BUSINESS OVERVIEW


Arcades are still a popular business type, because many customers enjoy an in-person social gaming experience. Even though online gaming is more popular than ever, playing games with others virtually via home-entertainment consoles or smartphones can still feel like an isolating experience. An arcade provides a physical space where fun gaming experiences can be shared with family and friends.

Who is this business right for?

Obviously, you should be a big fan of arcade games. This business includes the purchasing, maintenance and advertising of arcade games — and you’ll be surrounded by games all day, every day — so a passion for gaming is vital. You must also be a people person, as the job involves frequent interaction with customers. Also, if you’re handy enough to repair and restore games yourself, this is an environment where these skills can save you money.

What happens during a typical day at an arcade?

One of the most important daily activities at an arcade is inspection and upkeep of machines. Nothing is more disappointing to your customers than games being out of order, so it’s important to repair malfunctioning units immediately. There’s also quite a bit of cleaning to do, both regarding your games and the arcade itself. You’ll also need to frequently think about buying new machines, whether you get them from the manufacturer, or second-hand through eBay/Craigslist, or from other arcades. Finally, you should spend some time each day considering marketing strategies to help your arcade stand out from the competition.

What is the target market?

Your preferred customer will vary depending on what type of arcade you run. Traditional arcades are frequented by families and children; families can use arcade gaming as a bonding experience, while kids occupy the sweet spot of having disposable income without many entertainment options to spend it on. Meanwhile, “barcades” market to retro-loving hipsters who like to pair craft beer with vintage pinball. Finally, arcade/restaurant combos like Dave and Buster’s appeal to a variety of customers, from families to business people looking to blow off steam after work.

How does an arcade make money?

The standard model is charging customers to play your games, but there are a number of ways to do this. The old-school method of having your customers insert coins or tokens into the machines is still around, but there are some licensing and taxation issues that make this method less profitable than it may seem. Also, many people don’t carry cash at all any more, not to mention quarters. Another popular model involves charging an upfront fee for a certain time period of free play, such as $5 for 30 minutes. The model popularized by Dave and Buster’s has customers purchase gaming “points” on a swipeable card, which allows you to charge more for certain games.

What is the growth potential for an arcade?

Your growth potential will be determined by your game selection and client base. For example, one study estimates that you can net an average of around $200 per game, per week. However, complex modern games can cost nearly $10,000 each, so it can take almost a full year to recoup your expenses on a new game. Still, considering most machines are investments that will be in your arcade for years to come, each new purchase has the potential to be quite lucrative.

GETTING STARTED


What are some skills and experiences that will help you build a successful arcade?

As previously mentioned, an ability to tinker with and repair your machines would be a tremendous help with your daily operations. General business knowledge can help with licensing requirements, and also with keeping your arcade profitable. Developing connections within the arcade industry is valuable as well, as this could enable you to get better deals on games. Finally, it’s smart to keep an eye on the gaming industry at large, which helps ensure you’re always offering experiences that your customers can’t find at home.

What are the costs involved in opening an arcade?

Your costs will vary considerably, depending on what kind of arcade you start. A traditional arcade might be able to get by in a small space, and you could keep your costs down in the $250,000 range. For a larger entertainment center like Dave and Buster’s, costs could approach $1 million.

The biggest portion of an arcade’s startup cost is usually the games themselves. Costing anywhere from $6,000 to $9,000, even a modest selection of 20 games eats up about half of that low-end $250k budget. You’ll also need to lease a space, and that cost will vary depending on your location and the size of your arcade. A rough estimate would be in the $1,200-$2,800 per month range for a space between 3,000 and 5,000 square feet.

The remainder of your budget will go toward acquiring additional machinery like computers and cash registers, renovating and decorating the space, and licensing fees. Finally, you’ll also need to pay your staff, although arcades require fewer employees than many other business types. Of course, if your arcade will serve food or beverages, you will also have additional costs for purchasing machines and supplies to that end.

Where can I find a business mentor?

One of the greatest resources an entrepreneur can have is quality mentorship. As you start planning your business, connect with a free business resource near you to get the help you need.

Having a support network in place to turn to during tough times is a major factor of success for new business owners.

GROWING YOUR BUSINESS


How to promote & market an arcade

While it is important to market your arcade through traditional channels like print, television and radio, the very nature of the arcade business type invites more creative approaches. Because customers come to arcades for a social gaming opportunity, it’s vital to have a strong presence on social media. This helps you foster good word of mouth by providing a central location (i.e. your Facebook page, Twitter/Instagram accounts, etc.) for customers to share their experiences.

You can also easily target ads to your demographic by advertising in other youthful entertainment venues, like malls or skating rinks. Finally, you may want to offer your regular customers discounts and prizes for repeat visits or bringing friends.

How to keep customers coming back

One strategy that fits arcades well is the “happy hour” concept. Whether you serve food and beverages or not, having a set time each day where customers can play games at a discount can generate business during slow hours, or build up crowds leading into or out of peak periods. You can also throw theme parties like an “80s night” to capitalize on the nostalgic factor of arcade gaming, or cross-promote with “Comic Con” type events. Also, keep in mind that an arcade is by definition a niche attraction, which usually helps develop repeat customers.

How and when to build a team

The arcade is not a business type that lends itself to dramatic expansion. A successful arcade might eventually open additional locations and start a chain, but a single location will only require a small crew to operate. The main catalyst for building a bigger team would be if you added a previously unavailable service to your arcade, such as adding on a restaurant or bar, which requires employees with different skill sets.

LEGAL CONSIDERATIONS


State & Local Business Licensing Requirements

In most states, it is necessary to obtain a game of chance license when operating games that require players to give you money (or other items of value) to play. Learn more about licensing requirements in your state by visiting the Small Business Administration’s reference to state licenses and permits.

If you sell food, you will also need licensing from your local health department, which will require your business to pass regular health inspections. These inspections will check for compliance with local health laws, typically related to prevention of food contamination. For more information about local licenses and permits, check with your city or county clerk’s office, or get help from one of the local associations listed in the SBA’s directory of local business resources.

Most businesses are required to collect sales tax on the goods or services they provide. To learn more about how sales tax will affect your business, check out our informative guide, Sales Tax for Small Businesses.

For more information about local licenses and permits:

  • Check with your town, city or county clerk’s office
  • Get assistance from one of the local associations listed in US Small Business Associations directory of local business resources.

EARNING POTENTIAL


How much can you charge customers?

This is largely dependent on the business model you choose, as discussed earlier. If your customers pay with quarters or pre-paid cards — rather than timed free play — many arcades charge more for newer games (between 50 cents and a dollar) and less (around a quarter) for vintage games. You can also incentivize upfront spending by offering bonus points or free plays if they spend a certain amount of money.

What are the ongoing expenses for an arcade?

The primary ongoing expenses are rent and machine upkeep. Utilities are also a constant factor, and with electronic machines running all day, they may cost more than you expect. For example, a successful arcade chain in Texas pays $15,000 a month for utilities at their smallest location. Beyond that, monthly expenses go to things like paying employees and keeping everything clean.

As your arcade acquires more consoles, there may not be enough room to keep them all at your arcade. Keeping a rotation of machines would require storage space for unused machines, but this is not typical of small arcades, and would not be an issue in the early stages of your business.

How much profit can an arcade make?

This depends greatly on the volume of customers, cost of upkeep, and the amount you invest back into your business. As mentioned earlier, each game can potentially bring in $10,000 per year, which adds up. One successful entrepreneur who owns three small arcades brought in $165,000 in profits in 2014. Keep in mind that your take-home profit will also vary depending on how much you invest in your business to maintain its profitability into the future.

How can you make your business more profitable?

Using a points-based card system instead of taking quarters can increase profits, both because it encourages people to play more, and due to some outdated tax laws concerning the use of quarters. A classic method of boosting arcade profits is to offer games where customers can redeem tickets for prizes, encouraging them to keep returning to the machines to “earn” more tickets. We’ve also already discussed some other options, like adding food and beverage service or having happy hours.

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