In the Gas Station Business, What Happens To Profits When Gas Price Hikes?

Being in the gas station business I know that if you are like most of the 99% of our population then I am sure you do get frustrated seeing the gas price hike once again to a new high. Meaning you get less gasoline per dollar than before the price hike. Let’s say when the price was around 99 cents a gallon (around 2000 and before in most states), it used to cost me $17-$18 to fill up the tank. The same SUV now cost me around $75-$80 to fill up.

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As an owner of a gas station business I will admit that I made more money per gallon when the price was 99cents a gallon than I do now when it is $3.59 a gallon. Why? Let’s do the math right here.

Most gas station business owners like us buy gasoline at “Rack” price, which is a published price set by the commodity stock market. Just like any stocks, gasoline also gets traded every day and the price can go up or down based on market demand and supply or the “future” of commodity pricetrading. But keep in mind that if you are in the gas station business, the rack price can also vary widely by your geographic location, as the supply and demand varies by location city and state.

Now let’s see how we come up with the retail gas Florida gas stations for sale price. When we buy gasoline for a gas station business at wholesale we pay the price of the actual gasoline and all the taxes that are imposed by various local, state and federal governments. Let’s take palm beach, fl for example, if the rack price for a gallon of gas cost $3.00 today, all taxes combined will be another $0.55 cents, than there is carrying cost to get the fuel to get delivered to a gas station, which usually runs around $0.15 cents to around $0.20 cents, than we have jobber markup (the wholesaler markup for selling the gasoline to a retailer) typically runs around 1cents to 2 cents.

Now let’s add all that up, 3.00+.55+.15+.02= $3.72 is what a gas station pays today for a gallon of gasoline so how much should he or she sell it for?

Typically we used to add 10 cents to our cost and sell but that has changed a long time ago, now usually there are “local price leaders” that sets the price in most areas. For example if you have a Race Track, Sam’s club, Costco or such low price leaders, the norm is others usually follow or stay closer to their price point. If a retailer does not follow or stay competitive, than eventually he or she will lose the business.

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