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Written by: Carolyn Young
Carolyn Young is a business writer who focuses on entrepreneurial concepts and the business formation. She has over 25 years of experience in business roles, and has authored several entrepreneurship textbooks.
Edited by: David Lepeska
David has been writing and learning about business, finance and globalization for a quarter-century, starting with a small New York consulting firm in the 1990s.
Published on April 7, 2022
Investment range
$65,000 - $130,000
Revenue potential
$156,000 - $312,000 p.a.
Time to build
1 – 3 months
Profit potential
$47,000 - $94,000 p.a.
Industry trend
Growing
Commitment
Full-time
Vital aspects to consider when kicking off your arcade business:
Starting an arcade has pros and cons to consider before deciding if it’s right for you.
Trends in the arcade industry include:
Challenges in the arcade industry include:
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 |
| Insurance | $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 |
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.
There are a few barriers to entry for an arcade. Your biggest challenges will be:
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.
Market research will give you the upper hand, even if you’re already positive that you have a perfect product or service. Conducting market research is important, because it can help you understand your customers better, who your competitors are, and your business landscape.
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.
You’ll just need to determine what games to purchase. Popular games to choose from might include:
You could also offer snacks and alcoholic beverages with the right licensing. You could even make a game and craft beer arcade.
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.
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.
You’ll need to rent a space for your arcade, preferably one with high foot traffic, such as in a mall. When considering a location, it’s also important to think about your target audience. Look for a location near schools or universities if you plan on targeting younger demographics, or near family-friendly attractions if you plan on targeting families with children.
You could also consider a location near popular nightlife spots if you plan on targeting adults. 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:
Here are some ideas for brainstorming your business name:
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.
Here are the key components of a business plan:
If you’ve never created a business plan, it can be an intimidating task. You might consider hiring a business plan specialist to create a top-notch business plan for you.
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!
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.
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:
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 an 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.
Choose Your State
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.
Securing financing is your next step and there are plenty of ways to raise capital:
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.
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.
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.
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:
As opening day nears, prepare for launch by reviewing and improving some key elements of your business.
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.
You may want to use industry-specific software, such as Clubspeed, centeredge, or semnox, to manage party reservations, purchases, and payments.
Website development is crucial because your site is your online presence and needs to convince prospective clients of your expertise and professionalism.
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.
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.
Here are some powerful marketing strategies for your future business:
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:
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.
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:
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.
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!
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 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.
Generally, games that offer a high level of engagement and excitement, such as racing games, shooting games, and interactive experiences, tend to be more profitable. Games that offer the opportunity to win prizes, such as claw machines and redemption games, can also be popular and profitable.
To attract and retain customers in your arcade business, you can focus on providing a high-quality customer experience that is engaging, entertaining, and memorable. This may include offering a wide variety of games and experiences, providing excellent customer service, hosting special events and promotions, and utilizing technology to enhance the customer experience.
To create a unique and engaging atmosphere in your arcade, you can focus on creating a theme or ambiance that appeals to your target audience. This may include using lighting, music, and decor to create a specific atmosphere, such as a retro or futuristic vibe.
To source and purchase arcade games for your business, you can work with manufacturers, distributors, and wholesalers in the industry. You can also attend trade shows and industry events to learn about new games and technologies, and network with other arcade owners to get recommendations and referrals.
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