If you’re planning to start a vending machine business, one of the decisions you’ll need to make is how to price your products. In this article, we’ll give you some tips on how to develop your pricing strategy for your vending business.
Why Does Your Pricing Strategy Matter?
Pricing is one of the most important aspects of your business, as it will determine how much revenue you generate. If you price your products too low, you may not make enough yearly gross profit to sustain your business. On the other hand, if you price your products too high, customers may be discouraged from using your machine.
It’s important to find a balance that allows you to generate enough revenue to cover your costs and make a higher gross profit, while also providing customers with a fair price.
Here are a few things to keep in mind as you develop your pricing strategy:
What Should Be Considered
Costs of Goods Sold
The first thing you need to consider is the cost of goods sold (COGS). This includes the cost of the products, as well as any shipping or packaging costs to deliver them to your machines. You’ll need to make sure that your price is high enough to cover these costs.
In addition to the cost of goods sold, you’ll also need to factor in your operational costs. This includes the cost of maintaining and repairing your vending machines, as well as any other overhead costs. Again, you’ll need to make sure that your prices are high enough to cover these costs.
Learn More: How Much Is a Vending Machine?
Another important factor to consider is competition. If there are other vending machine operators in your area, you’ll need to make sure that your prices are competitive. Take a look at what other vending operators are charging and price your products accordingly.
As you visit new locations to begin your sales process, note the current pricing for the vending machines in the location. See how far you can raise prices while still remaining competitive.
A key consideration is found in the demographics of your customer base. If you’re targeting price-conscious customers, you may need to keep your prices at a lower level to effectively compete. On the other hand, if you’re targeting customers who are less resistant to higher pricing, you may be able to charge higher prices overall.
Once you’ve considered all of the above factors, you’ll need to decide on the markup for your products. This is the percentage of the COGS that you’ll add to the price of the product. For example, if your COGS is $1 and your markup is 100%, your product will be priced at $2.
The markup you choose will depend on a variety of factors, including your target profit margin, the competition, and potential changes in the business environment. It is more effective to initiate a slightly higher markup than required, simply as a means of protection should circumstances shift.
Accepted Payment Methods
You’ll need to decide what type of payment methods you’ll accept. The most common method is cash and coins, but you may also want to consider credit cards or mobile payments. Investigate the costs associated with accepting credit cards or mobile payments prior to including those options. There are pros and cons to each method, so you’ll need to choose the one that’s best for your business.
Supply & Market Demand
Of course, your prices will also be determined by the supply and demand for your products. If there’s a high demand for your products, but a low supply, you’ll be able to charge a higher price. On the other hand, if there’s low demand and high supply, you’ll need to lower your prices in order to compete.
Developing Your Pricing Strategy
Now that you’ve considered all of the factors above, it’s time to develop your pricing strategy. Here are a few tips to help you get started.
- Start with a basic price. Start by pricing your products at a basic level. This should cover the cost of goods sold and operational costs. Once you have a starting point, you can adjust your prices up or down based on the other factors discussed above.
- Take into account your target market. As mentioned before, it’s important to consider your target market when setting prices. If you’re targeting lower-income or price-resistant customers, you may need to price your products lower. On the other hand, if you’re targeting higher-income customers, you may be able to charge a higher price.
- Consider your profit margins. Another important factor to consider is your profit margin. You’ll need to make sure that your prices are high enough to cover your costs and generate a profit. However, you don’t want to price your products too high, as this may discourage customers from using your vending machine.
- Test different prices. One of the best ways to find the right price for your product is to test different prices and see how customers respond. Try raising or lowering your prices by a small amount and track the sales to determine where your customers become resistant to the pricing you’ve offered. If you find that sales increase considerably when you lower your prices, you may want to consider this as your starting point.
- Adjust your prices as needed. As your business grows and/or as the cost of living in your area increases, you may need to adjust your prices. If you find that you’re not making enough profit, you may want to consider raising your prices. Track the results of any price increases and, if you find that customers are discouraged by the higher prices, you will want to consider lowering them.
Depending on the type of vending machines you choose, there are a few pricing strategies that you can utilize to help attract customers to make a purchase.
- Charm Pricing – This is a strategy that uses odd numbers to attract customers. For example, instead of $2 for a candy bar, you would price it at $1.99. This subtle difference can encourage customers to perceive the product as less expensive than it actually is, and the slight difference in pricing may encourage them to make a purchase. However, you’d need credit card readers to offer pricing like $1.99 due to the need for pennies.
- Bundle Pricing – A bundle strategy that offers multiple products at a discounted price. For example, you could offer a bag of chips and a candy bar for $2, whereas a single bag of chips might cost $1.25 and a single candy bar might be priced at $1.00. This type of discounted pricing can help increase the average order value, as customers are more likely to purchase multiple items when they’re offered at a discount. You would also need vending machines capable of serving bundled items.
- Price Anchoring – This strategy involves setting a low price for a product in order to attract customers. A low price encourages new customers to try your products, especially if competition is active; however, you will run the risk of pricing your products too low which can cause a loss instead of a gain on products sold. Use this type of pricing sparingly when needed.
- Premium Pricing – This is a type of pricing that involves setting a high price for a product in order to attract customers. Placing a premium price on a product indicates to your customers that there is a high-quality quotient in your product and, therefore, it is worth the added cost. This strategy attracts customers who are looking for a high-quality product and may be willing to pay more for it.
Vending Machine Pricing Markups
Items that you sell in your vending machines will have different markups. For example, the following markups are common in snack and beverage vending machines:
- Canned soda/soft drinks: 3.5X markup
- Bottled soda/soft drinks: 2.5X markup
- Energy drinks: 2X markup
- Bottled water: 3.5X markup
- Tea: 2.5X markup
- Coffee: 2X markup
- Gatorade/Powerade: 2.5X markup
- Regular size chips: 2X markup
- Small bag of chips: 2.5X markup
- Cookies: 2.5X markup
- Candy bars: 2X markup
- Pastries: 2.5X markup
In the calculator below, enter the wholesale price (i.e., the per unit price you can buy the item from a wholesale club like Costco or Sam’s Club or on sale at a supermarket) and then the markup amount mentioned above (e.g., if above it says “2.5X markup” then enter 2.5 into the markup field) to find the price at which you should sell the item.
Try Our Vending Machine Pricing Calculator
Pricing your products carefully and profitably can be a tricky task, but it’s an important part of running a successful vending machine business. By following the tips above, you can develop a pricing strategy that will allow you to generate enough revenue to cover your costs and, importantly, make a profit.