In the 1980’s Arcades were once the go-to spot for gamers to gather and have fun, until the rise of home video games, when they started to disappear. However, in recent years, there has been an uptick of interest in arcades through a combination of ticket redemption, nostalgia for the older arcades, and great new games that can’t be played at home. The audience for arcades spans from the Baby Boomers to Gen Alpha which made 2023 the largest market with the widest audience for arcades in history.
There are many benefits to opening an arcade, from providing a unique entertainment experience, a place for multiple demographics to play together, and providing a high profit amenity for a variety of entertainment experiences including bowling, cinema, entertainment and resort hotels.
In this article, we’ll explore the benefits of opening an arcade and why it might be a smart business move in today’s market.
How to Open an Arcade
Adding an arcade to an existing business can be a daunting task, as with the starting of any new business. Opening a free standing arcade without additional anchors or traffic generators rarely is a profitable endeavor in today’s market. However, if you have a successful business anchor or high traffic location, an arcade can be a highly profitable business.
When you consider opening an arcade, there are many factors to consider including what type of anchor you need, the location, what type of arcade, and more. Before diving into to register your business, consider the following steps:
1. Develop a business plan
The first step of any new business is to develop a business plan. For an arcade this means determining the type of arcade you want to open, researching the market, studying the competition, and understanding the costs, including any ongoing ones. During this time consider having an anchor to keep your business running, such as a bar or a restaurant that can help boost sales and bring a crowd in. Some of the most successful arcades aren’t just simply arcades, but a combination of two businesses.
Once you have fully investigated the arcade market, develop a solid business plan that you can stick to and can impress investors if you need them.
2. Secure funding
To open an arcade you will need funding for renting a space, purchasing equipment and games, and covering other expenses, including employees and utilities. There are many funding options to choose from, including: loans, grants, or investors.
Although arcades are relatively inexpensive to open compared to other businesses, you will still need a good amount of start-up money to begin with. The average cost of opening an arcade can vary by location and type, so be sure to research estimates when you are formulating your business plan.
3. Find a location
Location can make or break your business. It’s important to find a good location that is within your budget that has high foot traffic or can generate high foot traffic and enough parking, depending on your town or city. Keep in mind where your target audience likes to congregate, as well as ensuring the location is within your budget. Near colleges or family-friendly attractions are often great locations for arcades.
It might take some time to find the right location; don’t just choose one because it’s inexpensive as people may not make the trek to try it out. Finding the right balance and space to accommodate your guests is crucial to starting a successful business.
4. Get permits and licenses
The type of permits and licensing will vary by the type of arcade you want to open as well as the state and local government you are operating in. You will also need to register for state and federal taxes before you can open your business by applying for an EIN through the IRS website. If you plan on serving alcohol or food, you will need additional permits and inspections to make sure your arcade is up to code and clean.
5. Purchase games and equipment
Once your location is set, you have filed with the IRS, and been granted your permits, it’s time to decide on the games you want to include in your arcade, how the arcade will be integrated with existing or adjacent businesses, and how to maximize your budget. Securing a card system to operate and control the games and revenue is essential. In addition, deciding on building a redemption prize counter or store, and making sure the area is properly built to optimize staff and customer satisfaction.
6. Market your arcade
To get people in the door, develop a marketing plan and budget. This will ultimately be a combination of social media, local advertising, and word of mouth. Having a strong marketing plan will help to let people know about your business, drawing them in. Without any marketing, you are unlikely to get a lot of business through people walking by, especially if your location isn’t in a walk-able area.
7. Open your doors
After your games are in place and your staff has been hired, it’s time to open your arcade. You can choose to do a soft opening, which lets you get a feel for what people think about the arcade. During that time, consider client feed and adjust your business plan as needed. If you become successful enough, you can expand or buy new games to keep customers coming back for something new each time.
Types of Arcades
When you first consider opening an arcade, it’s important to understand there are several types of arcades you can open, depending on your interests and your target market.
Some of the common types of arcades are:
Most people think of classic arcades when the word is mentioned. Think classic video games, pinball machines, and retro games from the 1980s and 1990s. Classic arcades will bring out the nostalgic market and make their revenue off of private parties as well as food and beverage. Do not open one of these arcades if your business plan does not include a heavy reliance on food, alcohol, and events.
Modern Redemption Arcades
Catering to the younger crowd, modern redemption arcades have newer games like racing simulators, first-person shooter games, and virtual reality experiences to go with ticket redemption games and direct prize merchandisers like cranes/claw machines. These are the most common and often the most popular option.
Family entertainment centers
These arcades cater to families and feature a variety of games and attractions such as mini-golf, laser tag, in addition to a modern redemption arcade as described above.
The Costs of Opening an Arcade
The costs for opening an arcade will vary widely depending on a few factors:
- Type of arcade
- Where you are located
- What type of games you invest in
- If you rent vs buying games
- Permit and licensing costs
If you are opening a smaller arcade, your costs will be significantly less than a larger arcade, like Dave and Buster’s, which can be millions of dollars. For a small arcade, the average cost is below $300,000 (not including construction costs). The most expensive part of opening an arcade is the games themselves, which can take up over half your budget. The rest of your budget should be allocated to computers, systems, labor, rent, and other expenses.
It’s also important to keep in mind the ongoing fees when considering opening an arcade. Once the arcade is open, you will have to account for utilities, staff paychecks, maintenance, food, and reinvestment in capital equipment.
Benefits of Opening an Arcade
Although the sticker shock of opening an arcade can be a deterrent, starting a new business is not without costs. Owning an arcade has benefits that often outweigh the startup costs and it can become a lucrative business with some effort and marketing.
Arcades can generate recurring revenue through the sales, and customers saving tickets for prizes creates a loyalty program.
Compared to other types of business, arcades can have relatively low overhead costs, and high margins. After you pay for your equipment and rent, arcades become highly profitable.
Integrates well with other anchors
Movie theaters, bowling centers, entertainment venues, resort hotels, and casinos are businesses that often provide the best location for arcades. Providing an arcade to go with these anchors and a bar, are a proven way to make money.
Opening an arcade can create a sense of community unlike standard restaurants or bars through the power of play and shared interests. Having a community can help lead to repeat business and positive word-of-mouth.
Arcades are Fun
Aside from being a great business to start for it’s low overhead costs, arcades are fun. They offer entertainment in places that could otherwise be lacking, such as bars or hotels. They let patrons enjoy their time and gain fond memories of the place, while helping to boost sales.
Opening an arcade can be a smart business move for those who are passionate about gaming and looking to provide a unique entertainment experience to their community. At Pinnacle Entertainment Group, we provide the pinnacle launch package which can help you get started opening your arcade with ease, allowing you to save money and guide you in the entire process.