Planning to set up a gas station? A lot needs to be done before you can start fueling the vehicles.
First things first, you need to know how much it cost to start a gas station.
Having a rough estimate will help you acquire funds and begin the actual work on your gas station project.
Well, this article will be your guide. Right from offering an estimate of gas station startup costs to factors influencing those costs and a few strategic ways to reduce the expenses, this article has got you covered.
So let’s get started.
What is the cost of starting up a gas station?
The average cost to start a gas station can range anywhere between $247,800- $1,104,600. The startup costs can extend up to $2 million depending on the size and value offerings of your gas station.
A gas station operates on a razor-thin margin. According to Fortune, profit margins for gas station spans anywhere between 1-2%. Sometimes, the profit for full-service gas stations offering value-added services can extend up to 30%.
Average costs for starting a gas station
Before we dive into details, check out this gas station startup cost checklist. It will help you plan your startup budget and know how much financing you need to get started.
| Item | Average Cost |
|---|---|
| One-time Expenses | |
| Lease deposits | $30,000-$100,00 |
| Construction/renovation/ remodeling costs | $70,000-$450,000 |
| Environmental Site Assessment (ESA) fees | $1,500-$5,000 |
| Licenses and permits | $5,000-$50,000 |
| Annual insurance | $5,000-$20,000 |
| Initial inventory (gasoline, diesel, etc) | $10,000-$50,000 |
| Inventory (convenience store) | $10,000-$30,000 |
| Gas station equipment (LED price signs, air compressors, car wash equipment) | $10,000-$50,000 |
| POS setup | $15,000-$25,000 |
| Security system | $5,000-$15,000 |
| Signage boards and pole signs | $10,000-$25,000 |
| Initial marketing (fliers, brochures, etc.) | $5,000-$20,000 |
| Franchise fees | $25,000-$100,000 |
| Legal and professional services | $12,500-$55,000 |
| Total One-Time Expenses | $214,000-$995,000 |
| Recurring Expenses (Per Month) | |
| Rent | $10,000-$50,000 |
| Inventory restock | $15,000-$45,000 |
| POS software subscription | $300-$600 |
| Marketing activities | $500-$2,000 |
| Payroll | $8,000-$12,000 |
| Total Recurring Expenses | $33,800- $109,600 |
| Total | $247,800- $1,104,600 |
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How to calculate the cost of starting a gas station business
You now have a list of potential expenses and a rough estimate of your startup costs. Let’s estimate your actual startup costs using these two proven methods.
The first, traditional method involves using a startup costs worksheet to calculate the startup costs and estimated profits. However, the second, the Upmetrics method, is an innovative method that uses the Upmetrics financial forecasting tool.
Let’s understand both methods so that you can choose one that suits your requirements the best.
The traditional method—startup costs worksheet
The startup costs worksheet helps you calculate the amount needed to take your business off the ground. It is a comprehensive list of fixed and recurring costs to help you determine the actual startup costs.
Remember that many startup costs fall under recurring expenses, so cover those costs monthly, quarterly, or annually.
This cost worksheet helps you estimate the funding required to get your business startup costs covered.
Calculate your startup costs using this worksheet.
The Upmetrics method—financial forecasting tool
It is an intuitive and efficient method of calculating startup costs. Using Upmetrics will not just help you estimate startup costs but also help with financial forecasting.
All you need to do is enter your sales, costs, and other financial assumptions and let the tool calculate monthly/quarterly/ and yearly projections for you.
Pro-tip
Check out the financial forecasting tool for accurate financial forecasting. Once you have an accurate estimate of startup costs, you can easily identify funding requirements for your gas station.
Raising funds for a new startup is certainly a nerve-wracking and time-consuming process, but having a solid gas station business plan can make things a lot easier.
Let’s move ahead and discuss the factors that affect your gas station startup costs
Factors that affect gas station startup costs
Now that you have a rough estimate for gas station startup costs, let’s understand the factors that influence these costs.
1. Location
Location, location, location.
If there is one factor that can make or break a business, it has to be location. Especially for the gas station business, location does play a very important role.
To be profitable, it is important to find a location that is on a high-traffic road or in a place with a high density of automobiles.
Location will directly influence the rent or real estate, price of land, licensing and permitting requirements, payroll expenses, and other gas station startup costs.
Conduct thorough market research to find the perfect location for your gas station. Avail help of business consultants to help you find an ideal and
profitable place for your gas station.
2. Property costs: Lease rental or purchase
When it comes to choosing a space for your gas station, you have one of these two options to consider. Leasing or purchasing.
A small-scale gas station needs at least 4300-10,000 sq. ft space area. If you consider building a convenience store and restroom in the gas station, consider getting at least 15,000-35,000 sq. ft of space.
Purchasing land will cost you anywhere between $50,000-$1 million and more. Look out for spaces in emerging industrial areas and neighborhoods to get better price deals.
Expect monthly rent for gas stations to span anywhere between $10,000-$50,000. The lease deposits to finalize the lease contract can span anywhere between $30,000-$100,000.
3. Construction & Remodeling
Finalizing a space is just step 1. You still need to undertake renovation and remodeling work on it to transform it into a gas station.
If you are leasing or purchasing the ready gas station, the pumps and tanks are also included in the part of a contract. You have to carefully analyze the condition of this equipment before paying a premium for it.
However, if you are buying or leasing a gas station on barren land, you will have to make gas booths, and underground tanks and equip them with essential gas station infrastructure.
You also need to invest in fuel dispensing units. Determine how many fuel dispensing units you will require depending on the size of your gas station.
Further, if the gas station will house a convenience store and restrooms, you also need to spare construction costs for those.
All in all, the renovation and remodeling of a gas station can vary between $70,000-$450,000 and more.
4. Licenses, permits & insurance
Before even setting up a gas station, you will require permits and licenses to operate legally. Insurance on the other hand is mandatory for any business, regardless of its nature.
The license requirements for a gas station vary between different states. Get professional help to ensure license compliance.
Here are a few licenses you will need for your gas station.
- Operational license
- Zonal license
- Building and fire inspection
- Tank and pump inspection
- Water discharge permit (if applicable in your state)
- Health Inspection
- Food and beverage distributor license (if applicable)
- Alcohol, tobacco, and lottery ticket license
The cost of acquiring these licenses is between $5,000-$50,000.
Certain basic insurance policies are essential for you to operate legally in the USA. Apart from the general liability insurance, consider getting coverage for the following as well:
- Worker’s compensation insurance
- Fuel tank contamination insurance
- Franchise insurance
Gas stations have varying financial risks associated with them. It is crucial to get the appropriate coverage to keep you insured.
The annual insurance expenses for a gas station may account for between $5,000-$20,000.
5. Initial inventory
It’s a no-brainer. Before starting the operations of your gas station, you will have to build enough inventory to get business.
Choose your supplier for the gas station. Avail help of professionals to evaluate the supplier contract in your favorability.
If you are buying a franchise gas station, you will most probably have to deal with suppliers and brands declared in the franchise contract.
Now how much inventory to have?
Build the initial inventory to last you at least a week, if not more. The initial inventory for gasoline, diesel, etc. can cost you around $10,000-$50,000 and more.
Further, if the gas station has a convenience store, you also need to build inventory for it. The cost for it would range between $10,000-$30,000 and more.
Keep in mind that the expenses on gasoline, diesel, and other inventory are recurring in nature. Depending on the demand and volume of business, analyze when and how frequently the storage tanks need to be refilled.
The monthly expenditure on gas restocking can span anywhere between $15,000-$45,000. These expenses can be lower or higher for different gas stations.
6. Equipment, technologies & security system
You need to equip the gas station with a variety of equipment. This includes LED price signs, air compressors, car wash equipment, canopies, etc. A convenience store will also require certain equipment to stay functional and profitable.
All in all, the costs of acquiring this equipment will vary anywhere between $10,000-$50,000 and more depending on multiple factors.
Gas stations operate on extremely thin margins. Technologies are essential to save costs and streamline operations.
The single most essential investment in technology has to be a compliant POS system. Don’t skimp on quality here. The POS setup costs around $15,000-$25,000. While the monthly POS charges span between $300-$600.
As you grow, you can continue to add more technologies essential for the gas station.
Lastly, you need a robust security system for the business. Gas stations are vulnerable to thefts, robberies, and risks. 24*7 CCTV surveillance, shatterproof windows, and security guards could be a few ways to ensure security at the gas station.
Expect the security expenses to span between $5,000-$15,000.
7. Marketing, branding, and advertisement
Marketing is crucial, especially when you have invested millions in a business. A gas station needs to be recognized to get a continuous flow of vehicles every day.
Start with the signage boards. The signs need to be loud, clear, and visible even from a distance. Install signs on poles and highway exits to guide the vehicles to the gas station. The gas station signage board costs can span between $10,000-$25,000 and more.
Additionally, you will have to follow branding guidelines laid by franchise rules for a franchise gas station. Branding is essential even if it’s not a franchise business. The initial expenses on fliers, print media, and online marketing, and could span between $5,000 and $20,000.
Marketing expenses are recurring and you can expect to pay around $500-$2,000 monthly on marketing activities.
A proper marketing strategy is essential to reap its rewards for the business.
8. Payroll expenses
Employees are essential to offer services at the full-service gas stations. Make a hiring plan, depending on the services you offer.
Self-service fuel stations require minimum staff to offer help only when a customer needs it. However, if you are going to offer fuel-filling services, gauge whether you will offer value-added services as well.
Employee training is essential as well to ensure quality services to the customers. After all, only the services will set you apart and keep the customers coming back.
According to Glassdoor, an average gas station attendant earns an annual salary of $36,080. The hourly pay for these attendants stands between $11-$14.
All in all, you can expect to spend $8,000-$12,000 on salaries every month.
8. Franchise fees
Planning to buy a gas station franchise? It can be a brilliant idea since you won’t have to work on creating a brand from ground level.
Most franchise businesses have their unique set of guidelines and entry requirements to sanction an application. Use websites like the franchise directory to evaluate different franchise choices.
Franchise fees vary between different franchises. However, you can expect to pay anywhere around $25,000-$100,000 or more for franchise fees.
Here are a few famous gas station franchises for you to consider:
- 7-Eleven: $1,000,000
- Arco AMPM: $30,000+ $600,000 liquid capital
- Circle K: $25,000+ $100,000 liquid capital
- Sunoco: $30,000+ $100,000 liquid capital
9. Professional fees
Of course, you cannot handle setting up and running a business single-handedly. You need professional help to help you navigate complex and important subject matters.
A gas station owner may require the following services for their business:
- Legal services: You need a lawyer to analyze different contracts and ensure that you are not signing up for something that isn’t in your favor. Legal fees can span up to $50,000 annually.
- Accounting services: Undertakes bookkeeping, accounting, and taxation for your business. Accounting services cost $200-$500 monthly.
- Business consultants: Gas stations operate on razor-thin profit margins. Consultants can help you stay afloat and maximize the profit returns. Consultants charge anywhere between $500-$1,000 for an hourly service.
Now that you have a fair idea of factors that majorly influence gas station startup costs, it’s time to learn different ways to reduce these expenses.
Related Gas Station Resources
Tips for reducing gas station startup costs
The high startup costs have got you worrying? Well, relax. These tips will help you strategically reduce the startup costs for your gas station.
1. Strategically choose the location
Be strategic while choosing a location. Look out for places in emerging neighborhoods and industrial areas with less or no competition. These are promising service areas and you can get better pricing deals.
Some professionals are experts in identifying potentially profitable places for gas stations. Avail such help to find an ideal location for the gas station.
2. Rent/ Purchase existing gas stations
Keep an eye out for operating gas stations that are on the market for sale. You can secure them a good deal with some brilliant negotiation skills. This will save you hundreds and thousands on construction and renovations.
3. Get good quality second-hand equipment
Gas station equipment is going to earn bread for your business, so you cannot skimp on quality. However, if you look around, there are chances of you finding good quality, used modern equipment at better pricing deals.
4. Self-fueling station
Start a self-service gas station. Here the customers will fill the tank on their own using the instructions on board.
You need very few employees to run a self-service station efficiently. This will help you save payroll expenses on hiring a large staff.
5. Apply for grants
States and the federal government have launched varying grant options for energy-efficient gas stations. Check to see if you are eligible for any grants. If so, you can save a significant amount on opening costs.
6. Start small
If the budget constraint is too prominent, start small. Create a scaled-down version of the actual plan and get started. You can figure out scaling options later on when the funds start flowing in.
7. Negotiate terms for a supplier contract
Suppliers are going to take a percentage of your gasoline sales. Negotiate the terms of a contract instead of rushing in immediately. Have a lawyer by your side to figure out a profitable and advantageous deal for you.
8. Contractual convenience store services
Instead of investing your monetary resources in a convenience store, strike a deal with a food franchise or supplier. Take a percentage of the profit and let them run the store independently.
Conclusion
That’s it for the article guys. I hope you got the clarity regarding startup costs and how you can reduce them strategically.
Fuel your batteries and get to work. There still is a lot to figure out before you finally open a gas station.
Now that we have given you a rough estimate for gas station startup costs, figure out the actual costs for your business plan.
Use Upmetrics for Accurate Startup Cost Projections!
Looking to estimate your startup costs? Dive into Upmetrics! Our business plan software makes financial forecasting a breeze
