Profit of Filling Up!

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Posted by OnBelay ( on 06:59:49 04/03/08

In Reply to: Cost of Filling Up! posted by #1 Son

2 years ago, a friend of mine bought a gasoline/service station in the downtown area. He is a car guy, knows mechanical and business side of running a shop, and his only fear was getting into the retail gasoline trade. The former owner of the business wanted to make sure that long time customers were taken care of so new owner agrees that he will sell gas for at least one year. He figured the gas customers will also need repairs, and what he really wants to do is run a repair shop.

Station is smaller, older facility, so the three underground tanks are 2,500 gallons each. There is an EPA certification process they must go through (every 5 years?) that was done right before the purchase of the station.

Since the new owner can only buy, 2,000 gallons at a time, he does not qualify for much of a discount for volume (mega-sized Stop and Rob Convenience stores have 20,000 gallon or larger tanks). Buddy opens the place, discovers that to move any fuel, he must be priced no more than $.03 per gallon over his cost. Therefore, the numbers are easy to track: 2,000 gallons X $.03 = $60 gross profit per shipment of gas. At $2.50 per gallon (2 years ago) a $20 purchase of 8 gallons , his gross profit was $.24. Yep, twenty-four CENTS!

After one year, he totaled the cost of operating the pumps. He had to replace two hoses and one nozzle, approximately $300. There was, of course, electricity to run the pumps, and time involved in recording and watching the level of fuel in the tanks, as well as little things like the changing of gas prices once or twice a week. Oh, let's not forget that all those elderly customers the former owner was concerned about are used to traditional "full service", n attendant to pump the gas, check the oil, wipe the windshield. So put a full time employee out there to be a pump jockey.

The next step is to consider the other costs of doing business. If a customer bounces a $20 check, it can be registered with the County Attorney for collections, which is about 80% successful in getting the funds after a 6 month window...but that service costs you $20. (So it costs you $20 to give the check writer $19.76 worth of gasolines, at your cost).

If a customer uses a credit card to purchase gas, the retailer is charged 2% to 8.8%, depending on the card and the CC processing agreement. Call it 5% for easy numbers-a $20 gas purchase of 8 gallons, the CC charge to the retailer is $1.00. (remember that $.24 profit on 8 gallons?)

All those gas customers as repair customers? He tracked it: 9% of gas customers in 12 months weer repair customers, less than one out of 10. Not an effective marketing plan.

After the one year anniversary, he pulled the pumps off the islands and stored them behind the building. The tanks are certified for three more years, and when they are at 6 months from needing to be re-certified, he will look at gas pricing. Re-certification? about $800 per tank.

In the meantime, he figures he is not spending $4,000 per month for the privilege of being a gas station.

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