The average annual salary for a gas station owner in the Midwest is $61,000, while the average annual salary for a gas station owner in the South is $66,000.
How lucrative is it to own a gas station?
- Franchisees who pay royalties to name-brand gas refineries (ranging from 3% to 14%) in order to use their branding
- Independent operators that own and operate generic “no-name” gas stations and purchase gas on the open market.
Because selling gas isn’t very profitable, most large oil firms have backed out of the retail market.
Gas stations make an average net margin of just 1.4 percent on their fuel, according to IBISWorld.
This is significantly lower than the 7.7% average across all industries, and it places it below other typically low-margin firms such as grocery stores (2.5%) and car dealerships (2.5%). (3.2 percent ).
Let’s take a step back and look at a typical gasoline supply chain to see why.
The profit pipeline
Gasoline starts off as crude oil, which is mostly sourced in the United States, in places like Texas and North Dakota.
- Freight vehicles transport it to gas stations, where it is stored in underground barrels with a capacity of 20,000 gallons.
Let’s say you pay $4.09 for a gallon of gas at your neighborhood station (the national average, as of April 13, 2022).
Typically, gas stations only get a fraction of the price shown on the sign. After subtracting overhead costs such as labor, utilities, insurance, and credit card processing fees, the average profit per gallon is $0.03 to $0.07.
However, assuming daily sales of 4000 gallons at $0.05 a gallon, your typical station’s gas revenue might only be $200-300 per day.
Those coin-operated air machines you see at most stations, on the other hand, can make $300 to $500 per month in profit even after paying the corporations that lease them out.
For starters, petrol stations are well aware that the bulk of customers make their purchasing decisions entirely on the basis of pricing.
They have an incentive to keep those statistics as consistent as possible on the board.
Even if they didn’t, they’d be kept in check by local competition: The finest locations, such as high-traffic freeway exits and on-ramps, are frequently crowded with competing stations.
In actuality, they despise it just as much as you do, owing to the fact that competition forces them to compete on price. Catch-22:
- When wholesale gas prices rise, many station owners would rather maintain their pricing and lose money than lose customers to competition.
- Many petrol stations are wary about cutting their prices as wholesale costs fall, fearing a price war.
The real money is made inside the store
According to the National Association of Convenience Stores, 44 percent of gas station consumers enter the store. And one out of every three of them indulges in some sort of indulgence.
The merchandise sold inside these businesses Doritos, sunglasses, lottery tickets, and energy drinks contribute for only 30% of the average gas station’s revenue but generate 70% of the profit.
Card readers are now standard on most contemporary pumps, eliminating the need to walk inside to pay. The average time spent at a gas station by a consumer is now only 2-3 minutes.
Convenience stores also have some of the highest crime rates of any industry in the United States, with average yearly robbery losses of $761 per location.
The gas station of tomorrow
Gas stations in the United States sold 135 billion gallons of gasoline last year, enough to fill 204 thousand Olympic-size swimming pools.
In 1995, there were 195k of them in the United States; currently, there are only 115k.
- Long-term, electric vehicles (EVs) and self-driving automobiles represent a danger to petroleum sales.
- Urban real estate (NYC, DC, San Francisco, Boston) can be put to more profitable uses, such as condos or office projects.
Many stations have taken the pricey decision to install electric vehicle charging stations, which may cost up to $100,000 each.
Given that EVs presently make up of automobiles on the road, it’s a difficult cost to justify. However, the sector is rapidly growing: 4 out of 10 consumers say they’d consider buying an electric vehicle as their next vehicle, and stand-alone EV charging stations are springing up all over the country to serve them.
In the long run, EV-agnostic stations particularly smaller enterprises that can’t afford the upfront cost risk being left behind.
But, if everything else fails, gas stations have a hidden financial weapon in the form of those hypnotic rotating hot dog machines.
- What’s the deal with the 9/10ths of a penny? When gas was only $0.15 per gallon almost a century ago, the government imposed a fraction of a penny gas tax. It’s no longer relevant, but station owners keep it since it makes prices appear slightly lower.
- Explosions aren’t limited to the restroom. Each year, 4.2k flames erupt at gas stations around the country, resulting in $30 million in property damage. Cars are to blame for the majority of them. Hot dog machines are to blame for a handful of them.
- When it comes to restrooms, a beautiful toilet can boost a gas station’s sales. According to one survey, 22.6 percent of customers who use the restroom “regularly” make an impulse purchase on their way out.
- KFC got its origins in a gas station. Colonel (Harland) Sanders created his first fried chicken plate while operating a gas station in North Corbin, Kentucky, in the 1930s.
Is it wise to invest in a petrol station?
Because the demand for gasoline in the United States is continually expanding, purchasing a gas station is an excellent small business investment. Our economy is entirely fueled by gasoline. Goods must be transported by trucks, and individuals must drive to work.
There are about 120,000 petrol stations in our country. At more than 80% of these stations, there is a convenience store. Given the importance of gas stations, it’s clear that they’re a fantastic investment for a small business owner.
When purchasing a gas station, there are numerous legal concerns to be made. Consider the following five reasons before signing a gas station acquisition deal.
What is a gas station’s profit margin on fuel?
Generally, a gallon of gas has a markup (or “margin”) of roughly 15 cents (gross profit before expenses). After subtracting expenses such as rent, utilities, freight, labor, and credit card fees, a retailer’s profit is around 2 cents per gallon. With an average daily sales volume of 4,000 gallons, gas sellers can expect to make around $100 per day (net profit available to pay other costs not previously referenced such as maintenance and insurance). Throughout the year, margins might fluctuate dramatically. When wholesale costs rise, merchants often hold off on raising prices, knowing that price-conscious customers may shop elsewhere for their fuel and other store items. This frequently results in shops losing money on every gallon of product they sell. When wholesale prices drop, retailers look to increase margins to make up for margins lost when prices were growing.
How much money do petrol stations make in the United Kingdom?
Petrol stations are not profitable. Retailers aim for a profit of around 4-5p per litre, but they must pay for staff, business rates, and corporation tax. Fuel stations are frequently reliant on shop sales; a retailer can make more money selling a Costa coffee than 40 litres of gasoline.’
Is running a gas station difficult?
Running a gas station is no easy chore, whether it’s your first foray into entrepreneurship or you’re a seasoned (but never-ending) pro. According to Entrepreneur, managing a gas station may be one of the most profitable businesses in the country if you have the necessary skills.
Is it true that petrol stations make money?
That means companies have a lot of leeway in passing on any cost savings from the gas they buy in bulk to drivers or not.
Station owners purchase gas on the wholesale market before selling it to you. When the wholesale price of gasoline declines rapidly, the gap between the wholesale price (with taxes) and the price at the pump widens, increasing station profits. The greater the incline, the better.
“It goes entirely against what people believe,” says Tom Kloza, the Oil Price Information Service’s leading oil analyst.
According to an OPIS review of 16,000 U.S. stations, the margin has widened to 21.7 cents per gallon this year, the highest level ever. Over the last five years, the average has been 17.1 cents. Station profitability is at its best level since 2005 in terms of percentage. Diesel sales provide even bigger profits. Kloza describes them as “off the charts.”
But, before you scream foul, keep in mind that, despite the year’s ups and downs, gas stations do not make much money selling fuel. According to the National Association of Convenience Stores, net profit for gasoline sales averages 3 cents per gallon less than one penny per litre after credit card fees and other operational costs.
When gas prices rise and drivers believe they are being overcharged, gas stations are barely making ends meet, if not losing money. When wholesale prices skyrocket, as they did in 2008, 2011, and 2012, station owners can’t raise pump prices as quickly as their costs rise or risk losing customers to competition.
When the wholesale price falls, as it is currently, there is less pressure to reduce the price.
Drivers are so ecstatic to see cheaper costs that they don’t search the entire city for the best deal. Then, when it comes time to put gas in the tank, they fill it up rather than just putting a few bucks in.
And drivers have some money left over to spend on the drinks and snacks inside, which are the most profitable for station owners.
“As pricing decreases, I don’t see people shopping (for the best deal) as much as they do when pricing increases,” Beyer adds. “At the pump, they’re still feeling relieved.”
The price of gas has plummeted due to a 45 percent drop in the global price of crude oil since early summer. The United States, Canada, and other countries are increasing oil production at a time when global demand is weak due to slow economic development.
Oil producers the exploration and production departments of huge oil firms like Exxon Mobil and Chevron, as well as companies like ConocoPhillips and Marathon Oil have seen their revenues dwindle and their stock prices plummet as a result of this.
Refiners, such as the refining divisions of major oil companies and companies that specialize in refining, such as Phillips 66 and Valero, have fared well. They gain from decreased crude prices, but they also have large fuel inventories.
The owners of gas stations, on the other hand, are ecstatic. Even if the sign out front says Exxon, BP, or Shell, the great majority of stations in the United States are operated by tiny independent entrepreneurs. CST Brands, which owns Valero and Corner Store gas stations, has seen its stock rise 25% since mid-October.
“The big inning (for gas stations), which began after Labor Day, will last through Christmas,” Kloza predicts.
What are the advantages of owning and operating a gas station?
When you operate a gas station, you might be in command of a prosperous business. As with any business opportunity, there are a number of elements to examine before deciding whether to create one or buy an existing one. When operated properly, this firm can provide a good profit that improves your bottom line.
It is critical to locate a high-traffic area where a considerable amount of fuel can be purchased each month. You’ll also want to leave enough land on the property for a convenience store to augment the earning potential at that site.
This is a labor-intensive business potential as well. Your capacity to make a profit is largely determined by elements that are often beyond your control. That is why it is critical to consider all of the advantages and disadvantages of having a gas station before determining whether or not this is the best option to invest your money.
A gas station has a product which is always in demand in every community.
Every day, people must commute to and from work. They take their children to soccer practice and other after-school activities. We live in a civilization where transportation is a necessity. There is still a need for fuel even when there is a recession and people are saving gas by driving less or taking public transportation. The fact is that the majority of households rely largely on private vehicles to get around on a daily basis. There will always be a demand for petrol stations as long as we drive to perform our errands.
Gas stations provide drivers with more options today.
Alternative fuels are quickly becoming one of the most important advancements in the automotive sector. Vehicles that run entirely on electricity do not require any fuel from a petrol station. This may appear to be a negative to some, but it is a chance to bring about change in the sector. In the future, people will need a mechanism to add fuel to their automobiles in some way. Even if the resource is electric, there will still be a need for gas stations. It’s possible that they won’t offer fuel in the future, but that’s fine.
You can sell more than fuel at a gas station.
When you own a petrol station, you have the opportunity to sell more things to your neighborhood. That is why many stations create a convenience store where snacks, beverages, and even souvenirs offer the potential of multiple revenue lines. You could even add a repair shop to your location to give drivers with mechanical assistance while they are on the road. Even if you buy the business without the add-ons, with the proper building permissions, you can add them later.
It does not require skilled labor for most employment positions.
Unless you elect to add a repair shop to your gas station, the employment prospects offered by this company do not require expert labor. Because you could hire an entry-level position at any level, even management, this perk allows you to keep your labor costs low. If you can locate a trustworthy general manager prepared to take over your daily operations, you can run this business as an absentee owner.
You get to call the shots.
When you own a gas station, you have complete control over how the business functions. You get to choose which services will be available at your area. It is entirely up to you whether or not to provide the community with defined operating hours. You can select if you want to franchise the firm or try to operate it independently. This structure allows you, as the owner, to do what you believe is best for your market. It’s even feasible to buy things at a discount through local wholesalers and suppliers.
There may be financial assistance available for you.
If you opt to buy a gas station from an independent owner, the seller may be willing to finance a portion of your initial investment. This benefit is also a possible advantage when working with franchises rather than government agencies, especially if you interact with the Small Business Administration. Although this will not lower your investment’s overall capital cost, it will make it easier to have additional liquid funds on hand during the initial few months of ownership.
You can sell your business when you are ready to leave.
When you own a gas station on your own, there are no limitations on how or when you can sell the company. You can sell this asset when you’re ready to retire or explore a different opportunity. This benefit is also available with franchises, albeit there are more limitations in place that can make finding a suitable owner more difficult. You’d have to make sure that the new ownership group has the necessary net worth and capital to suit the brand’s needs.
It is possible to work under an established name brand as a gas station owner.
Because of the franchising agreements accessible in this market, gas stations in the average neighborhood are operating under a well-known brand name. Citgo and Shell collaborate with local providers to develop a business opportunity that can immediately generate jobs and income due to consumer recognition of the brand. Although you must keep your station up to the parent company’s standards, becoming a franchisee is a quick way to operate a local business in this industry.
You can receive insurance against environmental problems.
When you choose to operate a gas station under a franchise agreement, you will be covered by insurance and will be protected from any potential environmental issues that may arise on the property. If inspectors find problems with your gas station, the franchisor is responsible for fixing the problem and cleaning up the mess. Tank upgrades and equipment leaks, which are occasionally necessary for the continuous functioning of your firm, are normally the responsibility of the parent company.
It is a business that sees high levels of fluctuation.
Although having a gas station in your business portfolio offers a lot of profit possibilities, there is a lot of consumer fluctuation in this area. At some point, there will always be a need for gasoline. When gas prices are high, fewer people will come to your store to do business with you. Daily variations may occur due to traffic volumes, road construction, and even the weather. When you consider these elements, as well as the fluctuating gasoline prices, estimating earnings in this firm can be difficult.
Gas stations operate on extended hours.
If you want to maximize the potential revenues of a gas station, you must run it on a 24-hour-a-day basis. Even if you pay someone to come in on a regular basis, you will need to be present to check that everything is running smoothly. That implies you’re either sacrificing your own time or your income in order to keep the petrol station open.
There may be fuel contracts that you must follow.
Most vendors will want to tie you into a long-term contract if you operate a gas station as an independent provider so that they can stay in business and you have a product to offer. This drawback can make switching to a new vendor difficult if your existing contract’s pricing become unmanageable. If you want to franchise your business, you may be obligated to buy gasoline from the franchisor for the duration of the contract.
You may need to have a buyer be pre-approved before a sale.
When they are ready to sell their gas station, some independent operators must first obtain approval from their local government. Because there are specified conditions that an entrepreneur must achieve, franchisees must acquire pre-approval from the parent company before selling their firm to a potential investor. It is simple to enter this market and build a profitable firm if you have sufficient resources. When you’re ready to retire, things aren’t always that straightforward.
Affordable gas station businesses are not always in desired neighborhoods.
If you want to make a low-cost investment, a petrol station in a less-than-desirable neighborhood or a small town with little traffic is a good choice. Most businesses in these categories are required to be open 24 hours a day. That means you’ll run across some unusual characters that show up at your location early in the morning or late at night to cause havoc with your daily routine.
It can be a dangerous business.
Because of its flammability and fumes, working with gasoline can be hazardous. People looking for an unlawful payoff through a robbery frequently target gas stations. Every year, about 15,000 robberies occur in convenience stores across the United States. Every year, another 7,000 occurrences occur at gas-only stations. Even if your property is protected and monitored by cutting-edge security equipment, there is a good risk that someone will try to benefit in a dangerous way at your expense.
