How to Start an Arcade

Starting an arcade can be an exciting and rewarding business venture for entrepreneurs who are passionate about gaming and bringing people together through entertainment.

Having said that, you should keep in mind that launching a successful arcade requires careful planning, significant investment, and a wide range of skills.

In this comprehensive guide, we’ll walk you through all the essential steps you’ll need to take to start your own arcade, from conducting market research and securing funding to obtaining licenses, setting up operations, and attracting customers.

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Industry Overview

The arcade gaming industry is booming, with the US market alone being valued at $18.64 billion in 2023. What’s more, this is only expected to continue according to projections that it will expand at a compound annual growth rate (CAGR) of 5.20% until 2031.

Arcade games remain one of the most popular genres within gaming, largely due to innovation in areas like augmented reality (AR), motion-sensing, and virtual reality (VR) — which are driving the industry forward due to the immersive and personalized experiences that they offer.

As demand for these experiences continues to rise, now is an ideal time for entrepreneurs to enter this constantly evolving sector.

Startup Costs

If you’re considering whether an arcade is right for you, the first thing you’ll need to know is whether it’s a) affordable, and b) worth the investment. I mean, how much can you actually make running your own arcade?

Well, it depends. The initial investment for an arcade varies widely based on factors such as your business’s size, and the number and type of machines you want to offer:

• Arcade Games: The largest expense when launching an arcade is likely to be the games themselves — which if bought new, can cost between $6,000 and $9,000 each, depending on the type and complexity of the game (e.g., driving simulators, pinball machines, or redemption games). This means that you’d likely be looking at a total investment of up to $180,000 for a basic setup with around 20 games. Naturally, as you expand and add more games this cost will only increase further, but then again so will then the customer experience and potential revenue.
• Lease for Space: After the games themselves, securing an appropriate location for your arcade is likely to be your next largest cost. A space between 3,000 to 5,000 square feet typically rents for $1,200 to $2,800 per month, though this will vary greatly based on the city, neighborhood, and visibility of the location. In the high-traffic areas you should ideally try and target (e.g., malls or entertainment districts), rent is likely to be even higher.
• Renovations and Equipment: Beyond games and rent, a significant portion of your budget will need to be dedicated toward renovations and customizing your space to ensure it’s attractive and functional for customers. This will likely include flooring, lighting, seating, and decorating to create an engaging setting, as well as the equipment you’ll need in order to operate (e.g., computers, cash registers, card readers, and security systems).

In terms of the ongoing costs you’ll face as the owner of an arcade, rent and machine maintenance will make up the most part, though utilities can also be significant as the machines are running constantly. Additional ongoing costs include paying staff, cleaning, and potentially renting storage space for extra machines as the arcade expands.

Opting for second-hand games and equipment is an effective way to minimize this upfront cost, though it’s important to bear in mind that these older machines will generally need more maintenance — which will increase ongoing costs.

Earning Potential

The earning potential of an arcade depends largely on the business model you choose and the area you’re based in. While traditional coin-operated machines are still in use, more modern payment methods like swipeable cards or timed free-play sessions have proven to be more efficient and profitable.

With this more contemporary model, many arcades now charge their customers a flat fee in return for a set amount of gameplay time, or allow customers to purchase points on a card that they can spend on various different games.

However, if you decide to charge customers for each attempt at a game, prices will normally range between $0.25 and $2.00. Higher rates are typically charged for newer, popular games, while vintage games are normally offered at a lower price.

For a newly-formed arcade, you can typically expect each machine to earn somewhere between $100 and $250 a week — with 20 machines in your arcade, this would enable you to earn up to $260,000 a year. However, since machines can vary in your profitability it may not reach up to quite as much as that.

7 Steps to Starting an Arcade

In order to start an arcade, you’ll need to complete the following steps:

1. Planning Your Arcade
2. Registering Your Business
3. Securing Funding (If Applicable)
4. Finding a Suitable Location
5. Obtaining all Necessary Equipment
6. Getting all Applicable Licenses and Permits
7. Obtaining Business Insurance

We’ve broken each one of these down in more detail below.

Still exploring your options? Check out other small business ideas.

Step 1: Plan Your Arcade

Before diving into your arcade, you’ll need to spend some time conducting thorough market research.

This can involve analyzing the local market to understand the demand for an arcade, identifying potential competitors, and assessing the target demographic.

This will help you evaluate the financial viability of your project — including projected revenues and expenses — as well as determine the best location for your business.

Finding a Suitable Name

Choosing the right business name is both important and challenging.

Your name will need to be eye-catching, memorable, and (at least somewhat) related to your industry.

If you don’t already have a name in mind and need help, you can visit our How to Name a Business guide or use our Arcade Name Generator tool.

If you do have a name in mind, we recommend researching the following to confirm it’s available:

• Your state’s business records
• Federal and state trademark records
• Social media platforms

You will also need to make sure that your business’s name is available as a domain — this is your website’s URL address.

Note: If you’re planning to operate a sole proprietorship, you might want to operate under a business name other than your own name — known as a “Doing Business As” (DBA) name. Keep in mind that this is not recommended for an arcade.

Determine Your Business Model

While not the most exciting, one of the most important steps when launching your arcade business is to decide on the right business model — the choices you make here will shape your overall strategy and influence everything from your game selection to pricing.

The first thing to consider is the kind of arcade experience you want to offer. You could appeal to nostalgic customers seeking a throwback by offering classic retro games (e.g., pinball machines or favorites like Pac-Man) or you could invest in modern machines (e.g., cutting-edge VR setups, racing simulators, or interactive games).

Offering a mix of these two types of games is a highly popular option as it allows you to appeal to a wider range of customers. However, if you’re really looking to grow your revenue, many of the most successful arcades serve food and beverages as it acts as an extra income source and encourages customers to stay longer.

Another idea worth considering is whether you’d be prepared to host events at your arcade, such as gaming tournaments, birthday parties, or even themed nights. These are a great way to attract groups and they also provide a steady source of income beyond your regular daily visits.

By carefully considering your arcade’s focus, additional services, and pricing strategies, you’ll be able to craft a business model that not only appeals to your target audience but maximizes revenue potential too.

Choose Your Arcade’s Games

With a vision for your arcade’s business model in mind, you’ll be ready to begin choosing which machines and games you’d like to include within it.

Generally, we recommend including a mix of the following three key types of games in your arcade:

• Video games: This category typically refers to traditional arcade games that are focused on fun, competition, and high scores — often without the goal of earning tickets or prizes. Common examples include driving simulators, fighting games, shooting games, and pinball machines.
• Redemption games: This term is used to refer to skill-based games where players can earn tickets or points and redeem them for prizes. Some of the most commonly-seen examples of this group of arcade games include ball toss, sports-based games, and coin pushers.
• Merchandiser games: In this group of games, players are able to directly win prizes like toys or candy from the machine, often by testing their skill. Claw machines, photo booths, candy dispensers, and prize cranes are all popular examples of games that fall into this category.

However, if you’re starting this arcade business with limited capital, we tend to recommend primarily focusing on obtaining redemption game machines since they’re typically far more popular among a wider range of customers.

By challenging players to aim for higher scores in return for better prizes, these machines are much better at keeping customers entertained for longer and thus generate more consistent revenue. On top of this, they’re highly scalable as you can start with a few popular redemption games and gradually expand.

While redemption and merchandiser games do share similarities (given that both offer rewards and encourage skill-based play), we recommend foregoing merchandiser if you must choose, as they aren’t as effective at encouraging prolonged engagement — once the prize is won or lost, players are less motivated to continue.

Step 2: Register Your Business

One crucial aspect that cannot be overlooked when starting your arcade is the importance of establishing a solid business foundation.

While sole proprietorships and partnerships are the most common entity types for small businesses, they’re a far less stable and advantageous option than LLCs — especially when it comes to arcades (with potential liabilities and debt).

This is because unincorporated business structures (i.e., sole proprietorships and partnerships) expose you as an owner to personal liability for your business’s debts and legal actions, while LLCs protect you by keeping your personal assets separate from your business’s liabilities.

In practice, this means that if your arcade were to face a lawsuit or incur any debts, your savings, home, and other personal assets could not be used to cover these costs. On top of this, forming your business as an LLC also helps it to appear more legitimate and trustworthy.

Note: If you’re interested in more information before getting started, we recommend having a look at our state-specific How to Start an LLC guide (DIY) or our in-depth Best LLC Services review (for those opting for a professional service).

Step 3: Secure Funding (If Applicable)

As evidenced above, starting an arcade often involves significant upfront costs, meaning you’ll likely need to explore funding options to cover these expenses unless you have significant amounts of capital lying around.

Whether you choose a bank loan, SBA loan, private investors, or crowdfunding, opting for this funding ensures you have the resources needed to invest in high-quality equipment, attract clients through effective marketing, and can be a solid investment in your business’s long-term success.

Ultimately, the type of financing you choose should align with your specific financial situation and business plan, allowing you to manage cash flow effectively as your business grows.

Step 4: Finding a Suitable Location

Choosing the right location for your arcade is critical to its success — like any business, an arcade needs high foot traffic and easy accessibility in order to thrive, but there are a few specific considerations that make location especially important.

Since arcades tend to thrive in areas where people naturally gather, malls are a classic choice as they provide steady foot traffic and customers are often already looking for entertainment options. However, you should always talk to mall management to understand how their rental agreements work.

This is because while some charge a flat fee, others may instead ask for a percentage of your profits. Despite the latter being less desirable as it can eat into your revenue, it’s important to be aware that this is far more common in larger cities and high-traffic areas.

Outside of this, the other main consideration to bear in mind is the size of the space you’re looking at renting — is it large enough to accommodate both your current and future needs? It’s not just your arcade machines that you may need to fit into this space, but any potential additional features like seating, a snack bar, or prize redemption counters.

If you’re looking to reduce your upfront investment and ongoing management responsibilities, you may want to explore working with route operators. Instead of owning or renting the locations where their arcade machines are placed, route operators own the machines and split the revenue with the location owner.

This model allows you to benefit from the machines without taking on full ownership or the cost of purchasing them outright — whether you want to go this route or own and operate everything yourself will depend on how much control and investment you want in your arcade’s daily operations.

Step 5: Obtain All Arcade Equipment

With your financing and location sorted, you’ll be ready to begin purchasing all the machines and equipment needed to get your arcade up and running.

Generally, we would recommend investing in the following basics:

• Arcade Machines: Retro classics (e.g., Pac-Man, Pinball), modern games (e.g., VR setups, racing simulators), and redemption games (i.e., ticket-based games for prizes).
• Maintenance Tools: Basic repair tools for troubleshooting arcade machines, as well as access to professional maintenance services should you need it later on.
• Payment Systems: Swipeable card or tap-to-play technology, point-of-sale systems for credit and point loading.
• Customer Experience Equipment: Cash registers, counters for ticket prize games, seating areas (benches, tables, lounge areas), and concession equipment (snack machines, beverage dispensers).
• Additional Equipment: Security systems (cameras, alarms), storage for game parts and maintenance supplies, signage and branding displays.

Make sure to look after your tools and provide them with regular care and maintenance. This will ensure that they last longer and perform better, which is key to providing excellent service to your customers.

Step 6: Secure All 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.

Amusement/Game Machine License

Many states and local governments require an Amusement/Game Machine License to operate arcade games, especially coin-operated or ticket-dispensing machines.

This permit ensures that your machines comply with local laws and regulations regarding gambling, taxation, and consumer protection — which is particularly relevant for arcades where machines involve skill-based prizes or pay-to-play setups.

Fire Safety and Occupancy Permit

In most jurisdictions, arcades will be required to obtain a Fire Safety and Occupancy Permit in order to ensure it meets local fire codes and safety standards.

In particular, this will involve an inspection by the local fire department to verify that your building has proper fire exits, extinguishers, and meets maximum occupancy limits. For arcades with a lot of foot traffic and electronic machines, safety is a top priority, making this permit essential for legal operation.

Entertainment License

An Entertainment license allows arcades to offer various forms of amusement and entertainment, including arcade games, tournaments, or special events.

If you plan to host events at your arcade, or rent it out for events like birthday parties, you’ll likely need this license which helps to regulate noise levels, hours of operation, and overall impact of your business on the surrounding community.

Step 7: Get Business Insurance

In addition to securing the necessary permits and licenses, you will need to obtain the right business insurance.

Note

Even if you form an LLC, purchasing business insurance is still a good idea. This is because an LLC structure protects your personal assets, not your business’s.

While specific coverage needs may vary based on factors such as location, size, and unique risks, there are several key types of insurance that most arcades should consider.

We’ve briefly outlined these below.

General Liability Insurance

General liability insurance is a foundational coverage that’s essential for arcades because it protects against claims of bodily injury, property damage, and personal injury that may occur onsite.

An example of this might be if a child accidentally trips over exposed wiring from an arcade machine and suffers a minor injury. If the child’s parents decided to file a claim against you for the medical expenses and any additional damages, your business would be protected by general liability insurance.

The average cost for general liability insurance according to recent data is $50 per month, or $550 annually, though costs can vary based on your business’s specific needs and risks.

Property Insurance

Property insurance is essential for safeguarding your arcade’s physical assets — such as the building (if you own it), as well as any arcade machines, furniture, and other equipment — from damage caused by events like fire, theft, or vandalism.

The median cost for business property insurance is approximately $63 per month for plans with a $1,000 deductible and a $60,000 policy limit.

Having said that, rates can vary significantly based on factors such as your business’s location, risk profile, and the value of the property in question.

Product Liability Insurance

If you plan to offer food or beverages at your arcade, it would be a good idea to invest in product liability insurance, which covers your business in case someone falls ill as a result of consuming one of your products.

Workers’ Compensation Insurance

If your arcade will have employees, workers’ compensation insurance is likely going to be a legal requirement depending on your state.

This insurance policy provides coverage for medical expenses and lost wages to employees who are injured during work.

The average cost of workers’ compensation insurance ranges between $45 per month, but this can vary based on factors such as payroll, location, and (once again) your business’s specific risk profile.

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How to Start an Arcade FAQs

Who is the target market?

The target market for your arcade depends on the type of experience you offer — while retro arcades may appeal more to nostalgic adults, those with modern machines may cater to children instead.

Most arcades will contain a mix of both of these types of machines in order to cater to a wider audience.

How does an arcade make money?

Put simply, arcades make money by charging customers to play games. While coin-operated machines are still used, most arcades now offer swipeable card systems or charge a flat fee for timed play.

The card model, popularized by venues like Dave and Buster’s, allows for flexible pricing based on game type and playtime.

How much can you charge customers?

Pricing varies depending on your business model. Newer games typically cost 50 cents to a dollar per play, while vintage games might cost 25 cents.

You can also offer prepaid cards or bonus points for upfront spending, or instead opt for timed sessions (e.g., $5 for 30 minutes) as another pricing option.

How much profit can an arcade make?

A new arcade in an area with good foot traffic and the right machines can expect to earn anywhere up to $260,000 a year.

However, your take-home profit will be largely dependent on how much you reinvest to keep your arcade fresh and appealing to customers.