boutique make?
Lee says: [su_quote]You can expect 47-70%, but 50% is typically average[/su_quote] He also says that a smaller brand name will tend to allow you more profit margin if they really want to get into your boutique. If a brand can get new customers, you can make way more profit from their products.Naming Your Clothing Boutique
You'll need to decide on a business name for your boutique. The elements of a good business name include the following:- Does it describe what you do?
- Is it easy to remember?
- Does it prevent weird acronyms?
- Is it available as a domain name? Check that the domain name and social media accounts are available with namechk.
Get a domain name
You can buy domain names from a ton of places. You can normally buy them directly from the platform you set up your online store on, but if you want to spend money on it elsewhere, you can find domain names for as low as $0.88 at NameCheap. Other providers include: You can't learn how to start a clothing boutique without learning about the legal requirements. We're about to discuss that next. Keep reading.Meeting the legal requirements for a boutique business
You’ve created a name and business plan. It’s time to establish the legal structure. For best results, hire legal representation that has experience starting a business, like an attorney, accountant, or tax specialist.
They’ll help you get your business started quickly so you can focus on opening your own boutique.
Each location has different licenses, permits, or tax forms required. Use the SBA License and Permits page to identify what your boutique needs. Keep reading for information on different legal structures.
Sole proprietorship
A sole proprietorship is the easiest way to start a clothing boutique, but the structure doesn’t protect the owner’s assets from legal issues. That means if something goes wrong, you could lose both your boutique and your home. This structure should only be used if you can’t afford an LLC because the boutique includes work and materials that can cause injuries to employees or customers. To start a sole proprietorship, fill out a special tax form called a Schedule C. Sole proprietors can also join the American Independent Business Alliance.Limited Liability Corporation (LLC)
An LLC is the most common business structure used in the United States because the company protects the owner’s assets. It’s similar to partnerships and corporations but can be a single-member LLC in most states. An LLC requires a document called an operating agreement. Each state has different requirements. Here’s a link to find your state’s requirements. People may register in specific states due to the cost of doing business. Delaware and Nevada are common states to file an LLC because of their business-friendly laws. Here’s a blog on the top 10 states to get an LLC.Partnerships and corporations
Partnerships and corporations are typically for massive organizations or legal firms. Unless there is a specific reason you need a partnership, it is better to do a multi-person LLC. Investopedia has good information about partnerships and corporations.Apply for an EIN
Every business operating in the United States needs an employer identification number. It’s like a social security number for your business. Apply for it on the IRS website. It’s used on tax forms when filing taxes and to tie employees’ pay to the proper employer.Sales Tax Permit
Most states have a sales tax, and you need to adhere to their requirements. This blog isn't the place to discuss the permits for all 50 states, but Avalara has a guide on Sales Taxes. Check it out.
While you are learning about sales taxes, consider using AvaTax with Shopify Plus to make your tax compliance super easy.
Tax filing and withholding
Federal and state tax filing requirements apply to new employers. You must keep records of employment taxes for at least four years, including special forms and accounting for state taxes. Don’t worry! We’ve got you covered! Check out the IRS guide for employers.Federal employment and labor law posters
All employers must display Workplace Posters, which you can download from the website. Other requirements include:- Employment Eligibility Verification (Form I-9)
- State’s New Hire Program
- Worker’s Compensation Insurance
- Disability Insurance—varies by states
- Occupational Safety and Health Administration (OSHA)
Unemployment Insurance
The U.S. Chamber of Commerce has a ton of information on unemployment and also offers links to each state agency that handles state unemployment. You’ll have to pay $420 per employee on a federal level plus any state UI. Now that you are familiar with the aspects of starting a boutique, let's look at some of the things you'll need to do before your online store is ready to launch.Launch a Website
Every online store needs a website to sell its products online and have full control of the layout, content, and customer data. A boutique online store differs from other websites because it handles the sale of products, which means you’ll have some special requirements when starting a boutique business. The primary differences between an online store and other sites will be some of the pages, including:- Product pages
- The backend of the platform
- Cybersecurity requirements to protect your customers’ credit card information
Product pages
Product pages are dedicated to selling a specific product online.
Customers expect certain information from a product page. Anyone who wants to sell products to their customer base should follow these best practices:
- Multiple pictures of the product. I suggest following Amazon photography specs as they are the leader in e-Commerce sales.
- Capitalize the 1st letter of each word in the title but don’t use all caps. Make sure the brand and product name is in the title too.
- Include the price, quantity, and an add-to-cart button.
- Product descriptions should communicate the purpose of the product, important features, dimensions, care instructions, and warranty.
- Product identifier that is used to differentiate products. To learn about them or buy some for your products, go to the GS1 website. You’ll need a separate barcode for each variation of size, color, style, or quantity.
- Quick checkout buttons, like the Checkout with Paypal button, are fabulous for conversions.
- Manufacturer information if it is not your own brand.
The back end of a boutique online store
An online store has a lot of features that other websites might not. Given most boutique businesses sell on multiple platforms, there are elaborate backends that help manage your business. The most common services to run a boutique online store on are: I’ve used most of these at different times. I personally prefer Shopify because I find its interface easier than the others, but most have either a completely free version or a free trial. Make sure to integrate the backend with popular sales channels like Amazon, Instagram, and Facebook. The downside of Shopify is it uses a proprietary code called Liquid that you’ll need to familiarize yourself with if you want to do extensive search engine optimization or custom coding. This limits the number of developers who can help you. If you are going to build your store yourself, I would recommend looking at each of them to see which you find least difficult to use. Check out our blog How to Create a Website (in 9 Simple Steps) for a more in-depth look at how to build a website.Cybersecurity requirements
According to Magneto, e-Commerce is the most vulnerable industry to cyber attacks. That’s no surprise given how easy it is to start an e-commerce business. To best protect your brand and customers, it’s a good idea to review and implement internet best practices as outlined in SOC2 requirements or ISO 27001. While meeting cyber security issues is complex, they will help protect your sales and customers to reduce the chances of a cyber-attack. If you’re still not confident that you can protect the brand name with technology, talk to your insurance agent about cybersecurity insurance.Payment Processors
Payment processors are responsible for collecting payments from your customers. The majority of website payment processing is through PayPal. Other payment processors include: All of them include similar features and pricing. If your store has the option to integrate with them, offering the payment options your target customers want can increase sales dramatically. Shopify allows multiple integrations fairly easily.Strategies for Opening Day of a Clothing Boutique
To launch your clothing boutique successfully will require different strategies based on your ideal customer. Lee told us: [su_quote]Because I was the first store of my kind in our area, I was able to partner with a lot of the influencers in the area without having to approach them. They came in because they thought the idea was cool, and we were able to partner with them and get the word out that way.[/su_quote] Another strategy he used was creating flyers and paying someone to hand them out. Other strategies that have success:- Set up social media pages for your business. Post whole pictures of whole outfits on your social media with links to each product page. Add a discount if they buy the whole outfit.
- Partner with popular brands and do popup stores at fun locations.
- If you are comfortable with Facebook Live, TikTok, or other social media that uses video, launch your brand there.
- Hire teenagers to help you keep an eye on the market and help spread the word with your business.
Grow through marketing
Marketing is the trick to growing a business. You have to get your business and products in front of people to sell them.
Marketing should be considered in all parts of the business. Some of the most important aspects of marketing include:
- Market Research
- Marketing Plan
- Marketing on Social Media
- Growing Your Email List
- Tapping Into and Growing Your Network
Market Research
Market research is simply identifying the amount of demand for the products or services the business offers. In our blog How to Start a Business: The Ultimate Guide (2021), Mike Andes goes into great detail about market research, including identifying potential customers, target markets, and demographics. The following is a summary of the points in that blog, but I'd strongly suggest reading it as well.How do I find out who my potential customers are?
You can identify your ideal customers through Facebook surveys, but Lee makes an argument that in the fashion industry, you need to be your own customer. He told us: [su_quote]To keep up with the trends and sell the product, you have to love it. If you don't you're going to be miserable. Plus let's face it, who is going to trust someone with fashion if they are dressed badly?[/su_quote] In the fashion industry, I'd look at the characteristics and interests of you and your friends, then take note of them. We'll talk more about this in the next section. Here's another great interview we've done with Rio Estolas from Throwback NW: [su_youtube url="https://www.youtube.com/watch?v=I4SplY80dm0"]Demographics and Psychographics
Demographics are statistical characteristics of a population or a subset of the population. Some considerations you’ll want to make are:- Location
- Age
- Gender
- Other Interests
- Marital Status
- Number of children
- Job title
- Income
Use Demographics and interests to build your target market
You know the type of people your boutique should be attempting to attract, but how do you define them? Facebook has mastered defining your target audience. Wordstream published an infographic with all of Facebook’s targeting options that I would suggest using to specify the exact characteristics of your target audience. If you use paid advertising, you'll use this profile to market your boutique.Use your marketing plan and update it regularly
When writing the business plan, you should have written a marketing plan. Make sure to use it. As you learn which strategies are working and which aren't, you'll need to adjust the plan.
Make sure to include what strategies you want to test, what you consider a success, and what you consider a failure.
You should also define what percent of the budget should go to each initially and a point where you should cut off the funds to that channel of marketing.
Marketing with Social Media
Most clothing boutiques are going to use social media for most of their marketing. Each social media platform has a different business purpose and target market. Let's talk about a few of the main platforms and what makes them unique:- Facebook (rebranding as Meta) - the largest platform with over 2 billion global monthly users. You can use it for lead generation and email collection.
- Instagram - another Meta-owned platform with approximately 500 million global monthly users. With the highest engagement rate and the best ability to reach 18-29-year-olds, Instagram is best for showing off outfits and linking to product pages.
- Twitter Advertising - I'll be honest with you: I find Twitter to be a way to communicate in industries that move the quickest. While fashion changes, it doesn't change as fast as politics, current events, crypto, and other financial news. If your target market falls into these categories, it might be worth it. If not, don't bother.
- Pinterest Advertising - 175 million monthly users that are mostly women. Pinterest is best for products without being a promotion because the promoted pins blend in with the rest of the styles.
- LinkedIn Advertising - 227 million monthly users that are primarily in the B2B market. I'd only use this if you are offering fashion for business professionals that are too busy to do their own shopping.
Grow Your Email List
Email lists are a great way to remind your customers about your business. Most businesses collect emails by offering something for free. For a boutique clothing company, I would recommend offering either a discount or the first item in a subscription for free. Once you've collected their data, you can use it to let them know about sales, remind them about abandoned carts, or let them know when a new product line is released.Tap into your network
Lee told us: [su_quote]Find local brands and partner with them to grow your network. By partnering with them, you'll be able to expand your network. You'll promote them, they'll promote you, everyone grows. Then you can reach out to bigger partners once you've grown. This strategy got me to where Jay Z wore one of my shirts at a Nets game. That was huge for me![/su_quote] Don't be afraid to ask them for advice. Many of them probably have their own websiteRunning your boutique
Running the boutique is what you will spend most of your time doing. This includes aspects like hiring employees, helping customers, keeping inventory in stock, accounting, and payroll.Hiring employees
Hiring employees is primarily focused on hiring people who represent the brand well. Lee told us:
[su_quote]When I am hiring employees, I consider whether they seem to fit the style of the clothes we are selling, whether they are pleasant, and whether I trust them. As a small business, trust is big. I don't have the resources of major corporations to catch people stealing, so I need to trust my employees.[/su_quote]
When hiring employees for a boutique, you’ll be required to:
- Post Open Jobs
- Conduct Interviews
- Establish Compensation
- Manage Tax Filings and withholdings
- Comply with Federal and local labor laws
Job Posting
Hiring people requires posting “now hiring” signs and posting on prominent job boards. Some places you can start posting job requirements are:Interviews
Having a prepared list of questions for interviews can make hiring the right people easier. Indeed offers a variety of resources to help you make better hiring decisions. Read their guide on how to hire your first employee. Some questions you should ask during the interview process include:- Who is your current favorite designer?
- How does your previous experience make you a better fit than other applicants?
- How do you respond to a customer when you don’t know the answer to your question?
- Have an article (or articles) of clothing ready and ask them to go through the store and find accessories to go with it.
- What are your compensation expectations?
- Do you have any ongoing commitments that impact your availability? If so, what dates and times will it impact?
Compensation
Employees are typically a company’s biggest expense. There are three common pay structures in business. Each fits different scenarios. Let’s take a closer look.Salary
Flat weekly/monthly rate based on a person working a specific number of hours. This is typically reserved for owners, managers, and some admin roles. You might want to assign this to yourself for budgeting purposes.Hourly
This pay structure just tracks the hours an employee works and pays them a set hourly rate. This pay structure is solely based on time, not performance.Commission
Typically used in sales to give employees a percentage of revenue. It is a strictly performance-based compensation model.
Hybrid Models
Hybrid models combine two pay structures: for instance hourly and commission to compensate for time and performance. The hourly rate will typically be lower than an hourly rate without commission, but the commission should make it where good performing employees make more than they would without commission. These structures also help reduce the variability of pay from week to week. Paying employees an hourly wage works for most positions for clothing lines, but depending on your business structure, a commission or hybrid payment model might make sense. The article, “How to Create a Pay Structure That Promotes Team and Company Growth” offers some insights into thinking about pay structure.Outsourcing
If you don't need a full-time employee, you can consider outsourcing or hiring a freelancer on sites like Upwork.com. You may pay more per unit hour, but it saves you time in hiring, training, and other time-consuming activities. Accounting and payroll are often prime targets for outsourcing because they can be done remotely on a weekly or biweekly basis.Tax filing and withholding
Federal and state tax filing requirements apply to new employers. You must keep records of employment taxes for at least four years, including special forms and accounting for state taxes. Don’t worry! We’ve got you covered! Check out the IRS guide for employers. Lee told us: [su_quote]I hate doing accounting, so I pay someone else to do it. I love reviewing the numbers, but handling the number crunching is not something I enjoy. Have someone who enjoys doing it so you can focus on the areas you love.[/su_quote]Federal employment and labor law posters
All employers must display Workplace Posters, which you can download from the website. Other requirements include:- Employment Eligibility Verification (Form I-9)
- State’s New Hire Program - This is required so that people who owe child support remain in compliance
- Worker’s Compensation Insurance - Insurance for when employees get hurt on the job. Check out this guide to state laws
- Disability insurance - California, Hawaii, New Jersey, New York, and Rhode Island, and Puerto Rico have requirements. Learn more about disability insurance
- Occupational Safety and Health Administration (OSHA) - Federal and state laws govern what are safe working conditions. Fines can be up to $136,532/violation or up to $13,653/day. Make sure you understand your area’s laws at OSHA.gov.
How To Retain Customers For Your Clothing Boutique
Retaining customers is primarily about customer service and making it easy for them to interact with you via methods they are comfortable with.
Lee suggests spending a lot of time in the stores.
[su_quote]I don't have to be in the stores, but if I'm not, I won't have my ear to the streets. I get to hear everything customers ask for and talk about, which helps me make better inventory decisions. Getting the brands customers love keeps them coming back.[/su_quote]
If you are running an online boutique, you should be thinking about aspects of the user experience like:
- Can they shop without logging in?
- How many steps does it take to check out?
- Can customers easily get to other products that will look good with the item they've added to the cart?
- Do you save items they've added to the cart?
- If they leave the cart (and you have their contact info), do you send them a friendly reminder in case they got distracted?
Managing inventory
Lee told us: [su_quote]Managing inventory is a large part of my job. I'm keeping track of new trends, finding hot new brands, ordering new products, and having sales on products that sat on the shelf too long (but that doesn't happen too often).[/su_quote] He uses Lightspeed, which costs $150/month, but he doesn't love it. Lightspeed is an all-in-one payment sales platform, payment processor, and inventory system. He suggests looking for better ones. He told us: [su_quote]With payment processing, look for local sellers who deal with most of the payment processors. They'll work with you to find the one that works best for you. They care more about satisfying your needs because their customers are mostly local.[/su_quote]Top Influencers
- Lime Lush
- CladandCloth
- The Pretty Dress
- Ganni
- Francescas
- Check out StarNGage for a ton of other influencers that might fit your boutique.
Starting a bike shop is a rewarding career if you have the passion and skills. A bike business is a line of work where even a simple operation can generate substantial profits.
Want proof? We interviewed two business owners who took different approaches to starting a bike shop.
Armen, founder of the Glendale-based Bicycle Pit Stop, started his business in high school to make some extra money and fill his time. He used the common garage, a business strategy that many entrepreneurs use.
Meanwhile, Troy Rarick started Over the Edge Sports (OTES) using a business-minded approach that involved creating a business plan, securing investors, and developing a marketing strategy to pull people into his small town on their way to Moab, Colorado.
From there, Troy has expanded OTES to multiple locations across the globe.
Whether you are more like Armen or Troy, there is an opportunity for you to start a shop focused on bikes. We'll discuss the steps to start a bike business and share insights from both Troy and Armen.
The cycling industry generated over $12 billion dollars in 2020 and is expected to grow 5% by 2029, generating opportunities to find your niche in the industry and help other enthusiasts get on bikes.
If bicycles are your passion, this guide will help you start a bike shop.
An operational bike shop often comes with the equipment, inventory, and location all in one, and is a faster way to get started.
Conduct research to determine what is right for you. Your bicycle store should be run in a way that works for you, but will also satisfy your customer's desires.
You may want to run a store focused on professional cyclers, one that caters to local riders, or you may want a warehouse where you focus on online sales.
You aren't limited to just one type, but the type of business you choose will impact every decision you make going forward.
Bicycle Pit Stop focuses on all bicycles, including electric ones, but excluding motorcycles. Meanwhile Over the Edge rents and sells mountain bikes to ride on their trails.
Many consumers start their shopping experience online, so a shop that can sell a bike in person or online is a good way to start your bike business.
I can't stress enough the importance of a bike business name. Keep reading for best practices when naming a bike business.
You need a bike shop business plan to help define your vision, objectives, and strategy.
Its purpose is to drive the direction of your business by guiding decisions, securing financing, and developing partnerships with other businesses.
Armen told us:
[su_quote]In the beginning there was no plan. Just make everything as nice as possible. Then the plan started forming. I looked at it as the future of the business. I always stuck to service. The plan always changes. It grows and evolves into an art.[/su_quote]
Having a flexible business plan that is constantly evolving is a great approach to the process and allows for businesses to pivot when necessary. Here are some resources to help with this step.
Each location has different licenses, permits, or tax forms required. Use the SBA License and Permits page to identify what your bike shop needs. Let’s look at different legal structures for bike businesses.
Your bike business is an entity now, but you still need more. The order you do the rest of the steps will depend on the resources you have, your skill sets, and the type of bicycle business you are running.
There are five areas of business you will need to focus on to get your shop running:
When looking for a space to rent, take into consideration your ideal client and what stores they might frequent.
For instance, they might want coffee or a smoothie after a long bike ride. Finding the right place will take some research, which will be much easier after considering your marketing efforts.
Troy emphasized the importance of good people, saying:
[su_quote]Hiring good people. I see now that once you get good people, honor that beyond all else... Honor your people, and never keep disruptive people, no matter how short-staffed you are. Good people HATE lame Coworkers.[/su_quote]
An open bicycle shop might need employees. Depending on your financial position when starting, you can work all the hours yourself or hire employees.
Either way, there are some things you'll be required to do. Keep reading for more info.
Hiring people requires posting “now hiring” signs and posting on prominent job boards. Some places you can start posting job requirements are:
Flat weekly/monthly rate based on a person working a specific number of hours. This is typically reserved for owners, managers, and some admin roles. You might want to assign this to yourself for budgeting purposes.
A crucial portion of successfully starting a small business is managing the financial aspect of the bike store. Armen told us when he started his bike shop:
[su_quote]I opened a business credit card, and that is what got me started. Supporting myself through other side businesses also helped.[/su_quote]
That is a pretty risky way of starting a business that requires financial discipline because credit cards have high interest rates. To find banks that work with small businesses, use this resource.
Let's look at some tricks you can use to help your bike shop become profitable.
How you price your bikes and services will impact how many people you draw to the shop. If your prices are too high, they'll go elsewhere. Too low, you'll lose money.
Based on the rules of thumb presented by Troy in his interview, you'll make about $10-27k for every $100k in sales if you use a 50% markup, which is pretty standard amongst businesses.
Troy uses a variety of methods to market his bike company. While he doesn't discuss his social media marketing, a little research shows each of their locations has thousands of followers and hundreds of posts.
It's obvious that they put some effort into social media to advertise their shop. Bike enthusiasts can share their photos as well.
Troy uses some innovative ways of marketing as well. He discusses how his bike company got to be known throughout the biking world by hosting the lunch at a bike convention:
[su_quote]I couldn’t afford big marketing or a trade show booth, so I started hosting a lunch at the annual bike trade show, I called it the “show lunch”. It became iconic. We poured more tequila than we served food but the “who’s who” of the MTB World came to lunch. They brought friends and other VIPs, and people still tell me “it was the best part of the trade show”. I remember when that lunch bill reached $5,000; I was terrified Could I afford this? Yes, now I know, go all in and love your people, it made us what we are and it’s SO important to never let up on that honest effort to honor your people. [/su_quote]
Step 1: What bike business is right for you?
Conduct research to determine what is right for you. Your bicycle store should be run in a way that works for you, but will also satisfy your customer's desires.
You may want to run a store focused on professional cyclers, one that caters to local riders, or you may want a warehouse where you focus on online sales.
You aren't limited to just one type, but the type of business you choose will impact every decision you make going forward.
Bicycle Pit Stop focuses on all bicycles, including electric ones, but excluding motorcycles. Meanwhile Over the Edge rents and sells mountain bikes to ride on their trails.
Many consumers start their shopping experience online, so a shop that can sell a bike in person or online is a good way to start your bike business.
Mountain Bikes
Mountain Bikes are the largest segment of bike sales, with over 25% of cyclists saying their next bicycle purchase will be a mountain bike. Make sure you have a good variety because mountain bikes will be an easy sell. In fact, mountain bikes were what inspired Troy to start his business. While he was working on getting the funding to start the business, he was also buying land and building trails to give a unique experience to bike riders. To learn more about bike terms, check out the glossary of terms.Step 2: Bike Business Name
I can't stress enough the importance of a bike business name. Keep reading for best practices when naming a bike business.
Does the name explain the bike business?
Bicycle Pit Stop includes the products serviced as well as what it does, Pit Stop (a reference to the quick service provided in racing).Is it easy to spell?
Make sure your business name is easy to remember when using a search engine. A crazy name like Quasimodo Bikes makes searching for your business difficult. Register domain names for common misspellings and forward them to your website.Location
Including your state, county, or city identifies you as a local business. For example, Las Vegas Mountain Bikes would be a business located in Las Vegas.Branding
Does your name fit your branding? Some business owners focus on visual ideas for a logo before a name. Las Vegas Mountain Bikes might have a logo with mountains, the strip, and bikes. It's about communicating ideas, right?Register a .com
Find a name for which the .com domain is available. It’s the most recognizable. You can conduct a search by clicking here.Give it a go!
See how people like it. Make sure to check what happens if people shorten it. You wouldn't want to name a business Destin Off-Road Klub because it would get shortened to DORK, and that isn’t what you want to communicate. Check Google Trends. Read articles like Five Tools for Naming a Business. Finally, register your business name with the government.Step 3: Write a Business Plan
You need a bike shop business plan to help define your vision, objectives, and strategy.
Its purpose is to drive the direction of your business by guiding decisions, securing financing, and developing partnerships with other businesses.
Armen told us:
[su_quote]In the beginning there was no plan. Just make everything as nice as possible. Then the plan started forming. I looked at it as the future of the business. I always stuck to service. The plan always changes. It grows and evolves into an art.[/su_quote]
Having a flexible business plan that is constantly evolving is a great approach to the process and allows for businesses to pivot when necessary. Here are some resources to help with this step.
Templates
These business plan templates focus on helping small businesses succeed. Want to know the best part? They are all free!- One-page business plan
- U.S. Small Business Administration (SBA) Business Guide
- State-specific templates
- Business Plan Template for a Startup Business
Resources
It gets better! Enjoy free and low-cost resources about writing successful business plans:- How to Write a Business Plan
- SCORE’s free business plans and startup assistance resources
- The Complete Business Plan Course (Includes 50 Templates)
Step 4: Establish a legal structure
You have a business plan and name. Now you need to establish the legal structure for your bike business. For best results, hire legal representation that has experience starting a business, like an attorney, accountant, or tax specialist. They'll help you get your business started quicker so you can start selling bikes faster.Licenses, permits, and tax forms
Each location has different licenses, permits, or tax forms required. Use the SBA License and Permits page to identify what your bike shop needs. Let’s look at different legal structures for bike businesses.
Sole proprietorship
A sole proprietorship is the easiest way to start a bike business. The bike company doesn't protect the owner’s personal assets, meaning if the company has legal issues, you could lose your home as well as your business. This structure should only be used if you cannot afford an LLC because bike companies have work that can cause injuries. To start a sole proprietorship, fill out a special tax form called a Schedule C. Sole proprietors can also join the American Independent Business Alliance.Limited Liability Corporation (LLC)
LLC is the most common business structure used in the United States because the company protects the owner’s personal assets. It's similar to partnerships and corporations but can be a single-member LLC in most states. An LLC requires a document called an operating agreement.Partnerships and corporations
Partnerships and corporations are typically for massive organizations or legal firms. Unless there is a specific reason you need a partnership, it is better to do a multi-person LLC. Investopedia has good information about partnerships and corporations here.Franchise
There are several opportunities to purchase bike franchises. Franchising.com has two franchise opportunities in the United States and two in Australia that allow you to start a bike business using a reputable company's name and business processes. This makes it where an entrepreneur can benefit from the reputation of a bike business that has already worked out many of the kinks of starting from scratch.Step 5: Getting Ready for Cycling Customers
Your bike business is an entity now, but you still need more. The order you do the rest of the steps will depend on the resources you have, your skill sets, and the type of bicycle business you are running.
There are five areas of business you will need to focus on to get your shop running:
- Location - Where will you be working?
- Inventory - What will you have in stock and how will you pay for it?
- Employees - Will you have employees and how will you make sure it is a safe environment?
- Finances - How will you keep track of transactions and financial records?
- Marketing - How will you find customers?
Step 6: Location
Finding a location will vary based on the bike business. For instance Armen started repairing bikes out of his garage while Troy was building trails for people to ride their mountain bikes. When deciding to rent a space for a bicycle-based business, consider:- How will I store equipment and parts?
- Is there space for a home-based office?
- Will customers be coming to my location?
- How much inventory will I have?
- How much display space do I need?
- How much space is needed to perform repairs?
- Will I be doing mobile repairs?
Know the local ordinances
Each city and state has different requirements for where a business is allowed to be located. Local ordinances might not allow a bike business to be home-based. How am I supposed to start my shop with so many rules about bikes? Just search Municode Library to find your city regulations.Finding a good spot
When looking for a space to rent, take into consideration your ideal client and what stores they might frequent.
For instance, they might want coffee or a smoothie after a long bike ride. Finding the right place will take some research, which will be much easier after considering your marketing efforts.
Step 7: Inventory, Tools, and Product Displays
A new shop requires inventory. Whether it is new bikes, replacement parts, or product displays for your store, there will be some costs associated with selling and repairing bikes. Each of the business owners we talked to while researching this article took different approaches. Armen started his business with virtually no inventory. He'd order it off of Amazon when he needed a part. This kept his upfront costs low. Troy decided to go a different route and have inventory upfront so that people could rent or buy bikes to ride the trails he'd built. To find a list of major bike manufacturers, check out this article.Used tools and product displays
Tools and product displays can often be found at huge discounts if you buy them used. You can find used tools and product displays through most online markets, pawnshops, going out of business sales, and other places. If you are considering buying an existing business, they should be included in the purchase price. Learn more about valuing an existing business in our guide about buying businesses.Step 8: Employees
Troy emphasized the importance of good people, saying:
[su_quote]Hiring good people. I see now that once you get good people, honor that beyond all else... Honor your people, and never keep disruptive people, no matter how short-staffed you are. Good people HATE lame Coworkers.[/su_quote]
An open bicycle shop might need employees. Depending on your financial position when starting, you can work all the hours yourself or hire employees.
Either way, there are some things you'll be required to do. Keep reading for more info.
Employer Identification Number
Get an Employer Identification Number (EIN) from the IRS to identify your company. Apply here or call 800-829-4933.Tax filing and withholding
Federal and state tax filing requirements apply to new employers. You must keep records of employment taxes for at least four years, including special forms and accounting for state taxes. Don’t worry! We've got you covered! Check out the IRS guide for employers here.Unemployment Insurance Tax
Unemployment Insurance Tax is required. It is a program under the Social Security Tax for employers.Federal employment and labor law posters
All employers must display Workplace Posters, which you can download from the website. Other requirements include:- Employment Eligibility Verification (Form I-9)
- State’s New Hire Program
- Worker’s Compensation Insurance
- Disability insurance—varies by states
- Occupational Safety and Health Administration (OSHA)
Job Posting
Hiring people requires posting “now hiring” signs and posting on prominent job boards. Some places you can start posting job requirements are:
Interviews
Having a prepared list of questions for interviews can make hiring the right people easier. Indeed offers a variety of resources to help you make better hiring decisions. Read their guide: How to hire your first employee.Compensation
Employees are typically a company's biggest expense. Let’s take a closer look. There are 3 common pay structures in business. Each fits different scenarios.Salary
Flat weekly/monthly rate based on a person working a specific number of hours. This is typically reserved for owners, managers, and some admin roles. You might want to assign this to yourself for budgeting purposes.
Hourly
This pay structure just tracks the hours an employee works and pays them a set hourly rate. This pay structure is solely based on time, not performance.Fixed-Rate
This pay structure is used for mechanics and other tradespeople where billing is based on the expected time it takes to complete a task. This is a way of combining performance and time into the pay structure because those who complete a job successfully in less time have more opportunities to work on other projects. This also protects the company from overcompensating for the learning curve.Commission
Typically used in sales to give employees a percentage of revenue. It is a strictly performance compensation model.Hybrid Models
Hybrid models combine two pay structures. For instance, hourly and commission to compensate for time and performance. The hourly rate will typically be lower than an hourly rate without commission, but the commission should make it where good performing employees make more than they would without commission. These structures also help reduce the variability of pay from week to week. Paying employees an hourly wage works for most positions if your new bike business doesn't require salespeople. The article, “How to Create a Pay Structure That Promotes Team and Company Growth” offers some insights into thinking about pay structure.Step 9: Financial Management
A crucial portion of successfully starting a small business is managing the financial aspect of the bike store. Armen told us when he started his bike shop:
[su_quote]I opened a business credit card, and that is what got me started. Supporting myself through other side businesses also helped.[/su_quote]
That is a pretty risky way of starting a business that requires financial discipline because credit cards have high interest rates. To find banks that work with small businesses, use this resource.
Let's look at some tricks you can use to help your bike shop become profitable.
Budget! Budget! Budget!
A budget is the most important tool you can use in business. Without it, your bike shop might not make it through the first few years. While Armen started Bicycle Pit Stop with a shoestring budget, Troy says: [su_quote]I borrowed $10,000 from my parents, recruited an investor partner, and begged credit from vendors[/su_quote] Troy spends a good bit of time discussing his budgeting strategy so I've put together a table to help you understand how he budgets. Basically, he uses rules of thumb to keep his net profit margins around 10%. The table below shows what each of his budgets would be for $100,000 revenue in a bike business. Troy loves Quickbooks because it lets him "develop budgets quickly without an accounting degree." To learn more about budgets, check out low-cost courses from UdemyConsider the many funding options
Starting a bike shop doesn't cost a fortune. The initial investment in owning a bike shop can be one year of savings. Funds to start your bike shop can come from:- Personal funds
- A loan from family or friends
- Business partner(s)
- Government programs
- Crowdfunding
- Credit cards
- Home equity loan
- Rollover for business startups (ROBS)
Develop a pricing structure
How you price your bikes and services will impact how many people you draw to the shop. If your prices are too high, they'll go elsewhere. Too low, you'll lose money.
Based on the rules of thumb presented by Troy in his interview, you'll make about $10-27k for every $100k in sales if you use a 50% markup, which is pretty standard amongst businesses.
Don't undersell to get new customers
Shops will often sell their products or services for a lower price to bring in new customers. Be careful about this. If you sell your bikes for a discount and they tell others, you might have to sell another bike for the same price. People love a good deal! Just make sure it is sustainable for your bike shop.Increase prices every year
Inflation occurs every year. To keep your business running, raise your prices 5% per year. It gives you room to increase wages and to make some extra money. Makes sense, right?Step 10: Marketing
Your Bike shop is open. You have bikes to sell, parts to fix bikes that people bring in, but no clients! How are you going to let people know about your company? Marketing is crucial for all new businesses. Both Armen and Troy spent a good bit of time discussing their marketing strategies with us. Let's look at what they have to say!Bicycle Pit Stop Marketing
Armen tells us he started with Yelp, then gradually added Google. Over time, he has also added Instagram to market his bike shop. He thinks: [su_quote]Yelp has been there the entire time. Yelp was the best thing that could ever happen. I don't like paying them. Lately, I have just been paying the minimum. [/su_quote] It sounds like Yelp's pricing forced him to look for less costly alternatives and drove him to Google My Business and Instagram where he can do marketing without paying to show off his shop and bikes to people.Over the Edge Sports Marketing
Troy uses a variety of methods to market his bike company. While he doesn't discuss his social media marketing, a little research shows each of their locations has thousands of followers and hundreds of posts.
It's obvious that they put some effort into social media to advertise their shop. Bike enthusiasts can share their photos as well.
Troy uses some innovative ways of marketing as well. He discusses how his bike company got to be known throughout the biking world by hosting the lunch at a bike convention:
[su_quote]I couldn’t afford big marketing or a trade show booth, so I started hosting a lunch at the annual bike trade show, I called it the “show lunch”. It became iconic. We poured more tequila than we served food but the “who’s who” of the MTB World came to lunch. They brought friends and other VIPs, and people still tell me “it was the best part of the trade show”. I remember when that lunch bill reached $5,000; I was terrified Could I afford this? Yes, now I know, go all in and love your people, it made us what we are and it’s SO important to never let up on that honest effort to honor your people. [/su_quote]
Influencers
USA Cycling offers resources for clubs that can help with marketing influence. You can join one or start your own. Another common marketing tool is social media influencers. For a list of cycling influencers, check this article out or use a hashtag generator to get the attention of cycling enthusiasts on your social media channels.Conclusion
To recap this guide on how to start a bike business, ask yourself the following questions:- Do I know how to start a bike business?
- Is it worth it for me to start a bicycle business?
- Will I be comfortable speaking to clients?
- Am I starting a bike business this year?
- Why am I starting a bike business?
- Do I need employees or advice?
- What will I need to feel successful?
Starting a business is a challenging endeavor that requires time, money, and continuous learning. In our blogs, we cover how to start a business with brief overviews. In our hub, we aim to provide you with everything you need to go through each step. Our first step is conducting market research.
Throughout the steps, we'll provide insights from Paul Akers, the owner of FastCap, and a Lean Expert who has created hundreds of products for woodworkers and cabinet makers.
There are four basic steps to conducting market research:
Primary research is the original research conducted directly by an organization. It is used to find out what customers are interested in. It can be done through questionnaires, interviews, or videos. Primary market research is used for understanding the underlying needs and desires of consumers.
Primary market research helps us to understand the needs, wants, and behaviors of potential buyers. It is the basis for the buyers' persona. It helps us to formulate marketing strategies that can be used to meet those needs and wants.
You might perform qualitative research along with market validation after you have created a prototype of a new product.
You can normally gather the data you need through this method for under $5 per survey participant, making it one of the most effective and lean methods of gathering market research.
Customer utilization research is focused on how your current customers use your products or services. Marketing professionals will normally use customer surveys to perform this exploratory research. The following questions are questions that an online survey might include:
A small business might need to do market segmentation research if all their clients don't fit neatly into a single user persona. For instance, FastCap would have at least three market segments that they might want to prepare marketing materials for:
Competitive analysis research is focused on developing a thorough understanding of the market and identifying how you want to differentiate yourself in a market of comparable competitors. This type of research will be included in a business plan. You'll want to focus on aspects of the industry including:
Brand awareness research is focused on establishing what your target audience knows about your business, how they perceive it and giving you input on improving brand awareness.
Facebook has a feature for brands running ads that is really useful for establishing brand awareness called Brand Survey Tests. It is currently an experimental stage, but here's how it works:
The flow model is simply a visual representation of how interactions occur. Check out the behavioral flow for website visitors in Google Analytics. This model can be useful for establishing where issues occur and how processes work.
The final and most important part of performing your own market research is converting the research into business practices to improve revenue. Depending on what you find in the research, this step may include:
- Understand "what is marketing research and which type is right for my business?
- Perform market research.
- Analyze the data.
- Use the research to make decisions.
Step 1: What is market research in business?
Market research is the process of gathering information about target customers to better understand their views about a product or service. The primary ways of classifying market research are:- The method of the collection
- Common types of market research
The method of collection
Market research normally uses six methods of collection when looking for answers:- Primary market research
- Secondary market research
- Qualitative research
- Quantitative research
- Exploratory research
- Specific Research
Primary market research
Primary research is the original research conducted directly by an organization. It is used to find out what customers are interested in. It can be done through questionnaires, interviews, or videos. Primary market research is used for understanding the underlying needs and desires of consumers.
Primary market research helps us to understand the needs, wants, and behaviors of potential buyers. It is the basis for the buyers' persona. It helps us to formulate marketing strategies that can be used to meet those needs and wants.
Secondary market research
Secondary market research is a process of finding information about a product or service through other sources. This includes looking up other companies that are in the same market as your company and finding out what they are doing. A company should conduct secondary market research to find out if the product or service has been done before, which will help them figure out how they can differentiate their product from competitors. Secondary research can be used to gain information about competitors, pricing, distribution channels, etc. It also helps the company save time by not having to conduct primary research that has already been performed. Researching competitors before you start your business is not only crucial for success but essential for survival in the business world where everyone is trying to get ahead.What is the difference between qualitative and quantitative research?
One is focused on themes while the other is focused on information that can be processed numerically. Let's look at each.Qualitative Research
Qualitative research is focused on finding themes that run through interviews and surveys. This type of research is more focused on opinions and is more art than statistical analysis, but in some cases, you can turn this type of research into data that can use statistical analysis. For instance, a question like the one below converts a qualitative data point into a quantitative data point, making it easier to compare how happy someone was with their food.
You might perform qualitative research along with market validation after you have created a prototype of a new product.
Quantitative research
This research is focused on information that can be easily processed with statistical analysis software. For instance, median household income would be easy to statistically calculate if you gather the data for the target customers' income. Market research analysts love this kind of data because it is easier to process.Exploratory research
Exploratory research is market research that looks for a better understanding. For instance, you may have come to this site doing exploratory research about how to do market research for a startup. After you've gained broader information about marketing research methods, you might move on to more specific research.Specific research
Specific research is when market researchers are looking to answer a very specific question using market data. This research might include searching for a specific concept or item. For example, the lowest cost statistical software for a company that will have ten users of the software. You might also want to research the history of a business location before deciding to sign a lease because some shopping centers have high turnover. To find the answer, you'll probably want to go with Google Workspace because Forms, Sheets, and other useful business tools are included in the same package as your email. Google is the primary email provider for small and medium-sized businesses. Market research may include a combination of primary and secondary data, quantitative and qualitative data, exploratory and specific research. Now that you understand the market research definition, let's look at the common market research methods and what questions they are trying to answer.Common types of market research methods
Most companies will perform 13 types of market research:- Literature reviews
- Surveys
- Interviews
- Focus Groups
- Observation
- Customer Utilization Research
- Buyer Persona Research
- Market Segmentation Research
- Pricing Research
- Competitive Analysis Research
- Customer Satisfaction and Loyalty Research
- Brand Awareness Research
- Campaign Research
Literature Reviews
One of the leanest ways to do market research is a literature review. With your laptop or cell phone, you can easily find vast amounts of data about your market through sources like:- Statista – Provides graphs that are easy to process for most economic subjects
- Competitors' research – Your competitors have probably already done the research. Find it so you don't have to duplicate the effort.
- Industry trade organizations – Companies
- Think with Google – Helps marketers gather information using Google's extensive database of consumer behaviors
- Census Bureau – The U.S. Census Bureau is a government agency that collects data on a variety of subjects including a full count of the U.S. population every decade.
Surveys
Surveys are the most common type of market research because they are so easy to conduct and are low-cost. With software like Google Forms and Facebook, you can easily create a survey, distribute it, and analyze the data on your own. When creating a survey, it is important to be aware of some best principles including:- Use a variety of style questions: scaled, multiple-choice, and open-ended questions are typically used with success.
- Avoid biased questions that lead the survey participants to a preferred answer. They will harm the validity of your research.
- Be respectful of the participants' time. Unless you are paying them, try to keep the survey to 10 questions or less. If you are paying them, $50-$100 per hour is typically what market research firms will pay for longer surveys.
- Make sure to gather demographic data and contact information for follow-up.
- Practice proper sampling methods. In most cases, you won't need more than 1,000 survey participants, but you can use the table below to establish how many people to include in your survey.
| Confidence Level | Margin of Error | Sample Size |
| 99% | 1% | 16576 |
| 99% | 2% | 4145 |
| 99% | 3% | 1842 |
| 99% | 5% | 664 |
| 99% | 10% | 166 |
| 95% | 1% | 9603 |
| 95% | 2% | 2401 |
| 95% | 3% | 1067 |
| 95% | 5% | 385 |
| 95% | 10% | 97 |
| 90% | 1% | 6764 |
| 90% | 2% | 1691 |
| 90% | 3% | 752 |
| 90% | 5% | 271 |
| 90% | 10% | 68 |
Interviews
Another great tool is a market research interview. They follow the same principles of surveys but have the benefit of the ability to ask follow-up questions. Using these with select survey participants who gave meaningful input might be useful. Interviews are much more labor and capital intensive than surveys, so only use them for follow-up questions for your target market. Keep reading to learn about focus groups.Focus Groups
A focus group brings 5-10 people together to discuss a product or service with a moderator. These will typically run $4K-$10K per group, and they are not conducive to being conducted by novices because of the challenges involving focus groups dynamics. If you are going to use this type of research, we'd suggest hiring a professional market research firm to assist you in the recruiting and managing of a focus group. If you are trying to run lean market research, you should skip focus groups entirely. Keep reading to learn about observations as a market research tool.Observation
Observation can be an extremely powerful market research tool. Using observation, you can learn how people actually interact with your product and service, but it doesn't allow you to actually communicate with them. Observation is particularly powerful for software products because tools like Google Analytics and Crazy Egg help you see how people interact with the software. This makes it easier to fix areas where customers stop interacting with the application. You can perform market research through observation in different ways. The primary ways of conducting market research through observation are covert observation and overt observation. Covert observation is collecting market research data without the participants' knowledge. This type of data collection can be achieved through analytics software on the web or using security cameras in stores where people can test your product. Overt observation is when the participants are aware of the marketing research and provide feedback to questions. When you conduct market research about a product or service this way you will get more information about potential customers' opinions, but it may be influenced by their awareness that you are conducting market research. Effective market research can gain actionable insights from both methods. Overt observation is better when you know who your potential customers are and you want to establish whether they like your business idea, while covert observation is helpful for establishing who naturally gravitates to a product or service. You'll want to take notes any time someone performs a desired or undesired action. If the participant is aware of the market research analysts, you'll also want to ask them what influenced the decision. Cautionary Tale: During the early stages of FastCap, Paul would gain actionable insights from conventions, but he stopped conducting research at such events because he found them costly to collect data. He also found that competitors would try to steal his ideas. To truly make the most out of this tool, you'll need to combine it with other research methods like surveys to gain user input after the observation.Customer Utilization Research
Customer utilization research is focused on how your current customers use your products or services. Marketing professionals will normally use customer surveys to perform this exploratory research. The following questions are questions that an online survey might include:
- How often do you use our product or service?
- What do you like most about our product or service?
- With 1 being highly dissatisfied and 5 being highly satisfied how would you rank our product?
- What do you like least about our product or service?
- With 1 being highly dissatisfied and 5 being highly satisfied how would you rank our customer service?
- Have you tried any of the competitors' products? If so, which ones? How does our product compare to theirs?
- What features would you like added to our product?
- With 1 being highly dissatisfied and 5 being highly satisfied how would you rank our pricing?
Buyer Persona: Identify Your Target Market
A user persona is a character that represents your target market. A user persona will include aspects including:- Demographics – age, gender, location, marital status, number of kids (if applicable to your product)
- Financial Information – Employment status, job title, household income, homeowner status
- Behaviors and Interests – Hobbies, products they like, buying habits, where they get information about products and services
- Market size and market trends
- Number of employees
- Industry
- Revenue
- Age of company
- Titles of decision-makers
- Market size
- Who are they? In FastCap's case, they would be carpenters and cabinet makers.
- What are they trying to achieve? They don't want exposed screw holes in their cabinets.
- What is the main obstacle? The products on the market are ugly, difficult to use, and expensive.
Market Segmentation Research
A small business might need to do market segmentation research if all their clients don't fit neatly into a single user persona. For instance, FastCap would have at least three market segments that they might want to prepare marketing materials for:
- Distributors that will be selling their products to carpenters
- Tradespeople who will be using their products
- Coffee shops that buy caps for drinks so people don't burn themselves (it's an ancillary use for a FastCap that he decided to market to restaurants with To-Go cups)
Pricing Research
The term pricing research is refers to establishing a fair price. Pricing research should be done before you open a business or launch a new product because it can impact whether the business is worth starting. To understand the benefits of pricing research I should discuss pricing strategies first. Businesses normally use either the value-added method or the cost of doing business. The value-added method charges a price that is based on the value that is provided to a client. An example of this pricing is how Tesla prices solar roofs. They determine the price using the cost of a comparable roof plus the net present value of 30 years of energy in the target market. The cost of doing business is calculated by adding up all your expenses (including taxes) and adding the amount of profit you want to make, then dividing by the number of units you want to sell. Both of these pricing strategies have issues though. In the value-added method, how do you determine the value that is added? In the cost of doing business method, what is the maximum your target market can sustain? Both of these are answered by researching comparable products. While there may not be something identical on the market, there is always something that serves a similar purpose. For instance, when portable MP3 players were created, the cost of the MP3 player plus downloading songs should have been compared to the cost of a portable CD player plus the cost of all the CDs.Competitive Analysis Research
Competitive analysis research is focused on developing a thorough understanding of the market and identifying how you want to differentiate yourself in a market of comparable competitors. This type of research will be included in a business plan. You'll want to focus on aspects of the industry including:
- Identify competitors and the products they offer. This can be done through their websites.
- Analyze sales trends. You can use industry resources and company quarterly reports.
- Research how economic indicators impact the industry. For instance, consumer staples tend to do better during a recession, while consumer discretionary products tend to do better as an expansionary cycle matures.
- Understand the impact government agencies have on the industry.
- Has the industry reached market saturation? If 9 out of 10 people have already purchased the product you are selling, you are probably late to the game. Before you spend money in an industry that is at capacity, you should review the following bullet point.
- What is the job outlook for the industry? The Bureau of Labor Statistics (BLS) creates an occupational outlook handbook for every industry. You want to be aware of the growth prospects. If both of the last two bullet points are going in the wrong direction stay clear.
Customer Satisfaction and Loyalty Research
Customer satisfaction and loyalty research are focused on building relationships that increase the lifetime value of your existing customers. With big data and rewards programs becoming more affordable, small business owners can now offer similar types of rewards to what people see at major chains. You'll want to use the market research process to establish the answer to questions like:- Should I use a point system or a number-of-purchases reward system?
- How big of a reward should I offer for repeat customers?
- Should I offer referral bonuses? If so, how much is meaningful?
- What are my competitors doing?
- How often your average customer buys your product or services. You can find this in Customer Relationship Management (CRM) software. Alternatively, you can sort receipts by credit card if you don't already have an app or loyalty program that people sign up for.
- If you have a CRM, establish what percent of customers interact with your business daily, weekly, monthly, or irregularly. Also, calculate the first two bullet points for each group to see if different promotions make sense.
- How much your average customer spends on each trip. Calculate revenue or number of receipts.
Brand Awareness Research
Brand awareness research is focused on establishing what your target audience knows about your business, how they perceive it and giving you input on improving brand awareness.
Facebook has a feature for brands running ads that is really useful for establishing brand awareness called Brand Survey Tests. It is currently an experimental stage, but here's how it works:
- Divides target market into two groups, one that is shown ads and one that is not shown ads.
- Collects data on both groups' clicks, purchases, and other actions with your company
- The ones that are shown ads will be shown a survey a couple of days later that asks up to three of the following questions:
- Required: “Do you recall seeing an ad for [page name] online or on a mobile device in the last two days?”
- “Have you heard of [page name]?”
- “How would you describe your overall opinion of [page name]?”
- “Are you familiar with [Page name]?”
- “Will you recommend [page name] to a friend?”
- Provides an analysis of what the market research process found.
Campaign Research
Campaign research is focused on reviewing past business strategies to promote your products and services so that you can establish what worked, what didn't, and why. In today's marketing boom, people often forget the importance of including lessons learned when closing a project. During this process, you'll want to look at questions like:- Did we reach enough people to be a representative sample? Typically, over 500 will be enough to count as a representative sample,
- What was the return on investment?
- Where did people drop out of the sales funnel?
- Did the campaign have a favorable reception?
- Should we try to duplicate the content in future campaigns?
- What should we avoid in future campaigns?
Why is market research important?
Because market research is the act of investigating consumer preferences as well as economic, social, and statistical data, it helps to better understand the customer and guides business decisions in the areas of:- Customer insights - Market research can be used to gain insight into how customers behave, what they like and dislike about products, and what they think about different marketing strategies.
- Marketing strategy development - Market research can be used to develop a marketing strategy by identifying the needs of the market, target audience, and competitors in the industry.
- Product development – Market research is key for product development because it helps companies discover what customers want to buy or use next. It also helps companies see how their product will fare against other similar products on the market today or in the future.
- Product pricing considerations – Market research helps companies determine prices for their products by understanding expenses to continue production.
Step 2: Conduct market research
As you begin to get a handle on your goals and the questions you need to answer, it's time to do the market research. At UpFlip, we are fans of Lean methodologies, so we figured we'd give you an introduction to lean market research.- Put together the list of questions you are trying to answer based on the previous sections. Structure them in a way that answers can be analyzed easily.
- Seek out data that is already available and document the findings that impact you under each question.
- Establish the minimum number of online surveys or observations needed for a statistically accurate sample using our calculator.
- Find participants and gather data. When possible use software for collecting data.
- Proceed to analyze data.
- Implement business strategies.
Step 3: Analyze the results
Market research analysts look for trends in data gathered from market research. The analysis involves both statistics and looking for patterns. To make it easier to analyze data, it is helpful to use software while gathering the data. If you don't, you'll have to input it into a spreadsheet manually. The first step is to clean up data. This means fixing misspellings and other improper collection like zip codes where state names should be. Next, remove obvious deviations from the sample. (If someone says they buy your products 100 times per day, that's probably not right.) After that, you can do data analysis using functions like:- Mean – sum divided by the number of surveys
- Median – (Number of surveys+1)/2
- Mode – Most common answer
- These can also use conditional statements such as "IF male and Under 45 mean"
Flow Model
The flow model is simply a visual representation of how interactions occur. Check out the behavioral flow for website visitors in Google Analytics. This model can be useful for establishing where issues occur and how processes work.
Affinity Diagram
An affinity diagram is used to group people, businesses, or other items together by a common feature. For instance, you might group by male and female, profession, or age. This can make it easier to tell whether one group tends to prefer your product or service more than another group does. If you want to learn how to do this in Microsoft Excel, check out the video below. Lucidcharts is another software you can use for affinity diagrams.Customer Journey Map
A customer journey map is a visual representation of the path people take from being unaware of your product to becoming a paying customer, and eventually a potential advocate. Customer journeys are typically broken into five steps in the process:- Awareness – The customer knows about the product
- Consideration – When the customer starts researching the product
- Purchase – The customer buys the product
- Retention –Keeping the customer happy, repeating purchases
- Advocacy – When the customer goes from being a satisfied customer to singing your praises to others.
- Short: Searching "gas stations near me" and immediately going to get gas
- Long: Spending hours researching the best shoe, best price, and best place to buy it.
Step 4: Use the info for decision making
The final and most important part of performing your own market research is converting the research into business practices to improve revenue. Depending on what you find in the research, this step may include:
- Adding new user personas and marketing campaigns
- Narrowing your target audience
- Discontinuing marketing campaigns
- Investing in software to increase customer loyalty or lifetime value
- Documenting the planned strategies for a business plan
- Rejecting the business idea completely
Thank you for reading!
Wherever the research leads you, UpFlip is here to help you run a better business. We use your feedback to create content that helps you build a better business. Which sections of this did you find beneficial and which would you like to learn more about?Comments
polaris@
2023-08-02 03:41:07
We are the right people to approach for commercial, residential and industrial elevator installations. Our company covers the entire action plan step by step through tested and tried professional methods.
Aldro Aromas@
2023-08-02 02:18:16
Imagine you walk into a room with a confident stride and all eyes scanning you. Dressed in a tailored suit and leather shoes, you know your secret weapon is your scent. With a blend of spicy and woody notes that complemented your personality and style, you feel the perfume envelop you like a cloak of charisma, enhancing your appeal and allure.
Luke white@
2023-01-01 11:16:20
Thanks for sharing good insights on the vending business.
Sean Revel@
2022-12-28 12:18:34
I would like to get involved in the vending industry. I need pointers and this was a great starter to what I needed. No one that I know is interested but I have plenty of locations and no immediate comps, which made it a no brainer for me.
Xvend@
2022-11-08 18:00:10
Vending machines are really handy and easy to go for food and drinks. Nice insights you shared.
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