A Formula for determining Route Value

[gwdt2011]

I am in the process of possibly buying various vending routes.  I have been searching without much luck to find a formula I can use to determine the values of the routes.

 

My current favorite is:

 

10 month net profit + machine value + value of any product

 

I would really love to hear some input on this.  I have searched and searched (and probably missed some great answers as well).  I understand that in vending these answers can be very subjective based on how much time it actually takes to service the accounts (among many other things), but that's why it should be a range.

 

Thanks in advance for any answers, and please feel free to debate differing viewpoints because I have learned a lot by reading some of the different arguments/debates on the site.

 

 

[AZVendor]

That is the most open-ended question in vending.  There is no set rule of thumb and there are billions of permutations of what people think vending accounts are worth.  First, I'm going to add a comment about one of my pet peeves here: a "route" is all of the machines serviced in one week by one person, or all of your own machines you have on location.  Anything less than that is just a location or locations.  There, I feel much better.

 

Whether looking at one location or a route there is always a starting point for attaching a value to it and that's what the seller determines.  You, the buyer, are ultimately the one who determines what the final value is by putting your money down and buying it.  Until that happens there is no way to know the value of anything as it's only what you or someone else is willing to pay.

 

That said, the value can be enhanced (or reduced if missing) if machines are late models, have current coinage in them, be in good condition with good paint and fronts, be lit and professionally labeled, be in good repair, have high product prices, have low commissions, have contracts, be in high volume locations, etc.  Those are all intrinsic values but there are also perceived values such as locations being close together or in a certain geographic area to suit you. 

 

While the actual value will be what someone is willing to pay, you can use one of these starting points: X number of months of gross sales or net profit (net is impossible to prove), or X number of months of the preceding plus equipment value (there's no Blue Book to use).  The X is up to you.  I always suggest to someone trying to sell their route to begin at 12 months of gross sales and negotiate from there.  Many times that number alone doesn't even exceed the machine value if the locations are poor so in cases like that I suggest to sell the route at the value of the machines.  Now that value is also subjective because you can use a Craigslist value or a location-ready value.  I recommend something in between since there are locations that come with the machines.

 

Following that same train of thought, I suggest that a buyer not pay more than 12 months gross unless there are many value adds to put with it such as the value adds I mentioned in paragraph 3.  There aren't too many, if any, locations/routes that are worth more than 12 months gross; maybe not even more than 6 months gross.  Value can also be added by the seller including the inventory or the coins in the changers, spare parts, spare machines, a route vehicle, machine and product dollies, etc. 

 

So, there you go, nothing set in stone and nothing I can get held to.  It will ultimately come down to what you feel you are willing to pay.  Or look at it from a Return on Investment view and decide how quickly you want to make your money back (in net profit, mind you).

[gwdt2011]

Thanks for the awesome reply! I knew before I asked it that it had been asked many times, and answered many different ways. My goal is to come up with some kind of a range of values for a route (or, group of machines and locations currently serviced by a single person being sold together, if I am using "route" wrong).

I am looking for that number range where, barring extenuating circumstances (eg. trying to get your foot in the door of a massive company, huge profit potential overlooked by current servicer, etc.), you won't go a over the upper limit.

Or look at it from a Return on Investment view and decide how quickly you want to make your money back (in net profit, mind you).

AZ what is that time frame for you?

[moondog]

I am in the process of possibly buying various vending routes.  I have been searching without much luck to find a formula I can use to determine the values of the routes.

 

My current favorite is:

 

10 month net profit + machine value + value of any product

 

I would really love to hear some input on this.  I have searched and searched (and probably missed some great answers as well).  I understand that in vending these answers can be very subjective based on how much time it actually takes to service the accounts (among many other things), but that's why it should be a range.

 

Thanks in advance for any answers, and please feel free to debate differing viewpoints because I have learned a lot by reading some of the different arguments/debates on the site.

I've always used fair market value of equipment plus three months gross. To determine the fair market value of the equipment I use current Craigslist numbers and add $200 (no moving expense and the machine has some inventory and coin mech money). Be aware that it's not uncommon for sellers to exaggerate their monthly gross numbers so you may need to make a couple of trips to verify the revenue.  Bank statements and tax returns only work if you're buying the guy out.

[RJT]

Their is no real easy answer because it is not one size fits all for every situation.  A general rule of thumb you will hear is one times net, (one years gross revenue) which is gross divided by half. However, that does not always work either. Lets say you have an account that does 3k a month gross and has two old snack machines and three average drink machines. What is it worth? Lets say the same account has two new snack machines and two new glass front drink machines. Would the account now be worth more? 

 

Lets say you have an entire route that does $100k a year gross but is has all older equipment a beat up old van and a few other odds and end assets like hand trucks and such. What would that be worth? Take that same $100k gross revenue and the route has all machines less than two years old a late model van (optional to be included) and other odd and end assets. Now is it worth any different? 

 

When I am assessing a "route" for a client I look at how much revenue first and fore most then factor in the assets as a positive, negative, or neutral. I could advise them that paying a certain price could be ok based on assets but still may be worth buying but at a different price (lower) if I feel the assets are a negative. 

 

Like I said no hard and fast formula that fits every situation. Also keep in mind I don't consider is a "route" unless it generates enough revenue to make a decent salary for either the owner or hiring a route driver with profit left over after expenses. If not then you are buying locations and not an route. Again not exact science because one location could generate enough revenue to accomplish this criteria. 

[terry]

Thank you for info this topic was going to be my next post lol 

[gwdt2011]

I found this article and its link to an excel spreadsheet tool:

 

http://www.indivendor.com/?p=13

 

I thought it was pretty good, but I don't know anything.  If anyone else has an opinion on its validity I would love to hear it.

[moondog]

I found this article and its link to an excel spreadsheet tool:

 

http://www.indivendor.com/?p=13

 

I thought it was pretty good, but I don't know anything.  If anyone else has an opinion on its validity I would love to hear it.

Not bad but a little more complex than you need to get considering that there are so many variables that are estimated in these equations.  My method is faster.