Should I file this under "Don't believe everything I read"?

[sherlock]

Entrepreneur Magazine's book "Start Your Own Vending Business" contains the following quote from a Full Line Operator out of CA:

"What people don't realize (about vending) is that all you get to keep is a half-cent of every dollar you make. If you're extremely successful, you might make one or two cents."

What?! As a 100% newb to this field, that scares the heck out of me!

I'm interested in Bulk Vending to start and the book is aimed primarily at Full Line Vending, but, really?  A 1-2 cents per dollar is "successful" in this industry?  PLEASE say it isn't so.

I don't expect anyone to speak for this operator quoted in the book, but can anyone with industry experience care to explain what she may have been referring to? The half-cent per dollar makes it sound wholly impossible to succeed in this business and I know that is not so.

I don't expect you to release your financials here and I don't mean to get personal.

But please tell me that some of you regularly make more than 2% profit.

[mxer518]

You are out of business if that's your profit margin, if you take some thought into the workings of your business with bulk you can usually do 50% or much more on gross if done correctly. Tons of great info on these boards to assist you in making the right decisions that I was talking about, looks around and read as much as possible here and it will be nearly impossible to fail.

[MrEen]

I never thought about it, but some of the "big boys" might actually fall into this category. Take Canteen for example. They pay close to the highest commissions possible. They have a HUGE number of employees they give quite generous benefits to. With the cost of gas and other expenses, I could see that quote actually being reasonably applied to them.

However, they are more diversified than the typical vendor. The best example I can give here is they run many cafeterias. (There's also Office Coffee Service which can be a real cash cow.)

I would not be surprised if a company like Canteen could "somewhat reasonably" claim they're only making pennies per dollar taken in, but it's all smoke and mirrors, in my opinion (IF that's the case.)

Scott

[sherlock]

Thanks for your replies.

I was a little worried.

Maybe now I can get some sleep tonight! 

[alyssamma]

Scott, that is a good point. You normally make $0.50 on the $1. However, if you give $0.20 in commission and then have expenses for employees, taxes, maintenance, etc., your "profit", might really only be $0.01 per $1.

Kevin

[Technivend]

If you are a corporation (ie: C Corp) it is quite realistic to see a 2-3% profit or less. This figure would represent the corporations profit after all expenses such as payroll (including yours). Since a company that is a C Corp is a separate entity in the eyes of the government it is looked at for the most part as an individual. So as the principal of the company you could be making 250k a year and only show 1% profit for the company. As a sole proprietor your profits hopefully will be much higher.

So, yes you can believe what you read but it must be put into context.

[alyssamma]

Bill, it doesn't really matter if you are a C-Corp, S-Corp, LLC, or sole prop - profits are defined in the same way: Income - Expenses.

The only difference in a C-Corp vs. the others is that the C-Corp is not a passthru entity. If an LLC makes $100K and pays $70K in salaries, it has a $30K profit. Ditto for a C-Corp.

The difference is in how taxes are paid. With an LLC, I'll pay taxes on $100K (my $70K salary + $30K passthru profit from the LLC). With a C-corp, I'll pay taxes on $70K (my salary) and the C-Corp will pay taxes on the $30K (it's profit).

Kevin

[Technivend]

Kevin,

I agree with what you are saying.  But in your scenario, if you paid your self $99,000 in salary the C corporation would show a $1,000 profit which is a 1% profit for the corporation.

I guess the question is who are we talking about making the 1%. The individual or the corporation? That is why I mentioned it being out of context. As a C corp, I viewed it as referring to the business. Which in itself is its own entity.

If I am wrong please let me know where I am missing this.

Thanks for all your great posts!!

[alyssamma]

Bill, I think we are almost saying the same thing. For both the C-Corp and LLC, a $1K profit would be shown. The *only* difference is who pays taxes on that $1K. For the LLC, it is you, for the C-Corp, it is the C-Corp.

In both scenarios the $ is the same. Both entities show a $1K profit on the books. Taxes are paid on $100K in both examples - just you pay it for the LLC and it is split for the C-Corp.

Both the LLC and the C-Corp have made 1% profit.

Don't let the type of business entity confuse the concept of profit. Profit is independent of that. Now, how much of that profit you give to the IRS via taxes, vs. how much goes into your pocket, that is where the type of entity makes a difference.

Kevin

[Technivend]

Perfect explanation and of course you are 100% right.  I was thinking from a tax perspective and not general accounting which is wrong.

That's why I usually stick to the technical stuff 

[alyssamma]

hehe...np. BTW, not to hijack the thread, but what tech stuff do you do?

[Technivend]

We do tech stuff on almost all full line equipment as well as coin handling. I mostly do sales of equipment now but I have been fixing machines since 1978. My first job was to convert the old pull knob machines to vend candy bars for over 25 cents.

[alyssamma]

Gotcha...thanks.

[Poplady1]

Not to be defensive but I was one of the operators involved in writing that book with Entrepreneur, I can tell you that the information presented was correct.  It was directed at the corporations earnings against all expenses.  The women that wrote that had years of experience in running a very successful vending operaton.  Each statement was checked and double checked by the editors at Entrepreneur.

Bulk vending was not a consideration in that formula.

Bev

Blue Moose

[alyssamma]

Entrepreneur Magazine's book "Start Your Own Vending Business" contains the following quote from a Full Line Operator out of CA:

"What people don't realize (about vending) is that all you get to keep is a half-cent of every dollar you make. If you're extremely successful, you might make one or two cents."

I think the way the statement was presented (possibly out of context) is what caused the problem. Certainly this doesn't apply to the average full line vendor.

Even for the larger ones, it is hard to believe they make about 1% profit. That would be $50K profit on a $5M income. Unless buried within the expenses is a $1M salary to the owner, it makes no sense that anyone would do this. But, of course they do.

The other possibility is that vending is a loss-leader for these people.

Either way the statement is a little misleading - hence the subject of the post.

Kevin

[sherlock]

I can tell you that the information presented was correct.  It was directed at the corporations earnings against all expenses.  The women that wrote that had years of experience in running a very successful vending operaton.  Each statement was checked and double checked by the editors at Entrepreneur.

Bulk vending was not a consideration in that formula.

Thanks for the clarification Bev.

That quote was way out of context in the book without the clarification you have provided.

For the record, the quote I included in the original post and below was taken from page 68 of the book and is found under the heading "The Home Front". The entire paragraph reads as follows:

Not only do most vending businesses begin as homebased, but successful entrepreneurs stress the cost advantages of an in-home location. "What people don't realize (about vending) is that all you get to keep is a half-cent of every dollar you make," says Northridge, California, full-line operator Becky P. "If you're extremely successful, you might make one to two cents. Working out of the house was a godsend for us. When you're struggling, trying to cover overhead rent (in addition to your mortgage or apartment payments) is very difficult. Having a homebased business helps tremendously by keeping overhead down."

There is no reference to the business structure or how it applies to the earnings mentioned in this "Home Front" section. Therefore, the info can be very misleading without the additional details Bev has provided. I know it scared the heck out of me...whether the comment referred to full line OR bulk vending.

[Poplady1]

I can see your concern..the wording isn't as clear as it should be and it would make most people wonder why anyone would bother getting into the business.

Bev