How to Open an Arcade Business

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The golden age of arcade video games is just a memory in today's digital era. This industry is far from dead, though. Arcade, food and entertainment centers generated over $2 billion in 2019. If you're planning to start a business in this niche, draft an amusement arcade business plan and seek new, creative ways to market your business.

Add a modern touch to your arcade center by investing in virtual reality technology, full-motion racing simulators, superhero-themed games and more. Consider offering additional products and services, such as a cocktail bar, bowling games and play areas for children.

Are Arcades Making a Comeback?

Arcade games have been around for decades, attracting huge crowds. Their popularity reached its peak in the late '70s and dropped in the mid '80s. Today, this industry is making a comeback with the help of superhero-themed games, virtual reality and multigame arcade machines. Fans can still play iconic games like Pac-Man and Donkey Kong but in different ways.

The arcade gaming industry had a 3.5% annual growth rate between 2014 and 2019. Although it's not as popular as it used to be, its future looks bright. A growing number of family entertainment centers are offering old-school arcades for all ages. London, for instance, is home to arcade bars featuring competitions, themed nights, bumper cars, pinball machines and great food.

Modern technology is disrupting this industry. Today's arcade machines allow users to immerse themselves in virtual reality and see their favorite characters come to life. Fans now have access to more diverse games, trading cards, online leader boards and other cool features that were not available back in the '80s. Additionally, modern arcade games boast high-end graphics, full-motion racing simulators and advanced software capabilities.

Conduct Market Research

Consumers' disposable income is expected to grow in 2019, so they'll likely spend more on leisure services. However, most consumers nowadays are looking for something to do other than just sit in front of a machine and play their favorite games. They want to connect with other gamers, engage in competitions, interact on social media and have fun. That's why most bars and pubs offer cocktails, virtual-reality headsets, coin-ops and events in addition to old-school arcade machines. Some even host parties for gaming aficionados.

Check out other amusement arcades in your area to see how they perform, and assess their strengths and weaknesses as well as their target audience and marketing strategies. Read case studies and industry reports to learn more about this niche. Try to figure out the costs of starting and running an arcade business and then evaluate your options.

Children and teens make up about one-third of the revenue for arcade gaming, so this may be a separate niche to explore. Once you've gathered enough information, decide what products and services you want to offer and draft an amusement arcade business plan.

Choose a Business Model

Next, choose a business model for your arcade. Consider your target audience and its needs. Are you trying to attract children and teenagers or families? Perhaps you want to reach older adults who enjoy the nostalgia of old-school arcade machines?

Once you've defined your ideal customer, think about what your arcade should look like. Depending on your audience and business goals, you may offer traditional arcade games, pinball games, redemption games, quick-play games and even bowling. Another option is to set up an area where customers can interact, have a drink or watch football games.

For example, an amusement arcade that appeals to families may offer lots of different services in addition to video games. It may have a children's playground, a full-service restaurant, a cocktail bar or indoor swimming pools. These places tend to attract people looking for a social gaming experience. Setting up a bar inside your arcade center comes with its challenges, as you will need to find food and beverage suppliers, get an alcohol license and health permits, hire additional staff and more.

Evaluate the Costs Involved

Starting an arcade business is anything but cheap. Expect to spend anywhere between $50,000 and $100,000 on point-of-sale systems, arcade games and tokens, prizes, ticket-count machines and other goods. In addition to these costs, you'll need to pay rent or purchase a building, pay wages, buy food and beverages, remodel and decorate your space, get business licenses and more.

The average price of a pinball machine, for example, ranges from $3,500 to $17,000 and up. A classic arcade game machine costs around $2,800 to $14,000; a used one is slightly more affordable, but you'll still pay at least $6,000 for a quality one. Shooting arcade games are available for $5,500 to $16,000. If you're planning to delight your customers with a jukebox, you'll pay an extra $8,000 to $10,000.

One way to cut costs is to lease the machinery needed for your business, or you can purchase used arcade machines, but you might end up paying thousands on repairs down the road. Assess your budget and determine how much you can spend. Consider applying for a small business loan or reach out to potential investors.

Amusement Arcade Business Plan

The next step is to make a business plan for your arcade. With this document, you'll gain a better understanding of your market, allocate your resources more effectively and identify potential issues. An amusement arcade business plan can also make it easier to get outside funding.

Think of it as a road map that outlines your business objectives and the steps needed to achieve them. A sound business plan can keep you accountable and organized, helping you avoid unnecessary mistakes. For best results, cover the following aspects:

  • Business objectives and milestones
  • Value proposition
  • Location and size of the arcade
  • Target audience
  • Products and services (and their competitive advantage)
  • Industry analysis
  • Financial analysis
  • Marketing and sales strategy
  • Implementation plan
  • Potential threats and opportunities
  • Future expansion
  • Legal requirements

If possible, include a list of suppliers, vendors and potential partners in your business plan. Contact them beforehand, request multiple quotes and negotiate prices. Monkeys Arcades, for example, offers a wide selection of arcade game machines, including used and discontinued models. BMI Gaming features over 1,400 products, from redemption arcade games and motion simulators to pinball machines, and it also provides consulting services for entrepreneurs looking to start an arcade business.

Apply for Business Licenses

Once you have an amusement arcade business plan, register your company with the state. Next, you need to form a legal entity, such as a limited liability company or a partnership; both options are suitable for this type of business. Get an employer identification number from the IRS and a tax ID number from your state department of revenue. The EIN can be obtained online for free.

In addition to a tax ID number, business insurance and bank accounts, you may need certain licenses and permits. If your facility sells alcoholic beverages, it's legally required to get a permit from the Alcohol and Tobacco Tax and Trade Bureau. The application can be submitted online and takes just a few minutes to complete. Depending on your state's requirements, you may also have to apply for a general business permit, sales tax permits, zoning permits, signage permits and more.

The state of New York, for instance, requires any company that has 10 or more amusement devices on its premises to apply for an amusement arcade license. The application fee varies between $85 and $340. Additionally, you may need a blanket music license and a food vendor license.

Get Creative With Your Marketing

As soon as you get the necessary licenses and permits, you can open your doors and promote your arcade business. If your amusement arcade is located in a mall or a cinema, you'll find it easier to attract clients. A prime location involves higher costs, but it pays for itself. Hand out brochures, leaflets, flyers and other marketing materials to gain exposure.

Leverage the power of social media and promote your arcade on Facebook, Instagram, Twitter and YouTube. Share videos and photos depicting your customers having fun while playing their favorite games. Organize contests online (such as trivia games) and reward the winners with free tickets or special prizes.

Another option is to offer discounted packages for families and large groups. This way, your customers will feel more motivated to bring their friends and spread the word about your business. You can also team up with other local merchants such as bowling centers and supermarkets and engage in cross-marketing.

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About the Author

Andra Picincu is a digital marketing consultant with over 10 years of experience. She works closely with small businesses and large organizations alike to help them grow and increase brand awareness. She holds a BA in Marketing and International Business and a BA in Psychology. Over the past decade, she has turned her passion for marketing and writing into a successful business with an international audience. Current and former clients include The HOTH, Bisnode Sverige, Nutracelle, CLICK - The Coffee Lover's Protein Drink, InstaCuppa, Marketgoo, GoHarvey, Internet Brands, and more. In her daily life, Ms. Picincu provides digital marketing consulting and copywriting services. Her goal is to help businesses understand and reach their target audience in new, creative ways.