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Gas Stations Make a Lot of Money, But How Much Do They Actually Make?

lendstart
Lendstart Updated: February 13, 2024 • 7 min read
gas station

The profitability of a gas station can vary widely based on a multitude of factors, including location, size, competition, additional services offered, and management efficiency. Here, we'll break down the various aspects contributing to a gas station's earnings and the typical profit margins.

Average annual revenue for Gas Stations

The average yearly revenue for all sole proprietorship gas station businesses in the United States was $1,309,337. This figure showcases the fact that gas stations are high-traffic areas and have the potential to generate multiple revenue streams. However, gas station revenue can be volatile and heavily impacted by fuel prices, local demand, and population density.

Gas Station Revenue Sources

  1. Fuel Sales: While fuel sales are the primary revenue source for gas stations, the profit margins on fuel are relatively low. On average, gas stations might make a few cents per gallon after expenses. The exact amount can vary significantly depending on the region, with margins typically ranging from $0.05 to $0.15 per gallon.
  2. Convenience Store: The convenience store often serves as a gas station's most significant profit center. Profit margins on convenience store items can range widely, from 20% to 40%, with some high-demand items yielding even higher margins. The diversity of products sold—from snacks and beverages to over-the-counter medications and car accessories—allows gas stations to capitalize on higher markups.
  3. Car Washes and Services: Additional services such as car washes, auto repairs, and lottery ticket sales can provide substantial supplemental income. Car washes, for instance, have high profit margins, and offering services like oil changes or minor repairs can significantly boost a station's overall profitability.

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Average Earnings

Given the variability in factors affecting a gas station's profitability, providing a precise figure for how much money a gas station makes is challenging without specific details. However, industry benchmarks suggest that:

  • A small to medium-sized gas station might earn between $70,000 and $100,000 in net profit annually, after expenses.
  • Larger stations in prime locations with strong convenience store sales and additional services can earn significantly more, sometimes exceeding $500,000 in net profit.

Type of Gas Station

Gas stations can be categorized into several types based on ownership structure, services offered, and affiliations with oil companies. Understanding these distinctions is crucial for grasping each type's business model, operational strategies, and profitability potential. Here’s an overview of the primary types of gas stations:

1. Franchise Gas Stations

Franchise gas stations are operated by individual business owners who license a well-known brand. These stations pay to use the brand's name, purchasing power, and marketing support. In return, they adhere to the franchisor's operating guidelines and often sell the franchisor's fuel. Franchise agreements usually require payment of initial franchising fees and ongoing royalties based on sales.

2. Company-Operated Stations

These gas stations are owned and operated by the oil company itself. The company is responsible for all station operation aspects, including staffing, maintenance, and inventory management. Company-operated stations ensure consistent brand experience and allow oil companies to control pricing and marketing strategies directly.



3. Independent Gas Stations

Independent gas stations are owned and operated without direct affiliation to a specific oil brand, allowing them more flexibility in sourcing fuel. They might purchase fuel on the wholesale market, potentially benefiting from lower prices or buying opportunistically. Independents have more autonomy in setting prices and choosing the products and services they offer but may lack larger chains' branding and marketing support.

4. Convenience Stores with Gas Pumps

These are primarily retail convenience stores that also offer fuel sales. While fuel might not be the primary business, it attracts customers to the store. These locations often have strong inside sales, with various convenience items and sometimes even fast food or café services. Their business model focuses more on high-margin convenience store items than on fuel sales.

5. Hypermarket/Supermarket Gas Stations

Supermarkets and hypermarkets sometimes offer their customers gas stations as an additional service. These are typically located in the parking lots of the retail store. The primary strategy here is to drive traffic to the main retail business, often offering fuel discounts for grocery purchases. The low fuel prices are a loss leader in boosting overall store sales.

6. Service Stations

While less common today, service stations offer full-service fueling (an attendant pumps the gas for you), along with a range of maintenance and repair services such as oil changes, tire rotation, and minor repairs. These stations focus on providing a higher level of customer service.

7. Truck Stops

Truck stops cater specifically to long-haul truck drivers, offering not only diesel fuel but also amenities such as showers, lounges, restaurants, and sometimes lodging. They are located along highways and are designed to serve the needs of commercial truck drivers, offering large parking areas and additional services like freight and tire repair.

Environmental Concerns Regarding Gas Stations

Environmental concerns related to gas stations are significant, given the potential for pollution and the contribution to greenhouse gas emissions. These concerns are pivotal from an ecological perspective and impact operational practices, regulatory compliance, and the future sustainability of gas stations. Here are key environmental issues associated with gas stations:

1. Fuel Leakage and Groundwater Contamination

One of the most pressing environmental issues for gas stations is the potential leakage of fuel, which can contaminate soil and groundwater. Underground storage tanks (USTs), if not properly maintained, can corrode over time and release harmful chemicals like benzene, toluene, ethylbenzene, and xylene into the environment. Such contamination can pose significant health risks to humans and wildlife and lead to costly cleanup efforts.

2. Air Pollution

Gas stations contribute to air pollution in several ways. Volatile organic compounds (VOCs) can evaporate during fueling, contributing to ground-level ozone formation and smog. The transportation of fuel to gas stations also generates greenhouse gas emissions. Moreover, the operation of service stations, particularly those offering auto repair services, can emit additional pollutants.

3. Water Usage and Wastewater Management

Car washes at gas stations use a significant amount of water, raising concerns in regions where water scarcity is an issue. Additionally, wastewater from car washes can contain detergents and other chemicals that need proper treatment before being discharged to prevent pollution.

4. Waste Generation

Gas stations and their associated convenience stores generate considerable amounts of waste, including used motor oil, batteries, and packaging materials from convenience store operations. Proper disposal and recycling of these materials are essential to minimize environmental impact.

5. Energy Consumption

Running a gas station requires energy for lighting, operating pumps, and maintaining convenience stores. This consumption contributes to the overall energy footprint of the gas station industry.

Mitigation Strategies and Sustainability Efforts

In response to these concerns, gas stations are adopting various strategies to mitigate environmental impact:

  • Improved Storage Tank Technology: Modern gas stations use double-walled underground storage tanks with leak detection systems to prevent fuel leaks.
  • Vapor Recovery Systems: These systems capture VOCs that would otherwise escape into the atmosphere during fueling, reducing air pollution.
  • Water Recycling and Conservation: Many car washes use water recycling systems to minimize water usage.
  • Waste Management Programs: Proper collection, recycling, and disposal of hazardous and non-hazardous waste help minimize environmental impact.
  • Energy Efficiency: LED lighting, energy-efficient appliances, and solar panels are being adopted to reduce energy consumption.
  • Alternative Fuels and Electric Vehicle (EV) Charging: Offering alternative fuels like biodiesel or ethanol and installing EV charging stations are ways gas stations are adapting to environmental concerns and changing consumer preferences.

Regulations and Taxes

Regulations and taxes play a significant role in the operation and profitability of gas stations. These rules can vary significantly by country, state, and even local jurisdictions, affecting various aspects of the business from environmental standards to how taxes are levied on fuel sales. Here's an overview of the key regulatory and tax considerations for gas stations:

Environmental Regulations

  • Underground Storage Tank (UST) Compliance Costs: Initial installation of a double-walled UST with leak detection can range from $20,000 to $40,000 per tank. Ongoing maintenance and monitoring costs can add several thousand dollars annually.

Fuel Quality Standards

  • Biofuel Blend Requirements: In some jurisdictions, regulations require that gasoline be blended with ethanol, typically around 10% (E10). This can affect the wholesale cost of fuel, though the impact on retail prices can vary based on market conditions and subsidies for biofuels.

Health and Safety Regulations

  • Compliance Costs: Implementing and maintaining health and safety standards can cost gas stations upwards of $5,000 to $10,000 annually, depending on the size of the operation and local requirements.

Taxes

  • Fuel Taxes: In the United States, as of my last update, federal fuel taxes are 18.4 cents per gallon for gasoline and 24.4 cents per gallon for diesel. State fuel taxes vary widely, from less than 15 cents per gallon to over 50 cents per gallon.
  • Sales Taxes: Sales tax rates on non-fuel items can range from 0% to over 10%, depending on the state and local jurisdiction.
  • Environmental Fees: Some states charge additional fees, such as a few cents per gallon, to contribute to environmental cleanup funds.

Licensing and Permits

  • Costs: The cost of obtaining necessary business licenses and permits can range from a few hundred to several thousand dollars, varying greatly by location and specific business needs.

Zoning and Land Use

  • Impact on Property Values: Zoning laws can significantly impact where gas stations can operate and the cost of suitable land, with prime locations commanding premiums in the hundreds of thousands or even millions of dollars.

Accessibility Regulations

  • Compliance Costs: Making a gas station fully accessible can involve expenditures from $5,000 to over $25,000, depending on existing structures and the extent of required modifications.

While the specific costs associated with compliance, taxes, and regulations can represent a significant portion of a gas station's operating expenses, they are crucial for legal operation, environmental stewardship, and community safety. Profit margins, therefore, must account for these expenditures, with fuel margins often being razor-thin (a few cents per gallon) and non-fuel sales (with margins of 20% to 40%) providing essential income to offset these costs.

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