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Welcome to your October Playbook
Episode 9 -Dripping In Ice...No, not diamonds, actual ice that cashflows.
A $4bil industry by 2028, ice maker demand is a surprisingly boring business that is large, growing, underserved and potentially an easy cashflow investment business.
A Review Of The Opportunity
If you didn't read the article on the opportunity here's a quick summary before we get to the HOW and playbook.
Ice, and sometimes water, vending is a low upfront cost, high long-term profitability and immediate cashflowing investment. It's is the fastest-growing segment of the retail ice business.
- Total retail ice sales estimated today at $4 billion
- Ice vending sells over 1.25 billion lbs. of ice annually
- Zero labor, low maintenance option with high margins
Costs & Profits
How much money can I really make with these? And how much is it going to cost me? Aka what’s the opportunity and the opportunity cost in frozen water land?
A good machine they say will sell 75 10 pound bags per day.
- It’ll cost you .25 per gallon on the high end for water
- This means you’d make about $195 a day
- Monthly profit of $5,861.67
- Yearly profit of $71,322.50
A good machine will cost you $35,000 to $100,000 which means, you break even in 1 to 3 years theoretically.
How do I know? I used this calculator. (MORE ON THIS BELOW)
Quick summary of our model:
- $300 per month in capital costs (machine and site work)
- $300 a month in rent (if you don’t own the land)
- $100 per month per machine in other permits, maintenance, repairs and other costs
- Profit of $1.60 after COGS
- You’re break-even point comes up to about 14 to 15 bags per day.
Even more interesting the machine essentially pays for itself in under two years. That’s solid. Sounds pretty doable.
This might be the easiest to operate and lowest cost asset acquisition we’ve discussed. No operators, no financial DD. The only DD you’re looking to do here is for your equipment. We sat down with Gilbert Ramirez’ of Everest Ice & Water Systems, machine manufacturer, to help you get started on vending ice and what to look for in machines in this brief chat.
VERY SPECIAL CONTRARIAN CASHFLOW MEMBERS ONLY:
And, something super special for you guys...if you actually decide to take action on this idea, Everest is sweetening the deal.
They’re adding a $7500 package included with every machine, that will be all three of our options (Ice Shield ($1500), Cold Fusion ($2000), and All Weather Package($1500)) plus free shipping ($2000) included at no cost. If you want to chat with them about it, when contacting them, just use the referral code EDDIE.
Playbook
Here’s the rundown on how to do it:
1 - Choosing a location - By far the most important piece. You can either buy a vacant lot (not as profitable), place it on the lot of a business you already own (like a car wash), or lease a location from an owner for a set fee or rev share. This is the recommended approach. Pay them a flat fee. That way if your sales fluctuate, you’re not paying them a higher chunk of successful months.
Here are some general guidelines on the location characteristics:
- A traffic count of 10,000 cars per day or more is probably a good starting point.
- Good ingress and egress, street-level visibility and adequate parking and easy access
- Typically located on high traffic locations, perhaps next to a gas station, convenience store, or dollar store.
- Freestanding and allow someone to drive up and fill up one or more 20 pound bags or even a cooler full of ice.
Basically, have visibility.
When talking to a potential landlord OR SELLER, ask if they have data on how many people come to or pass the location. Then, put an attorney reviewed contract in place. Even if you know this person, it is a good idea to sign a contract, so everyone understands and any disputes can be legally settled.
How We're Playing It
For our first ones I'm thinking to go try to lease locations cheaply for longer term leases that already have water hookup locations. That means $200-300 lease costs instead of taking the real estate risk. However, the risk is the business increases rent or breaks your lease at some point. Thus longer term I'll probably add these to our carwash locations. Two for one cashflow.
Sneaky Idea:
Remember our article on glamping near national parks? I'm considering national park locations as well for these. Why? Ice is always needed for camping, boating, and exploring. Not to mention the traffic while simultaneously having lower real estate costs due to the remoteness of the location.
Want even more?
If you own any of these, think about how to diversify the revenue streams on your current income properties.
What do the locations actually need? Electricity, water hookups and a small drainage system.
2 - Buying the machine - Outside of the location, selecting the machine is by far the most tedious of this process. Ice vending machines vary from about $30,000 up to $100,000 or more depending on size and capacity. On top of that, there will be some site work in placing the machine on the parcel and having parking blocks or barriers installed around it.
So where do you find them? Easy. If you want to go used, try eBay or Google shopping. There are some here for indoor and outdoor selling. Indoors typically hold/vend less but have less space needs & consumption.
However, if you want a more capital-intensive machine, but highly functional, trusted sellers with maintenance on staff and technology to accompany, go with trusted sellers like IHA or Everest (remember the deal you get with them with code EDDIE).
When choosing where to buy a machine, and what to buy:
- Read reviews and case studies of varying machines & companies
- Talk to salespeople at each company
- Make sure they do install and go over every piece of equipment with you
- Ensure they help with maintenance and remote monitoring technology
- Make sure that the companies have a long track of business history
3 - Financing the equipment - Depending on what company and size you choose, you’re going to be looking at a 5-6 figure piece of equipment. Some manufacturers allow you to finance them through equipment purchases directly with the actual vendor like IHA (Ice House America - the largest ice vendor machine)
The interesting part is if you finance a $35,000 machine that has a life of 10 years, it ends up costing around $300 per month.
Here are some ways you can structure the purchase of your machine.
A - Personal capital or partnerships. Use cash on hand or go in as an equity partner with someone to front the full price of the machine.
B - SBA loans. In some instances you can get SBA financing which you can assess here.
C - Personal loan through your local community bank or credit union.
D - Equipment loans. Places like Crestmont Capital can do equipment financing loans for as little as 3.25%.
E - Some vendors like Everest even allow equipment leasing that you can apply for here
F - Section 179. If you purchase by a certain time each year, you can qualify for Section 179 depreciation tax credit on your equipment.
4 - Costs - Let’s break it down. Though they vary, water and electricity are typically $0.25 per 100 pounds of ice. For a 20lb bag, that’s a $0.05 cost. Bags are $0.10 but not everyone uses them. So on the high end, it’s costing you $0.15 for a bag that you can charge $1.75-$3.00 for.
You’ll factor in your land lease if you don’t own it, and the payment on your machine if you had it financed.
Here’s a detailed financial breakdown to copy and populate with more line items.
What are some other cost considerations? Paying for technology. This allows it to be more hands-off and managed remotely. IHA is one that comes with the monitoring tech, but you’ll have to source yourself if you’re buying a used machine.
Other features you could consider are payment options and lighting systems. Make sure your machine takes cash, cards, etc. Lighting could be used to illuminate the CC-reader for ease of use, or to illuminate the machine itself for visibility bonuses for cars passing by at night.
5 - Cashflow. Calculate your potential profit based on the cost of your ice and the machine with this calculator.
Owners also set their prices, usually between $1.50 and $3 per bag. Depending on the model of machine you choose, size and capacity, that will determine how much volume you produce. Then there’s your location and visibility that does the rest. For example, a machine called The Ice House, which is IHA’s largest ice vending machine, can serve up to 50,000 customer visits per year. In general, a good machine will sell 75 10lb bags per day. What’s nice is that ice is a high-profit product – it costs about $0.25 – $0.35 in raw material to produce an ice bag that might sell for between $1.50 and $3. So you're sitting at $1.25-$2.75 per bag. According to the calculator, that’s less than 1 year for an ROI.
One thing to consider? Seasonality. Summer is more likely more popular for trips and outings that need ice. The financial model in our resources folder accounts for the lessened profits for non-seasonal months.
6 - Time + Marketing
So how much time per week should you expect to spend? Well not much. Brent from our original example here spends about 10 hours per week since operations and sales are monitored remotely. But he has multiple machines. Mostly it’s about driving by and checking out the equipment for appearance and:
- Refilling ice bags
- Lot or ground upkeep
- Cleaning the machine
- Replacing the water filter
- Maintaining the machines when needed. Your equipment sales team should do this for you every 6 months or so.
Side note, always advertise. Some manufacturers offer promotional help and hopefully, your location does it for you. On the other hand, see if you can strike deals with the business whose land you’re using, or local businesses to refer people or put up signs for your vend location.
Major Key:
Yelp reviews and your google maps location optimization. Ice vending isn't usually a brand people seek after, thus you just want top-of-mind and recency bias for your customers. That means making it easy to search yourself, optimize for reviews and the location.
Bonus
Ice vending offers a low capital injection, low overhead, quick to profit investment great for beginners. There can always be mishaps, so avoid these top mistakes before getting started:
