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Every city is different.  What you should do is get on the bid list for any city you are interested in offering services to and then when a contract is put out for bid you will be invited to obtain a copy of the RFP.  You will then see exactly what they are expecting.  You should attend any pre-bid conferences to listen to the prospective bidders (they won't all be there) discuss the contract and then you can ask your own questions.  Because these contracts are public you can ask for the terms of the current contract and for revenue reports from the current contract.  Quite often you can get permission to visit the locations to view the current vending setups so you can visualize what you will be competing against in equipment.  While the RFP will list the minimum terms the contract is requiring in pricing, commission, products and equipment, you can always offer alternatives as long as you meet their minimums. 

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Will someone check my calculations?
Expected annual revenues are $276,000.  Gross profit after COGS of 50% would be $138,000.  The city is then guaranteed payment of $110,000/year for 3 years.  This would leave the prospective vendor an annual income before operating expenses of only $28,000.  Is that correct?

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Will someone check my calculations?

Expected annual revenues are $276,000. Gross profit after COGS of 50% would be $138,000. The city is then guaranteed payment of $110,000/year for 3 years. This would leave the prospective vendor an annual income before operating expenses of only $28,000. Is that correct?

That's what I came up with..... No thank you!!
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That would be correct if the cost of goods is 50%. Do you know the selling prices. Chances are they are higher than normal which would raise the gross.

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Will someone check my calculations?

Expected annual revenues are $276,000.  Gross profit after COGS of 50% would be $138,000.  The city is then guaranteed payment of $110,000/year for 3 years.  This would leave the prospective vendor an annual income before operating expenses of only $28,000.  Is that correct?

I'm getting a different number; 23k x 36 months = 828k which should give you a gross margin of 414k - 110k = 304k spread across three years or a little over 8k a month.  Good money but a lot of machines to service and purchase.  It's a big bite to chew.

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I'm getting a different number; 23k x 36 months = 828k which should give you a gross margin of 414k - 110k = 304k spread across three years or a little over 8k a month.  Good money but a lot of machines to service and purchase.  It's a big bite to chew.

 

I see it now I guess I didnt notice the 23k per month,   I guess that looks alot better but you would have to have alot of reserve or great credit to finance this!

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This is what I read and it looks clear to me.

An average of 23k per month or 276,000 per year. That's 138,000/year at 50% after cogs. The 110,000 is ANNUAL. So yes, 28,000 after cogs ONLY. Furthermore, they want 40% of the sales beyond 300,000.

After cogs, if you only grossed 300,000 , you would make 40,000 (300,000-150,000-110,000). That's 40,000 from 66 machines or about $600/year per machine. That's only after cogs at 50%! They get up to 36.7% GROSS commission on the first 300,000 and 40% beyond that. If you have any repair, fuel, or labor costs after that, you are in the hole.

If you have to provide and maintain your own equipment, this is a horrible deal. From what I read, they want a vendor to work for free while they get all of the profits.

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This is an account for the big boys. 36-40% commission is huge. This is a route BY ITSELF. You can't afford to pay an employee to do this. Who does repairs? Let the big boys lose out on this deal.

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The $110,000 revenue to the city is annual. So that makes it 414 - 330 or $84,000 total for the 36 months. The $28,00 yearly income is correct.

In which case I'd let his Worship, the mayor keep this one.

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Here is another contract I have come across. I find the information very helpful in learning about the vending business.

What I would like to know is how these companies make any money. These are just a few points in the contract that they are required to provide:

 

1) 50% of sales must be deemed healthy per provincial standards.

2) All machines shall be less than 3 years old.

3) 23%-28% sales commission

4) All machines must have billl acceptors and are required to have telemetry by 2015

5) They must pay at least $19.62 per hour (Includes wages, benefits etc.) to staff to comply with the City's Living Wage policy.

6) Etc., Etc.

 

 

New West Report.pdf

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Those are bull**it requirements.  They are trying to prevent newer vending operators from participating because they know less experienced vendors can't meet most of those requirements.  It's also possible that they have written that RFP to cater to a specific vendor, such as the incumbent, so that no one can even come close to meeting the requirement.  These types of RFP's are why vending companies will cheat on the commissions.  The problem with this one is that the city is probably aware of the cheating and that's why they now want to "get into everyone's business" by requiring the telemetry.  They are probably figuring they can use that themselves to monitor the vendors commission report.

 

The large vendors will probably still bid on this because it will just be one not-so-profitable account among all their hundreds or thousands of accounts.  The large vendors also will use bottler equipment on full service because the bottlers will be able to pay that high commission.  The large vendors are more likely to have newer machines and be closer in pay to the city requirement (you noticed the wage includes factoring in any fringe benefits).

 

If you ever bid on this you would have to buy new equipment, finagle the commission structure, and add card readers.  If you do it by yourself you would avoid the minimum wage issue.

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I agree with AZVendor.  Sometimes these contracts are setup so that only one vendor could possibly win the bid.  When government is involved, commission is like a tax.. and 25-40% GROSS commission is an absolute OUTRAGEOUS tax.  Seriously, even the biggest corporate players are taxed at a rate of what?  35% AFTER expenses?  So the BIGGEST corporate players are taxed at maybe 35% after operating expenses but these little government contracts want 25-40% BEFORE OPERATING EXPENSES???

 

Simple economics... the higher the price, the lower the demand.  The higher you raise the prices, the less people will buy.  To give an extreme example, let's say that a standard retail price for a 20 oz. bottle out of a vending machine is $1.40.  To offset a 40% GROSS commission, you increase the price of the bottle to $2.00.  Let's also assume that your demand now dropped by 35% due to the large price (because people may choose to drive to convenience stores or somewhere else that sells the same product cheaper).  If you WERE selling 100 bottles/week at $1.40/each, you WERE grossing $140/week out of that bottle machine.  Now, if you are only selling 65 bottles (35% drop in demand) at $2.00/each, you are NOW grossing $130/week in GROSS sales out of that same machine.

 

Assuming each bottle cost you 85 cents, 100 bottles sold cost you $85.  65 bottles sold cost you $55.25

 

$140 - $85 = $55 in profit after COGS

 

$130 - $52 (40% of $130 for commission) - $55.25 = $22.75

 

That's right, in a very theoretical display of economics, your profit dropped by WELL over 50% due to a 40%+ increase in pricing.  In fact, in this scenario, the account receiving the commission makes over TWICE what you make!  You are working for FREE to PAY THEM!

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23% sales commission on that New West contract doesn't look as bad as that first one for Burnaby.

But these guys are really micromanaging the vending contract. Really? Forcing telemetry? Requiring that force vend be turned off?

Performance deductions?

 

Imagine having to pay $100 for skipping filling your client's site. That's what it says in that contract. Ridiculous.

 

But really, the reason these commissions are so high are partly due to bottlers. Some areas I've seen Coke and Pepsi throw around 30%+ of gross all the time.

 

And that some of the vendors give the city what they want.

 

I'd say forget about it. Not worth the hassle.

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The other opinion I would have on this is that the RFP is written in a way that scares off everyone except the incumbent that is bidding on it. They know the ins and outs of the contract, what the client is going to enforce, and what is just a scare tactic.

 

I don't even think it's possible to make money on a contract on such terms. The first one for Burnaby with a guarantee and 40% of gross after a certain amount cannot remotely be profitable. An annual income of $28,000 won't cover a full time route driver's labor + gas + spoilage + equipment depreciation, etc. etc. Unless the vendor is geting their product for free and has no cost of goods, it's not possible.

 

I checked the minimum wage in BC and it's $10.25 an hour. Assuming a 40 hour work week, that's $21,320 annually before insurance, workers comp, social security (I guess it's CPP, EI, etc. in Canada, but same type of stuff). Subtracting that from $28,000, and you're left with $6680. Divide that by 12 and you have $556. Subtract gas costs and spoilage and other miscellaneous things that can possibly cost money and you are left with nothing.

 

You probably don't need a full time guy for 60ish machines. Even if you assume part time labor, you're making peanuts.

 

Procurement sometimes is load of bull.

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I went to 5 locations that are covered in the Burnaby contract and here are the following prices:

 

Drinks:

 

12oz cans Pepsi/Dr.Pepper/Crush/Brisk.....................$1.25-$1.50

12oz cans Dole cocktail................................................ $1.50

16.9oz bottles Aquafina................................................ $1.50

20oz bottles Aquafina....................................................$2.00

20oz bottles Pepsi/7Up/Crush/Brisk/Dr.Pepper..........$2.25

20oz bottles Gatorade/G2.............................................$3.00

20oz bottles SoBe..........................................................$3.00

12oz cans Coca Cola/Diet/Sprite/CPlus/Barq's...........$1.25-$1.50

12oz cans Five Alive/Canada Dry/Nestea...................$1.50

16oz Monster.................................................................$4.00

20oz bottles Dasani.......................................................$2.00

20oz bottles Coke/Diet/Sprite/Nestea/Canada Dry....$2.25

20oz bottles Vitamin Water/Powerade/Minute Maid. $2.75

 

Snacks:

 

Chips...............................................................................$1.25

Bars.................................................................................$1.50

Cliff Bar...........................................................................$2.00

Famous Amos................................................................$1.25

Super Wormies..............................................................$2.25

Welch's Fruit Snacks....................................................$1.50

Cheezies........................................................................$1.00

Sour Tongue Tinglers...................................................$2.25

English Bay Chocolate Chip Cookie...........................$1.50

Planters Peanuts...........................................................$1.25

Smartfood Popcorn.......................................................$1.50

 

Milk:

 

Milk To Go.......................................................................$2.00

 

Hot Drink:

 

2 Cup Sizes ....................................................................$1.25-$1.50

 

 

 

 

 

 

 

 

 

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Well....Canadian prices have always been high. You can work this out. Let's say your 12oz can is $1.25. Backing out your 5% GST sales tax, you are left with $1.19.

Let's assume he's paying 40% on that (gross sales minus tax): $1.19 x 0.40 = $0.476.

 

After paying commission, therefore, you are left with: $1.19 - 0.476 = $0.716.

Assuming a case of 24 pack cans is $8.00, that's a $0.33 cost per can.

 

$0.716 - $0.33 = $0.386 = 39 cents per can is your profit.

 

The city makes more than you.

 

Similarly, assuming cost of $1 per 20oz (I'm sort of guessing here as I don't know real COGS in BC), at $2.25 sale price, 40% commission, 5% sales tax, you are left with 29 cents profit.

That is absolutely terrible. And at those prices, your volume is going to tank. No one's going to pay $3 for a Gatorade.

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Wasn't it 276,000 for 66 machines? That's over $4,000 per machine per year. After adjusting for a near 50% inflation of prices, It's about $2750 per machine. At $36 per case, It's about $75 cases per year. That's okay, but only if you have 3rd party equipment in there. At those quantities, you would be lucky to get 10 pepsi machines.

I would have walked away from this a long time ago. You can spend 20k on new equipment and get yourself a killer account. At $500/week, you could easily see $150/week profit and it wouldn't take more than an hour every few days.

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