On This Page:
- Steps to Open a Gas Station
- How Big is the Gas Stations Industry?
- What are the Key Segments of the Gas Stations Industry?
- What External Factors Affect the Gas Stations Industry?
- Who are the Key Competitors in the Gas Stations Industry?
- What are the Key Customer Segments in the Gas Station Market?
- What are the Typical Startup Costs for a New Gas Station?
- Is a Gas Station Business Profitable?
- What are the Keys to Launching a New Gas Station Business?
- How to Start a Gas Station FAQs
- Helpful Videos
- Additional Resources
- Other Helpful Business Plan Articles & Templates
Starting a gas station is a lot like opening any other business: you’ll need a comprehensive business plan and the right resources.
In this article, we will discuss the things you’ll need to start a successful gas station.
Importantly, a critical step in starting a gas station is to complete your business plan. To help you out, you should download Growthink’s Ultimate Business Plan Template here.
Steps to Open a Gas Station
1. Research gas station business opportunities.
Start by doing research to see how many gas stations already exist in your area and what kind of competition you’ll be facing. This will help you determine whether starting a station is commercially viable and where it can be located. To be successful, the nearest gas station to your property should be at least one mile away or on the opposite side of a high-traffic street or highway.
2. Decide if you are going to start a new gas station or buy an existing gas station.
Next, you need to decide whether you’re going to start a gas station from scratch or buy an existing gas station. If you want to invest less money and time, buying an already established gas station may be for you.
3. Write a gas station business plan.
Writing a gas station business plan will help you know how much money you’ll need to start the gas station and how much gas you should buy to meet gas demand. You should include your gas supplier in the plan.
4. Open a business bank account.
Open a business bank account in which you deposit all of your gas station’s earnings. You can then use the money deposited into that account to buy what you need for the gas station’s operation. Always keep your gas station business separate from your personal assets.
5. Get financing.
When you start a gas station, you’ll need to get financing. Sources of funding for a gas station include personal savings, a business loan, and gas station franchising.
4. Find a place to open your gas station.
When choosing a gas station location, you’ll need at least 2,100 square feet for fuel pumps and about 1,350 square feet of office space attached to the gas station. Consider gas station laws and zoning requirements before choosing a location. These estimates are for a minimum service gas station, but if you plan to add on any other services or food options, you will need more space.
5. Register your business with the state and federal government.
Registering a gas station is mandatory before selling gas to the public. You must register as a corporation or an LLC with the Secretary of State to do business as a gas station.
5. Get the proper permits.
Before you can open your gas station, you’ll need to get gas station permits from the Department of Transportation (DOT). The DOT regulates gas stations that are registered with them to ensure safety measures are being followed. You will also need to meet equipment and design requirements.
6. Buy necessary equipment.
You’ll need to buy gas station equipment before opening for business. Gas stations require gas pumps, convenience store cash registers, gas station scales, garbage cans, debris containers, restroom supplies, and hot beverage machines. You must also buy gas-related safety items including gas-dispensing nozzles, gas pump hoses, gas can regulators, and fire extinguishers.
7. Order initial inventory.
Before you open your gas station, make a list of supplies and equipment you’ll need to complete your regular inventory. Order these items well in advance of opening a gas station since gas-related equipment like gas pumps can take several weeks to arrive. This may also include food, beverage, and travel inventory for a small gas station and convenience store.
8. Hire employees.
Gas stations require gas station attendants to work the gas pumps and cashiers to run the convenience store. You should also hire a gas station manager to handle daily operations like buying gas station supplies, hiring/firing employees, and maintenance.
9. Open for business.
Once you get all your gas station permits, order equipment, and hire employees, you can open for business. Keep your gas station well-stocked with gas at all times, and always remember to check gas pumps for leaks.
How Big is the Gas Stations Industry?
The gas station industry is worth $109.8 billion in revenue and is expected to grow by 1.8% in the next five years.
Most stations operate in metropolitan areas where people drive cars to work or school. Gas stations provide essential products and services to their customers while collecting a large amount of revenue during peak driving times.
What are the Key Segments of the Gas Stations Industry?
The industry can be segmented into three key categories:
- Franchise Gas Station: this type of gas station is operated by a company that owns the site. The franchise sales include all profits and expenses, but they also must pay royalties to the owner of their location’s brand name.
- Full Service Gas Station: this type of gas station is owned and operated by the same company that owns the property. It may also includes additional amenities such as a convenience store, auto repair shop, and/or coffee shop.
- Quick Service Gas Station: this type of gas station offers fast service, which can include a single-pump island that only serves a few customers at a time. Customers usually pay for fuel at a pump and then leave the area without going inside.
What External Factors Affect the Gas Stations Industry?
The price of gas, the economy, and the availability of gas are just a few of the factors that can affect a gas station’s business. To be successful, it’s important to understand how these factors can impact your business.
- Gas Price – The price of gas has a direct impact on the amount people are willing to pay for it. If gas prices increase, more people will try to conserve their usage and look for ways to cut back.
- Economy – When the economy is thriving, people are more likely to spend money on gas-related activities. However, when the economy is struggling people are less willing to purchase unnecessary items, like gas.
- Availability of Gas – If gas stations are not located near populated areas, it will be difficult to sell gas and make a profit. The key to success in the industry is being located in a densely populated area that has a high demand for fuel.
Who are the Key Competitors in the Gas Stations Industry?
The gas station and convenience store industry is highly competitive. Some of the most notable competitors in the market include:
While these three companies are some of the largest competitors, there are hundreds of smaller competitors in the space.
What are the Key Customer Segments in the Gas Station Market?
The gas station industry is a highly competitive market with several key customer segments. The most important customer segments are individual consumers, commercial businesses, and government organizations.
Individual consumers are the most important customer segment for gas stations. This is because gas stations are in the business of selling gasoline, and it is individuals who buy gas regularly. They account for the majority of gas station sales, and they are the most price-sensitive customers.
Commercial businesses are the second most important customer segment for gas stations. This is because commercial companies operate fleets of trucks and other vehicles that require fuel to run. Commercial businesses account for a majority of gas station sales during peak business hours.
Government agencies are the third most important customer segment for gas stations. Even though they are not the largest customer segment, government agencies are important because they represent stable revenue for many gas station owners. This is especially true during natural disasters when gas prices can triple.
What are the Typical Startup Costs for a New Gas Station?
On average, initial costs to open a gas station range from $300,000 to $500,000. The price ranges are determined by location and the type of gas station you plan to operate. However, you should expect to pay the following startup costs when opening a gas station:
Cost of Property – The price of land is typically the highest expense associated with the startup of a gas station. For example, if you choose to lease property you will be required to sign a long-term agreement that could span more than 10 years. At that point, you can expect your monthly payment to range from $2,000 to $5,000 depending on the location of the property.
Cost of Construction – Building out a gas station can be costly, especially if there are permits and other construction requirements that need to be met.
Cost of Equipment – Gas station equipment is used to store and dispense gas and other fuels. This equipment must meet certain safety and environmental regulations. To ensure you’re fully compliant with all regulations, it’s advised that you work with a design consultant who knows the industry inside and out. The cost of this equipment can range from $25,000 to $100,000.
Cost of Inventory – To sell gas and other fuels you will need to purchase enough inventory for your total projected sales during the next year. The cost of this inventory can range from $3 million to $4 million depending on demand and local competition in an area.
Cost of Marketing: Advertising and marketing a gas station can be expensive, but is essential for attracting customers to the gas station. This may include billboards along the local section of the highway and other signage.
Legal Fees – Before you can begin selling gas at a new location, you need to establish that your business is up-to-date on all necessary licenses and permits. Your attorney will usually charge around $1,000 to help you acquire these documents.
Business Insurance: Insurance for a gas station can be expensive but is necessary to provide personal asset protection and general liability insurance to cover any onsite injuries that may arise.
Utilities: Gas stations typically require a lot of power, water, and gas supplies which can cost a significant amount depending on how much gas will be sold at the gas station.
Other Startup Costs – Other startup costs associated with opening a gas station include bank fees, building improvements or renovations, and utility connections. Bank fees and building improvements typically range from $100,000 to $200,000. Utility connection costs range from $2,500 to $10,000 depending on which ones you plan to use.
Is a Gas Station Business Profitable?
The profitability of gas station businesses depends on which type you purchase. For example, if you buy a small neighborhood gas station with only one pump and few employees, chances are it’s not going to be profitable. On the other hand, if you have a large gas station that sells high quantities of gasoline per day, then your business is likely to generate a large profit.
If you buy a gas station that’s already established, then there’s a good chance that it will generate money. You can also increase your chances of success by purchasing an area with high traffic and sales volume.
What are the Keys to Launching a New Gas Station Business?
A gas station is a great investment opportunity, but it’s important to know what you need to do to make your gas station successful. Here are the keys to launching a new gas station:
1. Have a Well-Written Business Plan
Your gas station business plan should be well-written and well-researched. It should include information about your business model, your target market, your marketing strategy, your financial projections, and more.
2. Choose the Right Location
Location is key when starting gas station businesses. You need to find a business location that is in high traffic areas and that has ample parking.
3. Offer Competitive Prices
You need to offer competitive prices if you want to attract customers away from the gas stations already in business.
4. Hire High-Quality Employees
You can’t be successful if you don’t have high-quality employees working for you. Make sure that your gas station has well-trained, professional employees on staff.
5. Include Variety in Your Product Offerings
People visit most gas stations for more than just gas; they also buy snacks, cigarettes, lottery tickets, and other products at stations while they fill up their tanks or cars with gas. Make sure to include a variety of products when starting so that your customers will keep coming back for more.
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How to Start a Gas Station FAQs
If a business owner wants to attract more customers, they can add any of the following services:
- Car wash - Car washes help attract more customers and increase the chances of having a high volume of people visit your station.
- Convenience store - Convenience stores are another way to bring in more business. Offering snacks, cigarettes, lottery tickets, and other products can help drive traffic to your gas station.
- Coffee shop - If the gas station is open for a long time such as 24 hours, having a coffee shop will help attract more customers during the day and night.
- Service station - Some auto repair services such as oil changes may need some training so it’s practical to offer them in-house.
- Fast food restaurant - If the gas station has a restaurant within it, customers will likely stay longer in line waiting for their gas. This can help increase gas station profits.
Most gas station owners opt to price their products to remain competitive and to maximize profitability. When it comes to determining prices, there are many options available including the following:
- Cost-Plus Pricing - Gas stations that use this pricing model base their product price on cost plus an additional amount for profit. This method is based on the assumption that all competitors are using it, and it takes into account the industry's average markup.
- Target Costing - Gas stations that use this pricing model base their product price on the cost of producing or acquiring the product plus a target gross profit margin that takes into account both fixed and variable expenses.
- Promotional Pricing - Small business owners often use promotional pricing to attract customers at different times of the day, week, or year. Promotional pricing can be effective because it tends to lower the customer's per-unit cost and incentivizes them to purchase more than one unit at a time.
- Psychological Pricing - Gas stations use psychological pricing to convey status and quality via prices that end in $0.99, $9.99, and $199.99. This strategy works by leveraging the power of relative comparison to influence customer purchase decisions.
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