Valuation: Existing (Located) vs Locating

[BudLeiser]

Thanks to another thread http://www.vendiscuss.com/forums/view_topic.php?id=5250&forum_id=1 I started thinking about the true values of located machines, vs the real costs of locating.

SAMPLE FORMULA

How much time will be lost locating, times the average amount earned. If a machine averages just $5 a week, But then the locator averages only 3 machines per week, it will take 5 weeks to fully place.

15 existing x 5 weeks x $5 = $375

15 Locating

1st week= 3 Located x 5 weeks remaining x $5 = $75

2nd week: 3L x 4 weeks remaining x $5 =$60

3rd week: 3Lx3Wx$5=$45

4th Week: 3Lx2Wx$5=$30

Last Week 3Lx1Wx$5=$15

Total:$225

So in this scenario the located machines generated $150 more. But wait... we're comparing a relatively fixed variable (Located) with a very volatile variable (Locating). You really have no idea how long it could take to locate those machines. I would also expect a higher kickout rate with new locations then exisiting. And completely unknown and un-maxxed returns. It's also not an established route, you don't know how long it will take to service, and how much gas.

Locating = Cost of machine + $50 + L (Lost time x averages)

Located = Cost of Machine + $50 +  K (Known variables including time)

What is the K and L values?

[nam]

Bud,

There are alot of unknowns in both your examples. Buying an existing route is often more bs than fact. I'd avoid the bs and do it myself so I've got the true facts and not the bs the sellers typically tell you. People selling a business, vending or any other type of business, will tend to lie, mislead, exaggerate and in general tell you what you want to hear. Since you want to hear it you're more likely to believe it. See how successful these guys are selling the business opps? Someone selling an existing business is very much like someone selling a business opp except with used machines. You can't believe the numbers they are showing you. You can't believe what they tell you about the condition or ages of the machines. You can't believe what they tell you about how they serviced the accounts.

It's just so hard to throw down numbers to work with as it's all speculation. I'm very skeptical because I've bought alot of machines from people that had bought existing routes. Nothing was as they were told or shown.

At least in doing it yourself you know what you've got and you're not paying for pie in the sky.

nam

[alyssamma]

Bud, you hit on some interesting points. There is a branch of mathmatics called Operations Research that deals with issues like these.

As you might suspect, solving this problem is extremely complex. The number of variables are huge.

Luckily, you can come up with a very good approximation of what is "best". I placed "best" in quotes because what is best is all subjective.

For me, vending was 3% of my total income last year. So obviosuly I'm not doing this for the money It is something my wife does and I use it as a way to easily take $ tax free (via mileage reimbursements) from my business. This gives my wife some extra spending cash and everyone is happy.

I am growing the business, but I doubt it will ever surpass 10% of my income.

So, to me, locators are a no-brainer. I'm not worried about making or losing a few hundred dollars.

For some, however, $100 is the difference between buying 2-3 more machines or doing nothing. For those people self-locating is definitely the way to go.

So, figure out what is important to you and do that. Can you afford to purchase a route? Don't have the time to build one from scratch? Then buy the existing route.

Also, there are other unknowns in what you have above. For locating you also have the qualities of the location. I know you are assuming $5/wk, but really that is an unknown just like the 3 loc/wk is. And quality just doesn't mean how much $ it makes. It could be a super location making $20/wk, but in a place where your machine could get stolen. Or far away from your house.

You mentioned some of these above, but I wanted to make it clear it isn't just "lost time".

Anyway, don't sweat it too much. Just don't do anything *obviously* stupid and you are already ahead of the game!

Kevin

[alyssamma]

Nam and I cross posted. He makes some very good points. If you are going to buy anything you need a way to verify the claims. If you can't, or can only partially do it, assume you are being lied to. It is the safe bet

Kevin

[sbishop]

I am glad I got you thinking. That is what this site is about. reading others post and adding your thoughts, or finding new ideas from the post here.

I would also have to say the you need to factor in the "rush factor" of the person. Do they need 15 locations today to make it work for them or is time not an issue.

[BudLeiser]

I am glad I got you thinking. That is what this site is about. reading others post and adding your thoughts, or finding new ideas from the post here.

I would also have to say the you need to factor in the "rush factor" of the person. Do they need 15 locations today to make it work for them or is time not an issue.

Thanks to Nam and Aly for posting. I tried to elude to some of that, but you guys made it more clear for others. As for the lying salesman, this is all about your own due diligence. Yes assume he is projecting best case scenarios, inspect the machines and locations yourself and assign your own numbers using his as possible or impossible guidelines. (If someone wants more info on this look into real estate and business books that have deep chapters on due diligence)

sbishop rush factor: I disagree with this, it could be relavant but I think it's moot. Wether or not someone is in a hurry is less important than the projected earnings. And machines located always produce more than a machine in storage.

You can never "know" how much a location will make just by looking at it. But hopefully you can make guesses on expected ranges. Schools nearby, family environments, lot of employees, lots of foot traffic etc. Buying an exisiting route lets you see the locations and make your own assumptions. Locators are buying in via zipcode.

I guess my goal with this thread is to stir debate on valuation of existing locations, and dispell the direct comparison to machine+50 (locating formula)