Opening an arcade can be very profitable. With proper planning, execution and hard work, you can enjoy great success. Below you will learn the keys to launching a successful arcade.
Importantly, a critical step in starting an arcade is to complete your business plan. To help you out, you should download Growthink’s Ultimate Business Plan Template here.
14 Steps To Open an Arcade:
- Choose the Name for Your Arcade
- Determine the Type of Arcade You Will Launch
- Develop Your Arcade Business Plan
- Choose the Legal Structure for Your Arcade
- Secure Startup Funding for Your Arcade (If Needed)
- Secure a Location for Your Business
- Register Your Arcade with the IRS
- Open a Business Bank Account
- Get a Business Credit Card
- Get the Required Business Licenses and Permits
- Get Business Insurance for Your Arcade
- Buy or Lease the Right Arcade Equipment
- Develop Your Arcade Marketing Materials
- Purchase and Setup the Software Needed to Run Your Arcade
- Open for Business
1. Choose the Name for Your Arcade
The first step to opening an arcade is to choose your business’ name.
This is a very important choice since your company name is your brand and will last for the lifetime of your business. Ideally you choose a name that is meaningful and memorable. Here are some tips for choosing a name for your arcade:
- Make sure the name is available. Check your desired name against trademark databases and your state’s list of registered business names to see if it’s available. Also check to see if a suitable domain name is available.
- Keep it simple. The best names are usually ones that are easy to remember, pronounce and spell.
- Think about marketing. Come up with a name that reflects the desired brand and/or focus of your arcade.
2. Determine the Type of Arcade You Will Launch
The next step is to determine the type of arcade you will launch. The four main types of arcades are:
- Traditional arcade: These are arcades that feature classic games like Pac-Man, pinball machines, skeeball and more.
- Escape room arcade: Escape rooms have become very popular in recent years. They typically involve teams of people solving puzzles and completing tasks in order to escape the room.
- Simulator arcade: Simulator arcades feature virtual reality experiences, flight simulators and racing simulators.
- VR arcade: VR arcades offer immersive virtual reality experiences for players to enjoy.Once you have chosen the type of arcade you want to launch, you can move on to developing your business plan.
3. Develop Your Arcade Business Plan
One of the most important steps in opening an arcade is to develop your business plan. The process of creating your plan ensures that you fully understand your market and your business strategy. The plan also provides you with a roadmap to follow and if needed, to present to funding sources to raise capital for your business.
Your business plan should include the following sections:
- Executive Summary – this section should summarize your entire business plan so readers can quickly understand the key details of your arcade.
- Company Overview – this section tells the reader about the history of your arcade and what type of arcade you operate. For example, are you a traditional arcade, VR arcade or escape room arcade?
- Industry Analysis – here you will document key information about the arcade industry. Conduct market research and document how big the industry is and what trends are affecting it.
- Customer Analysis – in this section, you will document who your ideal or target customers are and their demographics. For example, how old are they? Where do they live? What do they find important when purchasing services like the ones you will offer?
- Competitive Analysis – here you will document the key direct and indirect competitors you will face and how you will build competitive advantage.
- Marketing Plan – your marketing plan should address the 4Ps: Product, Price, Promotions and Place.
- Product: Determine and document what products/services you will offer
- Prices: Document the prices of your products/services
- Place: Where will your business be located and how will that location help you increase sales?
- Promotions: What promotional methods will you use to attract customers to your arcade? For example, you might decide to use pay-per-click advertising, public relations, search engine optimization and/or social media marketing.
- Operations Plan – here you will determine the key processes you will need to run your day-to-day operations. You will also determine your staffing needs. Finally, in this section of your plan, you will create a projected growth timeline showing the milestones you hope to achieve in the coming years.
- Management Team – this section details the background of your company’s management team.
- Financial Plan – finally, the financial plan answers questions including the following:
- What startup costs will you incur?
- How will your arcade make money?
- What are your projected sales and expenses for the next five years?
- Do you need to raise funding to launch your business?
4. Choose the Legal Structure for Your Arcade
Next you need to choose a legal structure for your arcade and register it and your business name with the Secretary of State in each state where you operate your business.
Below are the five most common legal structures:
1) Sole proprietorship
A sole proprietorship is a business entity in which the owner of the arcade and the business are the same legal person. The owner of a sole proprietorship is responsible for all debts and obligations of the business. There are no formalities required to establish a sole proprietorship, and it is easy to set up and operate. The main advantage of a sole proprietorship is that it is simple and inexpensive to establish. The main disadvantage is that the owner is liable for all debts and obligations of the business.
A partnership is a legal structure that is popular among small businesses. It is an agreement between two or more people who want to open an arcade together. The partners share in the profits and losses of the business.
The advantages of a partnership are that it is easy to set up, and the partners share in the profits and losses of the business. The disadvantages of a partnership are that the partners are jointly liable for the debts of the business, and disagreements between partners can be difficult to resolve.
3) Limited Liability Company (LLC)
A limited liability company, or LLC, is a type of business entity that provides limited liability to its owners. This means that the owners of an LLC are not personally responsible for the debts and liabilities of the business. The advantages of an LLC for an arcade include flexibility in management, pass-through taxation (avoids double taxation as explained below), and limited personal liability. The disadvantages of an LLC include lack of availability in some states and self-employment taxes.
4) C Corporation
A C Corporation is a business entity that is separate from its owners. It has its own tax ID and can have shareholders. The main advantage of a C Corporation for an arcade is that it offers limited liability to its owners. This means that the owners are not personally responsible for the debts and liabilities of the business. The disadvantage is that C Corporations are subject to double taxation. This means that the corporation pays taxes on its profits, and the shareholders also pay taxes on their dividends.
5) S Corporation
An S Corporation is a type of corporation that provides its owners with limited liability protection and allows them to pass their business income through to their personal income tax returns, thus avoiding double taxation. There are several limitations on S Corporations including the number of shareholders they can have among others.
Once you register your arcade, your state will send you your official “Articles of Incorporation.” You will need this among other documentation when establishing your banking account (see below). We recommend that you consult an attorney in determining which legal structure is best suited for your company.
5. Secure Startup Funding for Your Arcade (If Needed)
In developing your arcade business plan, you might have determined that you need to raise funding to launch your business.
If so, the main sources of funding for an arcade to consider are personal savings, family and friends, credit card financing, bank loans, crowdfunding and angel investors. Angel investors are individuals who provide capital to early-stage businesses. Angel investors typically will invest in an arcade that they believe has high potential for growth.
6. Secure a Location for Your Business
Having the right space can be important for your arcade.Some of the factors to consider when selecting a location include how many people will visit your arcade, how much space you need for equipment, how much foot traffic there is in the area and how far away it is from competitors. You should also look into any zoning laws that may affect the location.
To find the right space, consider:
- Driving around to find the right areas while looking for “for lease” signs
- Contacting a commercial real estate agent
- Doing commercial real estate searches online
- Telling others about your needs and seeing if someone in your network has a connection that can help you find the right space
7. Register Your Arcade with the IRS
Next, you need to register your business with the Internal Revenue Service (IRS) which will result in the IRS issuing you an Employer Identification Number (EIN).
Most banks will require you to have an EIN in order to open up an account. In addition, in order to hire employees, you will need an EIN since that is how the IRS tracks your payroll tax payments.
Note that if you are a sole proprietor without employees, you generally do not need to get an EIN. Rather, you would use your social security number (instead of your EIN) as your taxpayer identification number.
8. Open a Business Bank Account
It is important to establish a bank account in your arcade’s name. This process is fairly simple and involves the following steps:
- Identify and contact the bank you want to use
- Gather and present the required documents (generally include your company’s Articles of Incorporation, driver’s license or passport, and proof of address)
- Complete the bank’s application form and provide all relevant information
- Meet with a banker to discuss your business needs and establish a relationship with them
9. Get a Business Credit Card
You should get a business credit card for your arcade to help you separate personal and business expenses.
You can either apply for a business credit card through your bank or apply for one through a credit card company.
When you’re applying for a business credit card, you’ll need to provide some information about your business. This includes the name of your business, the address of your business, and the type of business you’re running. You’ll also need to provide some information about yourself, including your name, Social Security number, and date of birth.
Once you’ve been approved for a business credit card, you’ll be able to use it to make purchases for your business. You can also use it to build your credit history which could be very important in securing loans and getting credit lines for your business in the future.
10. Get the Required Business Licenses and Permits
There are a few business licenses and permits that you may need for your arcade. The most common ones include a business license, a zoning permit and a sales tax permit.
A business license is generally required for all businesses. This license allows you to operate your business legally.
A zoning permit is generally required if you’re planning to change the use of the property where your arcade will be located.
A sales tax permit is generally required if your arcade sells taxable items or services. This permit allows you to collect and remit sales tax to the state.
Nearly all states, counties and/or cities also require:
- Food Service, Processing and/or Warehouse Licensing: to ensure safe food preparation
- Fire Department Approval: a process by which the local fire department reviews and approves the installation of a fire alarm system.
Depending on the type of arcade you launch, you will have to obtain the necessary state, county and/or city licenses.
11. Get Business Insurance for Your Arcade
Arcade business insurance is a must. It can protect your business from a variety of risks, including property damage, liability, and injuries that occur on your premises.
There are a few different types of business insurance that you may want to consider for your arcade. These include:
Property Insurance: This insurance can help protect your arcade from damage or theft.
Liability Insurance: This insurance can help protect you from lawsuits if someone is injured on your premises.
Injury Insurance: This insurance can help pay for medical expenses if someone is injured at your arcade.
Business Owner’s Policy: A business owner’s policy (BOP) combines property and liability insurance into one policy. This can be a convenient option for small businesses.
It’s important to work with an insurance agent to find the right coverage for your arcade. They will be able to assess your specific needs and find a policy that fits your budget.
Other business insurance policies that you should consider for your arcade include:
- Workers’ compensation insurance: If you have employees, this type of policy works with your general liability policy to protect against workplace injuries and accidents. It also covers medical expenses and lost wages.
- Business interruption insurance: This covers lost income and expenses if your business is forced to close due to a covered event.
Find an insurance agent, tell them about your business and its needs, and they will recommend policies that fit those needs.
12. Buy or Lease the Right Arcade Equipment
When opening an arcade, there are a few key pieces of equipment that you will need. This includes:
- Arcade Games: Of course, you will need a variety of arcade games for your guests to play. Make sure to choose games that are popular and will attract guests.
- Pinball Machines: Pinball machines are a classic arcade game and remain popular to this day.
- Skee Ball: This classic game is always a hit with guests of all ages.
- Candy Machine: A candy machine is a great way to keep your guests fueled up while they play games.
- Drink Machine: A drink machine is also a great way to keep your guests hydrated while they play games.
- Napkins, Cups, and Straws: Be sure to stock up on napkins, cups, and straws so your guests can stay clean and hydrated.
You can buy or lease most of this equipment from various suppliers. Make sure to shop around and compare prices before making a purchase.
13. Develop Your Arcade Marketing Materials
Marketing materials will be required to attract and retain customers to your arcade.
The key marketing materials you will need are as follows:
- Logo: Spend some time developing a good logo for your arcade. Your logo will be printed on company stationery, business cards, marketing materials and so forth. The right logo can increase customer trust and awareness of your brand.
- Website: Likewise, a professional arcade website provides potential customers with information about the services you offer, your company’s history, and contact information. Importantly, remember that the look and feel of your website will affect how customers perceive you.
- Social Media Accounts: establish social media accounts in your company’s name. Accounts on Facebook, Twitter, LinkedIn and/or other social media networks will help customers and others find and interact with your arcade.
14. Purchase and Setup the Software Needed to Run Your Arcade
You will need to purchase arcade game software in order to run your arcade. This software allows you to manage your arcade games, track players, and more. There are a variety of software options available, so be sure to choose one that meets your needs.
Research the software that best suits your needs, purchase it, and set it up.
15. Open for Business
You are now ready to open your arcade. If you followed the steps above, you should be in a great position to build a successful business. Below are answers to frequently asked questions that might further help you.
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How to Open an Arcade FAQs
Is it hard to open an arcade?
No, it's not hard to open an arcade. If you follow the steps above, you should be able to start your arcade without too much difficulty.
How can I open an arcade with no experience?
Opening an arcade may seem daunting, but with the right resources, it can be a fun and profitable endeavor.
The best way to open an arcade with no experience is to start small. You can offer your services to friends and family members, or to local businesses. Once you have a few clients, you can then start marketing your business more aggressively.
What type of arcade is most profitable?
There are many different types of arcades that can be profitable. It all depends on what kinds of games and services you offer. For example, if you offer classic arcade games, you may be able to attract an older crowd who is looking for a nostalgic experience. On the other hand, if you offer cutting-edge VR games, you may be able to attract a younger crowd who is looking for the latest and greatest gaming experience. Ultimately, the type of arcade that is most profitable will depend on the needs and wants of your target market.
How much does it cost to open an arcade?
Opening an arcade can be an expensive proposition, as there are a number of costs associated with getting your business up and running. The startup costs to open an arcade range between $10,000 - $50,000 depending on the size and scope of the arcade. This cost will include purchasing arcade game software, setting up social media accounts, leasing a space for your business, hiring staff, and other items.
What are the ongoing expenses for an arcade?
The ongoing expenses for an arcade can vary depending on the size and scope of your business. However, some of the most common expenses include rent, salaries, marketing, and supplies. Other expenses to consider include utilities, staff training, and any other operational costs related to running your arcade.
In addition to these expenses, you'll also need to factor in the cost of replacing or upgrading arcade games and equipment on a regular basis.
How does an arcade make money?
Arcades make money by charging customers to play games. They may also offer food and drinks, as well as other services, to increase their profits. In addition, arcades can generate revenue by renting out their space to other businesses or by selling advertising space.
Is owning an arcade profitable?
Yes, owning an arcade can be very profitable. It can be a fun and exciting way to make money, and there are a number of ways to increase your profits.
Some of the key things you can do to make your arcade more profitable include:
- Finding ways to reduce operational costs
- Offering unique arcade experiences that set you apart from your competitors
- Investing in marketing and advertising, particularly online
- Utilizing digital technologies such as virtual reality and mobile gaming to attract customers
- Encouraging customer loyalty by offering discounts or rewards programs
- Providing outstanding client service
Why do arcades fail?
Arcades can fail for a number of reasons, but often it boils down to a few key factors.
One of the main reasons that arcades fail is a lack of planning. This can include not having a detailed business plan, not doing research on the industry, and not targeting the right customers.
Another reason is a lack of marketing and sales skills. This can include not creating a sales process and not have a clear and strong value proposition.
The last main reason is a lack of financial management skills. This can include not having a realistic budget, not tracking expenses, and not investing in the business.
Who are key players in the arcade market?
The arcade market is made up of a variety of different players, including small businesses, large enterprises, and even individuals.
Some of the key players in the market include:
- Galloping Ghost Arcade
- Dave & Buster's
- Chuck E. Cheese's
- Stern Pinball, Inc.
However, there are many other players in your specific target market, and it is important to research the market to identify the key players that may have the most direct influence on the success of your business.
How much should I charge for my arcade services?
Arcade fees can vary depending on the type of arcade services being offered, as well as the size and scope of the project.
However, some common arcade fees include:
- Hourly rate - $20 - $100
- Per game fee - $1 - $10
- Monthly subscription fees - $20 - $50
The best way to determine the right fee for your arcade services is to research the rates of similar businesses in your industry, and to also consider the value that you will be providing to the client.