Start an arcade by following these 10 steps:
You have found the perfect business idea, and now you are ready to take the next step. There is more to starting a business than just registering it with the state. We have put together this simple guide to starting your arcade. These steps will ensure that your new business is well planned out, registered properly and legally compliant.
Check out our How to Start a Business page.
STEP 1: Plan your business
A clear plan is essential for success as an entrepreneur. It will help you map out the specifics of your business and discover some unknowns. A few important topics to consider are:
- What are the startup and ongoing costs?
- Who is your target market?
- How much can you charge customers?
- What will you name your business?
Luckily we have done a lot of this research for you.
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.
Read our arcade purchasing guide to learn about the materials and equipment you'll need to start an arcade, how much to budget, and where to make purchases.
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 barcade 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 a 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.
Who 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.
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.
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.
What will you name your business?
When registering a business name, we recommend researching your business name by checking:
- Your state's business records
- Federal and state trademark records
- Social media platforms
- Web domain availability.
It's very important to secure your domain name before someone else does.
STEP 2: Form a legal entity
Establishing a legal business entity such as an LLC or corporation protects you from being held personally liable if your arcade is sued.
Form Your LLC
Read our Guide to Form Your Own LLC
Recommended: You will need to elect a registered agent for your LLC. LLC formation packages usually include a free year of registered agent services. You can choose to hire a registered agent or act as your own.
STEP 3: Register for taxes
You will need to register for a variety of state and federal taxes before you can open for business.
In order to register for taxes you will need to apply for an EIN. It's really easy and free!
You can acquire your EIN for free through the IRS website, via fax, or by mail. If you would like to learn more about EINs and how they can benefit your LLC, read our article, What is an EIN?.
Small Business Taxes
Depending on which business structure you choose, you might have different options for how your business will be taxed. For example, some LLCs could benefit from being taxed as an S corporation (S corp).
You can learn more about small business taxes in these guides:
There are specific state taxes that might apply to your business. Learn more about state sales tax and franchise taxes in our state sales tax guides.
STEP 4: Open a business bank account & credit card
Using dedicated business banking and credit accounts is essential for personal asset protection.
When your personal and business accounts are mixed, your personal assets (your home, car, and other valuables) are at risk in the event your business is sued. In business law, this is referred to as piercing your corporate veil.
Additionally, learning how to build business credit can help you get credit cards and other financing in your business's name (instead of yours), better interest rates, higher lines of credit, and more.
Open a business bank account
- This separates your personal assets from your company's assets, which is necessary for personal asset protection.
- It also makes accounting and tax filing easier.
Recommended: Read our Best Banks for Small Business review to find the best national bank, credit union, business-loan friendly banks, one with many brick-and-mortar locations, and more.
Open net-30 accounts
When it comes to establishing your business credit, net-30 vendors are considered the way to go. The term "net-30," which is popular among vendors, refers to a business credit arrangement where the company pays the vendor within 30 days of receiving goods or services.
Net-30 credit terms are often used for businesses that need to obtain inventory quickly but do not have the cash on hand.
Besides establishing business relationships with vendors, net-30 credit accounts get reported to the major business credit bureaus (Dun & Bradstreet, Experian Business, and Equifax Business Credit). This is how businesses build business credit so they can qualify for credit cards and other lines of credit.
Recommended: Read our guide on the best net-30 vendors so you can start building business credit now, so you never have to worry about cash flow in the future. Keep in mind that poor cash flow is the #1 reason businesses fail!
Get a business credit card
- This helps you separate personal and business expenses by putting your business' expenses all in one place.
- It also builds your company's credit history, which can be useful to raise money and investment later on.
STEP 5: Set up business accounting
Recording your various expenses and sources of income is critical to understanding the financial performance of your business. Keeping accurate and detailed accounts also greatly simplifies your annual tax filing.
STEP 6: Obtain necessary permits and licenses
Failure to acquire necessary permits and licenses can result in hefty fines, or even cause your business to be shut down.
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, read our article, 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.
In order to play music in a business setting, permission must be acquired from the composer or license holder. Typically, you can acquire a blanket license that allows you to play music owned by a large catalog of artists and recording studios. Such licenses can be obtained from performance rights organizations, such as ASCAP or BMI.
Certificate of Occupancy
An arcade is always run out of a physical location, and as such typically requires a Certificate of Occupancy (CO). The CO confirms that all building codes, zoning laws and government regulations have been met.
If you plan to lease a location:
- It is generally the landlord’s responsibility to obtain a CO.
- Before leasing, confirm that your landlord has a CO that is applicable to an arcade, or can get one before you are scheduled to open.
- After a major renovation, a new CO often needs to be issued. If your place of business will be renovated before opening, it is recommended that you include language in your lease agreement stating that lease payments will not commence until a valid CO is issued.
If you plan to purchase or build a location:
- You will be responsible for acquiring a valid CO from a local government authority.
- Review all building codes and zoning requirements for your business location, to ensure your arcade will be in compliance and able to obtain a CO.
STEP 7: Get business insurance
Just as with licenses and permits, your business needs insurance in order to operate safely and lawfully. Business Insurance protects your company’s financial wellbeing in the event of a covered loss.
There are several types of insurance policies created for different types of businesses with different risks. If you’re unsure of the types of risks that your business may face, begin with General Liability Insurance. This is the most common coverage that small businesses need, so it’s a great place to start for your business.
Learn more about General Liability Insurance.
Another notable insurance policy that many businesses need is Workers’ Compensation Insurance. If your business will have employees, it’s a good chance that your state will require you to carry Workers' Compensation Coverage.
STEP 8: Define your brand
Your brand is what your company stands for, as well as how your business is perceived by the public. A strong brand will help your business stand out from competitors.
If you aren't feeling confident about designing your small business logo, then check out our Design Guides for Beginners, we'll give you helpful tips and advice for creating the best unique logo for 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.
Still unsure about what kind of business you want to start? Check out the latest Small Business Trends to help inspire you.
STEP 9: Create your business website
After defining your brand and creating your logo the next step is to create a website for your business.
While creating a website is an essential step, some may fear that it’s out of their reach because they don’t have any website-building experience. While this may have been a reasonable fear back in 2015, web technology has seen huge advancements in the past few years that makes the lives of small business owners much simpler.
Here are the main reasons why you shouldn’t delay building your website:
- All legitimate businesses have websites - full stop. The size or industry of your business does not matter when it comes to getting your business online.
- Social media accounts like Facebook pages or LinkedIn business profiles are not a replacement for a business website that you own.
- Website builder tools like the GoDaddy Website Builder have made creating a basic website extremely simple. You don’t need to hire a web developer or designer to create a website that you can be proud of.
Using our website building guides, the process will be simple and painless and shouldn’t take you any longer than 2-3 hours to complete.
STEP 10: Set up your business phone system
Getting a phone set up for your business is one of the best ways to help keep your personal life and business life separate and private. That’s not the only benefit; it also helps you make your business more automated, gives your business legitimacy, and makes it easier for potential customers to find and contact you.
There are many services available to entrepreneurs who want to set up a business phone system. We’ve reviewed the top companies and rated them based on price, features, and ease of use.
Recommended: Find the best phone system for your business; check out our review of the Best Business Phone Systems 2021.
Start An Arcade In Your State
Select your state below for an in-depth guide on completing each of these steps in your home state.
Is this Business Right For You?
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.
Want to know if you are cut out to be an entrepreneur?
Take our Entrepreneurship Quiz to find out!
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 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 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.
TRUiC's YouTube Channel
For fun informative videos about starting a business visit the TRUiC YouTube Channel or subscribe below to view later.
Take the Next Step
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.
Learn from other business owners
Want to learn more about starting a business from entrepreneurs themselves? Visit Startup Savant’s startup founder series to gain entrepreneurial insights, lessons, and advice from founders themselves.
Resources to Help Women in Business
There are many resources out there specifically for women entrepreneurs. We’ve gathered necessary and useful information to help you succeed both professionally and personally:
If you’re a woman looking for some guidance in entrepreneurship, check out this great new series Women in Business created by the women of our partner Startup Savant.
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.
Read our arcade hiring guide to learn about the different roles an arcade typically fills, how much to budget for employee salaries, and how to build your team exactly how you want it.