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How to Start an Arcade Business
Remember going to the arcade with your friends when you were a kid? Even though most gamers these days play at home, arcades are alive and well. The industry was booming before the pandemic and is now bouncing back in a big way, up nearly 50% from its 2020 low and expected to grow nearly 17% in 2022 alone. This could be the perfect time to relive your childhood and start your own arcade. You’d be helping people have fun and making good money at the same time.
But first, there’s much you need to know about entrepreneurship. Luckily, this step-by-step guide details all you need to know about launching a business and will put you on a path to running your own successful arcade.
$65,550 - $132,100
Time to build
1 – 3 months
$156,000 - $312,000 p.a.
$46,800 - $93,600 p.a.
Step 1: Decide if the Business Is Right for You
Pros and cons
Starting an arcade has pros and cons to consider before deciding if it’s right for you.
- Good Money – Profit margins for arcades are high
- Fun – Play your own games whenever you want
- Growing Market – Arcades are booming as family entertainment
- High Startup Costs – Games are expensive
- Crowded Market – Compete with the likes of Dave and Buster’s
Arcade industry trends
Industry size and growth
- Industry size and past growth – The U.S. arcade, food and entertainment complex industry is worth $3.1 billion in 2022 after expanding more than 50% since 2020.https://www.ibisworld.com/industry-statistics/market-size/arcade-food-entertainment-complexes-united-states/
- Growth forecast – The U.S. arcade, food and entertainment complex industry is projected to grow 16.5% in 2022.
- Number of businesses – In 2022, 5,634 arcade, food and entertainment businesses are operating in the U.S.https://www.ibisworld.com/industry-statistics/number-of-businesses/arcade-food-entertainment-complexes-united-states/
- Number of people employed – In 2022, the U.S. arcade, food and entertainment complex industry employs 54,594 people.https://www.ibisworld.com/united-states/market-research-reports/arcade-food-entertainment-complexes-industry/
Trends and challenges
Trends in the arcade industry include:
- Virtual reality games are becoming more and more common in arcades.
- In recent years, arcades have become a popular vacation activity.
Challenges in the arcade industry include:
- Home gaming poses a threat to the arcade industry, as many gamers prefer to play at home.
- The negative publicity that violent games receive make it a challenge for arcades to have those types of games, which are still in demand by gamers.
How much does it cost to start an arcade business?
Startup costs for an arcade range from $65,000 to $130,000. The largest expense is for the games, which can cost between $6,000 to $9,000 each, and the space itself.
|Start-up Costs||Ballpark Range||Average|
|Setting up a business name and corporation||$150 - $200||$175|
|Business licenses and permits||$100 - $300||$200|
|Business cards and brochures||$200 - $300||$250|
|Website setup||$1,000 - $3,000||$2,000|
|10 to 20 arcade games||$60,000 - $120,000||$90,000|
|Space rental deposit||$4,000 - $8,000||$6,000|
|Total||$65,550 - $132,100||$98,825|
How much can you earn from an arcade business?
The average revenue per machine is about $300 per week. Your profit margin after rent, overhead, and labor should be about 30%.
In your first year or two, if you have 10 machines, you’ll be bringing in $156,000 in annual revenue. This would mean $47,000 in profit, assuming that 30% margin. You could add 10 more machines at this point. With annual revenue of $312,000, you’d make a tidy profit of $94,000.
What barriers to entry are there?
There are a few barriers to entry for an arcade. Your biggest challenges will be:
- The high cost of the games
- Competing with larger arcades and entertainment centers
Step 2: Hone Your Idea
Now that you know what’s involved in starting an arcade, it’s a good idea to hone your concept in preparation to enter a competitive market.
Why? Identify an opportunity
Research arcades in your area to examine their products/services, price points, and customer reviews. You’re looking for a market gap to fill. For instance, maybe the local market is missing an arcade with virtual reality games, skeeball, the claw machine or a shooting game.
You might consider targeting a niche market by specializing in a certain aspect of your industry, such as fighting games or classic arcade games. This could jumpstart your word-of-mouth marketing and attract clients right away.
What? Determine your products or services
You’ll just need to determine what games to purchase. Popular games to choose from might include:
- Pinball machine
- Air hockey
- Mortal Kombat and fighting games
- Big Buck Hunter and shooting games
- Jurassic Park
- Retro arcade games like Pac-Man
You could also offer snacks and alcoholic beverages with the right licensing. You could even make a game and craft beer arcade.
How much should you charge for arcade games?
Individual games generally cost $.25 to $.50 to play. Some arcades offer $10 to $15 cards or unlimited play for a limited period, such as one hour for $10. You should aim for a profit margin of about 30%.
Once you know your costs, you can use this Step By Step profit margin calculator to determine your mark-up and final price points. Remember, the prices you use at launch should be subject to change if warranted by the market.
Who? Identify your target market
Your target market will depend on the type of games you purchase. If you buy retro arcade games or family-oriented games, your target market will be more established people who you can find on Facebook.
Where? Choose your business premises
You’ll need to rent a space for your arcade, preferably one with high foot traffic, such as in a mall. You can find commercial space to rent in your area on sites such as Craigslist, Crexi, and Instant Offices.
When choosing a commercial space, you may want to follow these rules of thumb:
- Central location accessible via public transport
- Ventilated and spacious, with good natural light
- Flexible lease that can be extended as your business grows
- Ready-to-use space with no major renovations or repairs needed
Step 3: Brainstorm a Business Name
Your business name is your business identity, so choose one that encapsulates your objectives, services, and mission in just a few words. You probably want a name that’s short and easy to remember, since much of your business, and your initial business in particular, will come from word-of-mouth referrals.
Here are some ideas for brainstorming your business name:
- Short, unique, and catchy names tend to stand out
- Names that are easy to say and spell tend to do better
- Name should be relevant to your product or service offerings
- Ask around — family, friends, colleagues, social media — for suggestions
- Including keywords, such as “arcade” or “game room”, boosts SEO
- Name should allow for expansion, for ex: “Jim’s Bakery” over “Jim’s Cookies”
- Avoid location-based names that might hinder future expansion
- Use online tools like the Step by Step Business Name Generator. Just type in a few keywords and hit “generate” and you’ll have dozens of suggestions at your fingertips.
Once you’ve got a list of potential names, visit the website of the US Patent and Trademark Office to make sure they are available for registration and check the availability of related domain names using our Domain Name Search tool. Using “.com” or “.org” sharply increases credibility, so it’s best to focus on these.
Finally, make your choice among the names that pass this screening and go ahead with domain registration and social media account creation. Your business name is one of the key differentiators that sets your business apart. Once you pick your company name, and start with the branding, it is hard to change the business name. Therefore, it’s important to carefully consider your choice before you start a business entity.
Step 4: Create a Business Plan
Every business needs a plan. This will function as a guidebook to take your startup through the launch process and maintain focus on your key goals. A business plan also enables potential partners and investors to better understand your company and its vision:
- Executive Summary: Brief overview of the entire business plan; should be written after the plan is complete.
- Business Overview: Overview of the company, vision, mission, ownership, and corporate goals.
- Product and Services: Describe your offerings in detail.
- Market Analysis: Assess market trends such as variations in demand and prospects for growth, and do a SWOT analysis.
- Competitive Analysis: Analyze main competitors, assessing their strengths and weaknesses, and create a list of the advantages of your services.
- Sales and Marketing: Examine your companies’ unique selling propositions (USPs) and develop sales, marketing, and promotional strategies.
- Management Team: Overview of management team, detailing their roles and professional background, along with a corporate hierarchy.
- Operations Plan: Your company’s operational plan includes procurement, office location, key assets and equipment, and other logistical details.
- Financial Plan: Three years of financial planning, including startup costs, break-even analysis, profit and loss estimates, cash flow, and balance sheet.
- Appendix: Include any additional financial or business-related documents.
If you’ve never created a business plan, it can be an intimidating task. You might consider hiring a business plan specialist at Fiverr to create a top-notch business plan for you.
Step 5: Register Your Business
Registering your business is an absolutely crucial step — it’s the prerequisite to paying taxes, raising capital, opening a bank account, and other guideposts on the road to getting a business up and running.
Plus, registration is exciting because it makes the entire process official. Once it’s complete, you’ll have your own business!
Choose where to register your company
Your business location is important because it can affect taxes, legal requirements, and revenue. Most people will register their business in the state where they live, but if you’re planning to expand, you might consider looking elsewhere, as some states could offer real advantages when it comes to arcades.
If you’re willing to move, you could really maximize your business! Keep in mind, it’s relatively easy to transfer your business to another state.
Choose your business structure
Business entities come in several varieties, each with its pros and cons. The legal structure you choose for your arcade will shape your taxes, personal liability, and business registration requirements, so choose wisely.
Here are the main options:
- Sole Proprietorship – The most common structure for small businesses makes no legal distinction between company and owner. All income goes to the owner, who’s also liable for any debts, losses, or liabilities incurred by the business. The owner pays taxes on business income on his or her personal tax return.
- General Partnership – Similar to a sole proprietorship, but for two or more people. Again, owners keep the profits and are liable for losses. The partners pay taxes on their share of business income on their personal tax returns.
- Limited Liability Company (LLC) – Combines the characteristics of corporations with those of sole proprietorships or partnerships. Again, the owners are not personally liable for debts.
- C Corp – Under this structure, the business is a distinct legal entity and the owner or owners are not personally liable for its debts. Owners take profits through shareholder dividends, rather than directly. The corporation pays taxes, and owners pay taxes on their dividends, which is sometimes referred to as double taxation.
- S Corp – An S-Corporation refers to the tax classification of the business but is not a business entity. An S-Corp can be either a corporation or an LLC, which just need to elect to be an S-Corp for tax status. In an S-Corp, income is passed through directly to shareholders, who pay taxes on their share of business income on their personal tax returns.
We recommend that new business owners choose LLC as it offers liability protection and pass-through taxation while being simpler to form than a corporation. You can form an LLC in as little as five minutes using ZenBusiness’s online LLC formation service. They will check that your business name is available before filing, submit your articles of organization, and answer any questions you might have.
Step 6: Register for Taxes
The final step before you’re able to pay taxes is getting an Employer Identification Number, or EIN. You can file for your EIN online or by mail or fax: visit the IRS website to learn more. Keep in mind, if you’ve chosen to be a sole proprietorship you can simply use your social security number as your EIN.
Once you have your EIN, you’ll need to choose your tax year. Financially speaking, your business will operate in a calendar year (January–December) or a fiscal year, a 12-month period that can start in any month. This will determine your tax cycle, while your business structure will determine which taxes you’ll pay.
The IRS website also offers a tax-payers checklist, and taxes can be filed online. It is important to consult an accountant or other professional to help you with your taxes to ensure you’re completing them correctly.
Step 7: Fund your Business
Securing financing is your next step and there are plenty of ways to raise capital:
- Bank loans: This is the most common method but getting approved requires a rock-solid business plan and strong credit history.
- SBA-guaranteed loans: The Small Business Administration can act as guarantor, helping gain that elusive bank approval via an SBA-guaranteed loan.
- Government grants: A handful of financial assistance programs help fund entrepreneurs. Visit Grants.gov to learn which might work for you.
- Friends and Family: Reach out to friends and family to provide a business loan or investment in your concept. It’s a good idea to have legal advice when doing so because SEC regulations apply.
- Crowdfunding: Websites like Kickstarter and Indiegogo offer an increasingly popular low-risk option, in which donors fund your vision. Entrepreneurial crowdfunding sites like Fundable and WeFunder enable multiple investors to fund your business.
- Personal: Self-fund your business via your savings or the sale of property or other assets.
Bank and SBA loans are probably the best option, other than friends and family, for funding an arcade business. You might also try crowdfunding if you have an innovative concept.
Step 8: Apply for Licenses/Permits
Starting an arcade business requires obtaining a number of licenses and permits from local, state, and federal governments.
Federal regulations, licenses, and permits associated with starting your business include doing business as (DBA), health licenses and permits from the Occupational Safety and Health Administration (OSHA), trademarks, copyrights, patents, and other intellectual properties, as well as industry-specific licenses and permits.
You may also need state-level and local county or city-based licenses and permits. The license requirements and how to obtain them vary, so check the websites of your state, city, and county governments or contact the appropriate person to learn more.
You could also check this SBA guide for your state’s requirements, but we recommend using MyCorporation’s Business License Compliance Package. They will research the exact forms you need for your business and state and provide them to ensure you’re fully compliant.
This is not a step to be taken lightly, as failing to comply with legal requirements can result in hefty penalties. If you feel overwhelmed by this step or don’t know how to begin, it might be a good idea to hire a professional to help you check all the legal boxes.
Step 9: Open a Business Bank Account
Before you start making money, you’ll need a place to keep it, and that requires opening a bank account.
Keeping your business finances separate from your personal account makes it easy to file taxes and track your company’s income, so it’s worth doing even if you’re running your arcade business as a sole proprietorship. Opening a business bank account is quite simple, and similar to opening a personal one. Most major banks offer accounts tailored for businesses — just inquire at your preferred bank to learn about their rates and features.
Banks vary in terms of offerings, so it’s a good idea to examine your options and select the best plan for you. Once you choose your bank, bring in your EIN (or Social Security Number if you decide on a sole proprietorship), articles of incorporation, and other legal documents and open your new account.
Step 10: Get Business Insurance
Business insurance is an area that often gets overlooked yet it can be vital to your success as an entrepreneur. Insurance protects you from unexpected events that can have a devastating impact on your business.
Here are some types of insurance to consider:
- General liability: The most comprehensive type of insurance, acting as a catch-all for many business elements that require coverage. If you get just one kind of insurance, this is it. It even protects against bodily injury and property damage.
- Business Property: Provides coverage for your equipment and supplies.
- Equipment Breakdown Insurance: Covers the cost of replacing or repairing equipment that has broken due to mechanical issues.
- Worker’s compensation: Provides compensation to employees injured on the job.
- Property: Covers your physical space, whether it is a cart, storefront, or office.
- Commercial auto: Protection for your company-owned vehicle.
- Professional liability: Protects against claims from a client who says they suffered a loss due to an error or omission in your work.
- Business owner’s policy (BOP): This is an insurance plan that acts as an all-in-one insurance policy, a combination of the above insurance types.
Step 11: Prepare to Launch
As opening day nears, prepare for launch by reviewing and improving some key elements of your business.
Develop your website
Website development is crucial because your site is your online presence and needs to convince prospective clients of your expertise and professionalism. They are unlikely to find your website, however, unless you follow Search Engine Optimization (SEO) practices. These are steps that help pages rank higher in the results of top search engines like Google.
You can create your own website using services like WordPress, Wix, or Squarespace. This route is very affordable, but figuring out how to build a website can be time-consuming. If you lack tech-savvy, you can hire a web designer or developer to create a custom website for your business.
Essential software and tools
Being an entrepreneur often means wearing many hats, from marketing to sales to accounting, which can be overwhelming. Fortunately, many websites and digital tools are available to help simplify many business tasks.
Some of your business will come from the casual passerby or online visitors, but you should still invest in digital marketing! Getting the word out is especially important for new businesses, as it’ll boost customer and brand awareness.
Once your website is up and running, link it to your social media accounts and vice versa. Social media is a great tool for promoting your business because you can create engaging posts that advertise your products:
- Facebook: Great platform for paid advertising, allows you to target specific demographics, like men under age 50 in the Cleveland area.
- Instagram: Same benefits as Facebook but with different target audiences.
- Website: SEO will help your website appear closer to the top in relevant search results, a crucial element for increasing sales. Make sure that you optimize calls to action on your website. Experiment with text, color, size, and position of calls to action such as “Play Now”. This can sharply increase purchases.
- Google and Yelp: For businesses that rely on local clientele, getting listed on Yelp and Google My Business can be crucial to generating awareness and customers.
Focus on USPs
Unique selling propositions, or USPs, are the characteristics of a product or service that sets it apart from the competition. Customers today are inundated with buying options, so you’ll have a real advantage if they are able to quickly grasp how your arcade meets their needs or wishes. It’s wise to do all you can to ensure your USPs stand out on your website and in your marketing and promotional materials, stimulating buyer desire.
Global pizza chain Domino’s is renowned for its USP: “Hot pizza in 30 minutes or less, guaranteed.” Signature USPs for your arcade business could be:
- Family fun for all with classic arcade games
- Beat your friends at all the hottest games!
- Craft beer and the best retro arcade games
Take advantage of your website, social media presence and real-life activities to increase awareness of your offerings and build your brand. Some suggestions include:
- Signage – Put up eye-catching signage at your arcade and website
- Post a video – Post a video about your arcade. Use humor and maybe it will go viral!
- Start a blog – Start a blog and post regularly. Change up your content and share on multiple sites.
- Paid ads on social media – Choose sites that will reach your target market and do targeted ads.
- Pay–per-click marketing – Use Google AdWords to perform better in searches. Research your keywords first.
- Influencer marketing – Pay people with large social media followings to promote your arcade. You can find micro-influencers with smaller followings and lower rates.
You may not like to network or use personal connections for business gain. But your personal and professional networks likely offer considerable untapped business potential. Maybe that Facebook friend you met in college is now running an arcade, or a LinkedIn contact of yours is connected to dozens of potential clients. Maybe your cousin or neighbor has been working in arcades for years and can offer invaluable insight and industry connections.
The possibilities are endless, so it’s a good idea to review your personal and professional networks and reach out to those with possible links to or interest in arcades. You’ll probably generate new customers or find companies with which you could establish a partnership.
- Popular web-based accounting programs for smaller businesses include Quickbooks, Freshbooks, and Xero.
- If you’re unfamiliar with basic accounting, you may want to hire a professional, especially as you begin. The consequences for filing incorrect tax documents can be harsh, so accuracy is crucial.
Step 12: Build Your Team
If you’re starting out small from a home office, you may not need any employees. But as your business grows, you will likely need workers to fill various roles. Potential positions for an arcade business include:
- Arcade Attendants – take payments, assist customers
- General Manager – scheduling, accounting
- Marketing Lead – SEO strategies, social media
At some point, you may need to hire all of these positions or simply a few, depending on the size and needs of your business. You might also hire multiple workers for a single role or a single worker for multiple roles, again depending on need.
Free-of-charge methods to recruit employees include posting ads on popular platforms such as LinkedIn, Facebook, or Jobs.com. You might also consider a premium recruitment option, such as advertising on Indeed, Glassdoor, or ZipRecruiter. Further, if you have the resources, you could consider hiring a recruitment agency to help you find talent.
Step 13: Start Making Money!
Arcades are booming as the industry roars back after the pandemic. With an investment in games and a good location, you could start your own arcade and make good money riding the industry wave. The keys are to buy games that will appeal to a certain target audience, have a great location, and provide a great customer experience.
You came to the right place to learn about the business, and now you’re ready to get your game on and start your successful arcade!
Arcade Business FAQs
You can start a small arcade for about $65,000. The largest cost is, of course, the games which cost $6,000 to $9,000 each. You also need to put a deposit down on a rental space for your arcade.
Typically, each machine can generate $200 to $400 per week in revenue. You just need to choose the best games to appeal to your target market, such as classic games for families, or action games for a younger crowd.
You may need various business licenses and permits at the state and local levels. Check with your local governments for requirements or visit MyCorporation’s Business License Compliance page.
You should buy games that target a certain market of people. If you want to attract families, you should buy classic arcade games and games that appeal to children. If you want to attract a younger crowd, look at the types of games that are trending, such as action games.
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