Play and Prosper: Launching an Arcade Business

Vital aspects to consider when kicking off your arcade business:

1. Define your concept — Decide on the type of arcade you want to create, such as a traditional arcade, a retro-themed arcade, a family entertainment center, or an e-sports arena.
2. Entertainment permits — Check local regulations and obtain any necessary permits for operating arcade games, offering food and beverages, and hosting events.
3. Choose a location — Select a high-traffic location with adequate space for arcade games, seating, and additional amenities. Consider accessibility, parking, and proximity to other entertainment venues or shopping centers.
4. Arcade games — Invest in a diverse selection of arcade games, including classic games, modern video games, redemption games, and interactive attractions. Regularly update your game selection to keep customers engaged.
5. Register your business — A limited liability company (LLC) is the best legal structure for new businesses because it is fast and simple. Form your business immediately using ZenBusiness LLC formation service or hire one of the best LLC services on the market.
6. Legal business aspects — Register for taxes, open a business bank account, and get an EIN.
7. Pricing strategy — Set competitive prices based on market research, cost analysis, and desired profit margins. Consider offering package deals, membership plans, and special promotions to attract more customers.

You May Also Wonder:

Can an arcade be profitable?

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.

What games should I buy for my arcade?

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.

What arcade games are most profitable?

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.

How can I attract and retain customers in my arcade business?

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. 

How can I create a unique and engaging atmosphere in my arcade?

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. 

How do I source and purchase arcade games for my business?

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. 

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.

Arcade industry trends

Industry size and growth

• Industry size and past growth – The US 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 US 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 US.((https://www.ibisworld.com/industry-statistics/number-of-businesses/arcade-food-entertainment-complexes-united-states/)) 
• Number of people employed – In 2022, the US 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
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

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. 

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.

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. 

This could jumpstart your word-of-mouth marketing and attract clients right away. 

What? Plan your arcade games and amenities

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 a location for your arcade business

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:

• 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 an Arcade Business Name

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: “Playtime Entertainment” over “Pinball Palace”
• A location-based name can help establish a strong connection with your local community and help with the SEO but might hinder future expansion

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 an Arcade Business Plan

Here are the key components of a business plan:

• Executive Summary: Present a brief overview of your arcade business, highlighting its commitment to providing a diverse array of gaming experiences, from classic arcade games to modern virtual reality setups.
• Business Overview: Describe your business’s focus on operating an arcade that offers a variety of games, including video games, pinball machines, and redemption games.
• Product and Services: Detail the range of entertainment options, such as arcade games, party hosting services, and possibly food and beverage offerings.
• Market Analysis: Assess the demand for arcade entertainment in your area, considering factors like local demographics, entertainment trends, and family-friendly activities.
• Competitive Analysis: Compare your arcade to other local entertainment venues, focusing on your unique offerings like retro game collections, modern VR experiences, or party packages.
• Sales and Marketing: Outline your strategy for attracting customers, including advertising campaigns, social media engagement, and promotions for groups or parties.
• Management Team: Highlight the experience and skills of your team, particularly in entertainment management, customer service, and business operations.
• Operations Plan: Describe the operational aspects, including game maintenance, customer service, and facility management.
• Financial Plan: Provide an overview of financial aspects, covering startup costs, pricing strategies, and expected revenue.
• Appendix: Include supplementary documents such as equipment lists, market research data, or floor plans to support your 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.

Step 5: Register Your Business

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 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. 

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.

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.

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. 

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. 

You may want to use industry-specific software, such as Clubspeed, centeredge, or semnox, to manage party reservations, purchases, and payments. 

Accounting

• 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. 

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.

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.

Marketing

Here are some powerful marketing strategies for your future business:

• Theme Nights and Events: Organize themed nights or events like retro gaming nights, tournaments, or cosplay contests to create a buzz and attract diverse crowds.
• Local SEO — Regularly update your Google My Business and Yelp profiles to strengthen your local search presence.
• Loyalty Programs: Implement a loyalty program with rewards such as free game tokens, exclusive access, or discounts for frequent visitors to encourage repeat business.
• Social Media Challenges: Leverage social media by creating interactive challenges, like high-score competitions or user-generated content contests, to boost online engagement and attract a wider audience.
• Partnerships with Local Businesses: Establish partnerships with nearby restaurants, cinemas, or entertainment venues to cross-promote and offer joint discounts, expanding your customer base.
• Themed Decor and Ambiance: Enhance the overall customer experience by investing in themed decor and ambiance that aligns with popular gaming trends, creating a unique and immersive environment.
• Student and Group Discounts: Attract students and larger groups by offering special discounts during off-peak hours or designated days, fostering a sense of community and encouraging group visits.
• Mobile App Integration: Develop a mobile app for your arcade that allows users to check real-time availability of games, receive special offers, and accumulate points for discounts.
• Community Engagement: Actively engage with the local community by sponsoring school events, sports teams, or charity initiatives, establishing a positive reputation and building a supportive customer base.
• Referral Programs: Encourage word-of-mouth marketing by implementing referral programs where existing customers receive bonuses or discounts for bringing in new patrons.
• Dynamic Pricing: Implement dynamic pricing strategies, such as happy hour discounts or variable pricing based on peak hours, to optimize revenue and attract customers during slower periods.

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

Networking

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. 

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: Run an Arcade Business – 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!