Be careful with placement fees and commission plans.
Paying for locations in the vending machine business falls into three categories:
1. Placement fees
2. Rates
3. Location Services
Selling snacks and soft drinks requires a marketing and sales effort for account placement. The difference between marketing and sales is that marketing determines who your customer is, how much they are expected to buy, how you will get the product, and all other aspects of your business that induce customers to buy your products. Sales is the act of getting the business: closing the deal, getting the money. The sales function primarily applies to account placement, and the sales process uses the marketing function to make an offer to a potential account.
Let me illustrate the difference. Marketing for the vending business includes decisions about what type of vending machines to place (new, refurbished, as-is), what type of products to offer (snacks, soft drinks, food, brand, off-brand, etc.), what trucks to use, how to handle maintenance, who answers the phone and what they say, if the machines accept $5 bills or credit/debit cards, how the road and sales staff dress, etc. Marketing includes all aspects of delivering the product to the end user.
On the other hand, selling is the individual act of getting another person to say yes to your vending machine services. Sellers use marketing tools. When approaching a potential account, a seller may include a product list, operating procedure (if you have technical issues, we’ll send a repair technician within 4 hours), route schedule, or other marketing tools. These tools do not generate business by themselves, they require a person to make them known to the client. Sellers ask for business.
You can handle account sales in-house, which means you (or someone on your team) make sales calls, or you can hire an independent sales company, also called a “locator.”
Vending machine locators have several organizational types:
- Telemarketing: Get leads over the phone
- Internet – Get leads using email techniques
- Direct sales: create accounts and then resell them to sales operators
- Consulting – customize the sales function to meet your specific needs or requirements
Telemarketing and Internet locators typically pre-qualify leads and sometimes schedule sales appointments for you. You make the sales call and close the deal. They offer service levels related to the amount of information you want and charge accordingly. Prices range from less than a dollar to several hundred dollars per lead.
Direct sales type locators have businesses that you must operate. Price is a function of account sales, averaging about a month of gross sales.
Consulting locators offer a more personalized approach to vending machine sales. Consultants have often been vending machine business owners and may provide marketing assistance along with sales. Price is a function of both sales volume and time billed.
Here’s what a single scenario might look like with each type of organization:
1. A telemarketer would give you an appointment with a hairdresser looking for a drink machine.
2. A direct sales locator has an account across town at a factory that expects to earn $1,000 per month. This locator is usually paid a commission on the gross sale for getting you a new account.
3. A consulting locator meets with you to discuss your specific needs and goals, then works to help you land that type of business (in a certain geography, account size, account type, with new equipment, refurbished or as is, etc).
Commissions and placement fees are a marketing expense, just like brochures or other printed pieces you leave with leads and clients. Some vending machine accounts require commissions and placement fees. Both fees are a type of rent and are considered an expense for accounting purposes. Placement fees are a one-time fee to establish or obtain business and the account typically has a preset amount budgeted for. Commissions are an ongoing expense, usually a percentage of sales.
I recommend not paying placement fees to vending machine accounts. If you have to pay to place your equipment, the customer doesn’t value it and won’t hesitate to replace it when the next vendor comes up with a better offer.
Commissions are a common part of the vending industry, but not all accounts require them. Please note that commissions result in higher prices for the end user customer. In the end, fees can make a previously profitable account unprofitable for precisely that reason. Many accounts prefer lower prices and a better level of service. A commission program requires extra effort, since most accounts want sales reports and statistics. While this may sound simple enough, it means that you (or someone on your team) need to develop, format, and produce these reports, on a regular basis. It is an expense category and does not generate any additional benefit to you.
Avoid commission programs, especially on low volume accounts. Don’t fall into the trap of paying fees for energy bills or space requirements. Commission programs, such as placement fees, can also lead to lost accounts when competitors offer higher commissions. Taking these factors into account, commission rates typically range from 1-10% of gross sales, with rates as high as 50%.
Clients asking for commissions and placement fees are just another reason why knowing your costs inside and out and having an airtight business plan is an absolute must. They can make all the difference between profit and loss.
