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Several vending operators and product manufacturers contacted me regarding my April article, “Pricing, machine collection and profitability” with the same question. They wanted to know what “premium products” vending at $1.50 should be placed in snack and beverage machines to increase the average machine weekly sales by $10.

To determine what products to select, the operator must consider a number of factors. Some of these are:

What is the gross profit of the product?

If the premium product is a line extension of an existing product in the machines, will sales and profits be cannibalized?

To calculate the gross profit, the cost-of-goods (COG) is the starting point. Premium products have a wide range of costs. Beginning with the candy/snack machine, following are some sample COGs for vend products:

Consider rebates

The operator should consider the impact of rebates in calculating the COG. The operator can calculate the COG based on pre-rebate or post-rebate. Each operator has his own approach for this calculation. Given that rebates fluctuate each year and that quarterly goals may or may not be met, many operators employ a pre-rebate COG.

There are other issues relating to gross profit in addition to COG. One very important question is whether the product is subject to a sales tax. Gross profits will not include other costs such as commission, labor and overhead, etc. These costs are part of an operator’s net profits, which is not the subject of this article.

Certain premium products are subject to sales tax while others are not. For example, in New York State all candies are subject to an 8 percent state and local sales tax while such products as potato chips, certain cookies and pastries may not be subject to the sales tax. Each operator should review the premium products that are not subject to sales tax. In New York State, such products increase a vend operator’s gross profits by 8 percent.

Calculate gross profits

With the COG and sales tax information, the vending operator can calculate the gross profit figure for each premium product. The gross profit range is significant. In New York State, at a vend price of $1.50, the gross profit for king size chocolate is $.54 compared to between $.78 to $.90 for the 5-ounce pound cake.