Cost of Building a Gas Station in 2023
A gas station may be the right business for you if you’re an entrepreneur looking for a high-reward project. However, you must first be aware of the price of creating a petrol station. Building one can result in big financial gains, but you must realize that it necessitates a sizeable initial outlay and a lot of perseverance.
The price of opening a gas station varies across the U.S., but a simple breakdown points to prices like $500,000 for land acquisition and $600,000 for a 3,000 square foot structure. The cost may be between $1.5 and $2.0 million when the setup for the gasoline, merchandise, and equipment is included. Keep in mind that these figures can vary depending on location and design. Despite the high initial expenditures, the prospects for success are fairly good provided you are committed and can run the company effectively.
Building a gas station can be challenging; the cost alone and the way it looks make it appear challenging. The average price to build a gas station is $2.5 million. That’s a significant sum, right? So that you may more accurately estimate the price of constructing a petrol station, let’s break out where that money is spent.
The primary 5 factors include:
- Land: The cost is highly dependent on location. Land near main roads or highways tends to be more expensive.
- Construction: Includes the building, design, and materials. Factors like size, types of materials, and landscaping affect the total cost.
- Equipment and Infrastructure: Necessary gear includes fuel dispensers, underground storage tanks, pumps, overhead covers, lighting, signs, and sales systems. Also includes stock for convenience stores if applicable.
- Permits and Regulations: These are mandatory for selling fuel and adhering to safety/environmental standards. Costs include various permits, licenses, and environmental checks.
- Extra Features: Additional services such as convenience stores, car washes, or electric vehicle charging stations will add to the overall cost.
Yes, building a gas station involves numerous expenses. And it might be helpful to consult a business expert to guide you through the process. That’s simply because knowledge can be invaluable, even if it means an added cost upfront.
So, let’s take the journey through the cost of building a gas station. Also, explained in this post is the profitability of this business.
Legal Business Setup
You would need to register your petrol station as a legitimate business, of course. For the sake of abiding by local laws and regulations, this is required.
However, as each state has its own set of criteria, the costs for this stage vary depending on your state. This covers the price of getting licenses, permits, and other legal documentation.
The first thing you need is a location for your petrol station. Land is available for purchase or rental. Costs associated with renting include security deposits, monthly rent, and occasionally additional fees for shared places.
On the other hand, if you want to purchase, you will require cash for the initial down payment, closing costs, and perhaps mortgage-related expenses.
The price will also depend on the size of the gas station you wish to build. Larger gas stations with more pumps, roomy stores, and other services will require more supplies, personnel, and equipment. As a result, the cost of construction increases with station size.
If you are thinking of setting up a gas station, the location plays a big role in the costs. For instance, land in Iowa will be much cheaper than in the heart of New York City. When choosing a spot, think about:
- Land prices. Areas with lots of people or near main roads might be pricier, so you will spend more at the start.
- Getting the land ready. If the land needs a lot of work before building, it will cost more.
- Rules and paperwork. Some places have tough rules about building or need lots of permits. This can make things cost more and take longer.
Cost of Building the Gas Station
This relates to the building of your gas station itself. Everything from materials and labor to design fees and site preparation is covered in this list of costs.
Depending on the size, complexity, and cost of the local construction companies, the final sum may vary.
To make an informed choice, it is a good idea to obtain price quotes from multiple reliable contractors.
Insurance and Legal Costs
You need to safeguard your gas station against possible threats, that’s why you need insurance. If you are borrowing money to buy the gas station, you will probably need insurance.
The amount you will spend on insurance is influenced by factors such as:
- how big your gas station is;
- how many people work for you;
- the type of insurance you want; and
- where your gas station is located.
When it comes to legal matters, you need to have a lawyer on your side. They can help you follow local rules and reduce legal problems. The money you will spend on legal help depends on how complicated your project is and how much the lawyer is involved.
The cost of these licenses and permits can change based on where you are, what the environment is like, and how big your station will be. The number of gas pumps you want also affects the price. More pumps mean more work setting everything up, like the wiring and tanks underground.
You will also need some equipment, thus, you need to factor in equipment in the cost of building a gas station. A typical gas station will require the following equipment:
- Cameras for safety
- Machines to give out fuel
- Tanks to store fuel underground
- Cash registers
Other store equipment are items like soda fountains, commercial coffee machines, walk-in coolers, shelves, and freezers. The total cost for these items would be around $110,400.
The cost of this equipment is based on how many machines you want, the brand, and any extra features you add. It’s important to buy equipment that’s safe and meets industry rules.
To help your gas station run smoothly, you will need things such as oil, snacks, drinks, and other items, especially if you want to offer more than just fuel. The money you spend on these items depends on what you want to sell and who you buy from. usually, you can get the best deal by comparing prices from different sellers.
Cost of Transporting Gas
Moving fuel to your gas station is not just about the fuel’s cost. You also have to think about things like the cost of shipping, getting the right permits to transport the fuel and other extra charges. The thing is, these costs can change a lot, so it is hard to know exactly how much you’ll spend each month.
Note that fuel prices have a significant impact on transportation costs for both firms and households. According to the U.S. Department of Transportation, Bureau of Transportation Statistics, for example, from 2021 to 2022, jet fuel prices increased by 43.8%, followed by on-highway diesel fuel and motor gasoline, which increased by 39.8% and 31.8%, respectively. The article also mentions that fuel prices can vary substantially across the United States due to factors like state and local taxes, refinery locations, and fuel supplies.
Where you get your fuel and store items from matters. If you can find good suppliers and make deals with them, you can save money. But remember, if prices go up a lot, like during inflation, the fuel can become really expensive, which is a risk for gas station owners.
Office Setup and Utilities Costs
If there is space for an office at your gas station, you will need to get some stuff for it. This means things like desks, chairs, places to keep your files, computers, and printers. Everything you need to do your paperwork and help your customers.
On the other hand, you have to consider the cost of paying for utilities such as electricity, water, gas, and phone services at your gas station. The companies that provide these services might ask for a deposit. This deposit works like a safety net for them in case you do not pay your bills. How much you have to pay as a deposit can change based on who provides the service and how much of it you will use.
Getting the Word Out
Like any business, you will want to get customers to come to your gas station. Therefore, you need to let them know about it through adverts. This means you will have to spend some money on marketing and promotions. You might want to:
- Make a website
- Advertise online
- Use traditional ways of advertising like newspapers, radio, and TV
- Be active on social media
- Start loyalty programs for regular customers
- Have special events when you first open
How much you spend on this will depend on how big you want your marketing to be and what other gas stations are competitors in your area are doing.
Other Things to Think About
There are also other factors you might want to consider in the cost of building a gas station.
- Cost of hiring people to work at your gas station and teaching them what to do.
- The cost of making sure your gas station is safe by installing things like security cameras and alarms.
- Good internet connection, systems to make sales, and maybe even a system to watch over the place.
- Parking lot. The average cost to pave a parking space, plus the additional driving space, is roughly $2,200. For a gas station measuring 3,200 square feet, you’d need about 13 parking spaces, costing a minimum of $28,600.
There are other costs involved, such as outdoor lighting ($9,400), bathrooms ($5,150), and front register setup ($20,000).
Then, think about what you want to sell or offer at your gas station. If you want to have a store, car cleaning service, places for electric cars to charge, a mechanic’s shop, or other things, you will need to spend more to build them.
Understand Expenses and Returns of Gas Station Business
While you think about starting a gas station, do not forget to weigh the ongoing expenses against the potential returns to make sure it remains profitable over time. I have made a simple guide that can be helpful for you.
Draft a clear business blueprint
A well-thought-out business plan will help you grasp the costs and forecast potential earnings. Of course, this can be useful when you seek funding from investors or banks. This plan should cover financial projections, market studies, operational tactics, and a practical timeframe.
Study your competition
Take time to research other gas stations nearby. Find out what they offer and spot any gaps or services they might be missing.
You want to introduce unique offers such as electric vehicle chargers, car washes, or convenience stores, to help you draw in more customers and differentiate yourself from the competition.
Embrace green and cost-saving tech
You can add eco-friendly and energy-saving solutions to your gas station – that will be a win-win. Not only does it help the planet, but it can also reduce costs over time. Moreover, many potential customers will love the idea of running a green gas station.
Think about using LED lights, efficient machinery, and setting up stations for electric vehicles, which can pull in a different set of customers.
Ways to Fund Your Gas Station
Now, you know that the cost of building a gas station runs into more than a million dollars. If you are considering this venture, there are several ways to secure the necessary funds:
- SBA Loans
- Personal Savings
- Private Investors
- Franchise Financing
- Bank Loans
Having the funds is one thing, while the fund management is another. So, here are a few tips on proper management of funds to help your cost of building a gas station.
1. Drafting a detailed budget
List down every possible expense, from buying land and construction to permits and advertising. It is always better to overestimate your costs than to be caught off guard later.
2. Get multiple quotes
Before you finalize any deal, get quotes from various contractors, suppliers, and service providers. This way, you can compare prices and ensure you are getting the best value. Do not just look at the price; consider their reputation, experience, and the quality they offer.
3. Prioritize budget-friendly construction
Engage with architects and designers to come up with a design that’s both functional and budget-friendly. Think about how to use the space efficiently, manage traffic flow, and select cost-effective materials.
Also, keep a close eye on the project’s progress. Use good project management practices to make sure everything stays on track and within your budget. This means regularly checking in, solving problems quickly, and maintaining open communication with everyone involved.
4. Know your suppliers
Build strong ties with trustworthy suppliers. This can help you get better deals and terms. Also, manage your inventory smartly to avoid unnecessary costs.
5. Consider energy-saving options
Think about the future when building. Using energy-saving technologies can lower your long-term costs. For instance, investing in solar panels might reduce your electricity bills.
6. Avoid unnecessary costs
Make sure you know all the rules and regulations related to building a gas station to help avoid any unexpected fines or delays.
Cost of Building a Gas Station Per Square Foot
It helps to know the cost per square foot. So, here is the estimated cost of building a gas station per Sq Ft.
- Land: This is a major factor. Depending on the location and size of the gas station, you will need approximately one acre of land. The cost of an acre can range from $100,000 to as high as $5 million for high-traffic inner-city commercial land. On average, a prime location might set you back around $800,000.
- Building construction: The average gas station is constructed with durable materials such as steel frames and concrete. The cost for such a construction is approximately $350 per square foot. Given that the average gas station is about 3,200 square feet, the construction cost would be around $1.1 million.
- Fuel system: The standard gas station has two underground fuel tanks that can hold 12,000 gallons of gas each. These tanks cost about $28,000 each, making it $56,000 for both. Including installation costs, the entire system would be around $190,000.
- Fuel pumps: Most gas stations have between 6 to 12 pumps. The average fuel pump costs $20,000 to install. For eight pumps, the cost would be $160,000, plus $20,000 for installation, totaling $180,000.
Can Gas Stations Make Their Own Prices?
According to a CBS Minnesota article, individual gas station owners decide what to charge for gas. If the gas station is part of a corporation, then the corporation sets the price. The price depends on competition in the area and local property taxes.
The article explains that gas station owners keep an eye on what their competitors are charging. They can’t afford to have much higher prices than the station down the street. Every day, they get an email telling them the wholesale cost of a gallon of gas. They use this info to figure out their ideal price.
So, yes, gas stations do have the freedom to set their own prices, but they also have to consider what other nearby stations are charging.
Do Gas Station Owners Make a Lot?
Gas stations always seem to be bustling with activity. But how much do gas station owners make? Well, the answer varies. For instance, gas station owners in the Northeast can expect an average annual salary of around $69,000. In the West, the average is closer to $60,000, while in the Midwest, it’s around $61,000. In the South, owners might earn about $66,000 annually on average (data according to Epos Now).
However, these figures depend on the number of stations an owner operates, competition, pricing strategies, and the range of additional services and amenities offered at the station.
The location is also crucial; a station far from busy roads might struggle to attract customers. The presence of reliable public transportation in the area can also reduce the number of potential customers.
Business taxes, competition, and credit card processing fees (which can range between 1.7% and 3.5% per transaction) are other considerations. Interestingly, while many might think that rising gas prices would benefit station owners, the reality is more complex. Many stations barely turn a profit on gasoline, and when oil prices rise, they might even incur losses on it. In fact, after accounting for overhead costs, the average profit for gas stations is only about $0.03 to $0.07 per gallon, according to The Hustle.
How Much Do Gas Station Owners Profit a Year?
On average, the annual salary of gas station owners can differ depending on the region they operate in:
- Northeast. Approximately $69,000 per year.
- West. Around $60,000 annually.
- Midwest. About $61,000 annually.
- South. Roughly $66,000 per year.
Apart from location, gas prices, and amenities offered, how much they make annually is affected by credit card processing fees which can range between 1.7% and 3.5% per transaction. For instance, on a $100 fuel purchase, the processing fee could be as much as $3.50.
Regarding amenities offered, additional services boost profits. According to the National Association of Convenience Stores, around 80% of fuel purchases in the U.S. are made at convenience stores, which offer services like hot food, snacks, beverages, and more.
How Much Gas Does a Gas Station Sell Per Day?
While gas stations in the US sold approximately 135 billion gallons of fuel last year, the profit margins on gasoline are slim, per the Energy Information Administration (EIA). On average, gas stations make a net margin of just 1.4% on their fuel. This is significantly lower than many other industries.
For example, the average net margin across all industries is 7.7%. When you break down the cost of a gallon of gas, which was $4.09 as of April 13, 2022, gas stations typically only receive a fraction of the price listed on the sign. After accounting for overhead costs, the average profit is reduced to just a few cents per gallon. Assuming daily sales of 4,000 gallons at a profit of $0.05 per gallon, a typical station might only earn $200-300 per day from gasoline sales alone.
However, many gas stations supplement their income with convenience stores. These stores can be highly profitable, with some items boasting gross margins of up to 50%. For many station owners, the real money is made inside the store rather than at the pump.
How Much Does it Cost to Buy a Gas Station Franchise?
A gas station can be expensive to start independently, which is why you might want to consider gas station franchises. Below are some of the popular gas station franchises:
- 7-Eleven: With over 8,600 locations in the U.S., the initial cost to start a 7-Eleven gas station franchise ranges from $45,000 to $1.2 million.
- Shell: A well-known brand, the initial investment for a Shell franchise is between $2.5 million and $6.6 million with an annual franchise fee of $30,000.
- Racetrac: With over 500 U.S. locations, the initial investment is between $1.0 million and $1.4 million.
- AMPM: The investment for an AMPM (Marathon Petroleum Company LP) franchise varies between $400,000 and $11 million.
- Circle K: The initial investment for a Circle K franchise is between $200,000 and $1.6 million.
- Sunoco APlus: Located mainly on the East Coast, the total cost for a Sunoco APlus franchise ranges from $25,000 to $600,000.
- Dash In: The franchise cost for Dash In is between $140,000 and $190,000.
- Express Convenience: Located in the Midwest, the investment required is between $165,000 and $200,000.
- On the Run: The total investment fee is $50,000.
- Extra Mile: The total investment for an ExtraMile franchise is between $1.5 million and $2.5 million.
The price to open a gas station in the US can be between $1.5 and $2.0 million. I mentioned in this essay that the price depends on things like location and design. This estimate takes land, building, tools, supplies, and infrastructure costs for gasoline into account. As an investor, you should be aware that while there are significant up-front expenses, there is the potential for big returns. And with the right management and commitment, you may profit from this business.