Profits on gas sales typically range from $.08 - $.12 per gallon before expenses, i.e. $.80 - $2.00 per fill up or 2% of the cost. The majority of profits come from convenience store sales.

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Bill Scott, with 38 years experience in helping gas station, convenience store retailers become profitable. Answered questions on the economics of the business.

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The average profit for a convenience store is 2.1% of all sales, which means it's extremely difficult to make a living from one store. The major reasons for such low profit margins are 1) deplorable bookkeeping practices, and 2) a complete lack of non-fuel inventory control. Most stores depend on grocery suppliers to decide what they should stock, and although suppliers do their best, every store (depending on location) is different.

Fuel costs and fuel margins are extremely volatile. One day a retailer may make 12 cents a gallon, and the next day be selling fuel below cost. Fuel margins are controlled by competition, based on the fuel costs of the most recent delivery.

On days when fuel costs go up, retailers often raise retail prices prematurely, and make more profits. On days when fuel costs go down, likewise, retailers drop retail prices prematurely, and margins will plummet. For example: Let's say you have 1 Million gallons of fuel in your stores, for which you paid an average of $3 a gallon ($3 Million). If the purchase price at the rack drops $0.10/gallon, you just lost $100,000 of fuel value overnight.

Prolonged drops in fuel costs can be deadly. The longer the period of decreases in fuel costs, the more money retailers will lose. If a retailer doesn't have enough cash in reserve to make up for losses during these periods, they are in danger of not being able to pay salaries, expenses, and inventory purchases.

If you are interested in buying a convenience store, buy during times of decreasing fuel prices. That's when you're most likely to find the best bargains.

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Stations are typically run as franchises - just like McDonald's. They buy gas from the national company, and set their prices based on a combination of local price shifts and the expected price of future gas (that's why prices at the pump spike after bad news from the Middle East even though whatever oil shock hasn't even arrived yet).

Since it's a highly competitive market with many sellers, however, most stations don't make much of a profit on the gas itself, despite pulling down tens of thousands of dollars in sales per day. Gas stations make most of their money the same way McDonald's does: by selling beverages. Beer, cigarettes, soda, snacks, etc. all come with pretty decent profit margins.

Most brands really aren't that much more expensive or cheaper than others. Premium gas is just a discriminatory pricing scheme (really more of a racket) that captures excess revenue from consumers who are willing to pay for it. The proximity between most gas stations (there's almost one on any corner, making it easy to shop around) and dependence on the national market for resupply creates a competitive atmosphere such that no one station can afford to keep its prices too high or low for very long. If a station owner lowers his prices, he's not guaranteed to make up on volume what he's losing in margin because he can't control the price he buys it at; if he raises his prices, his competitors across the street will get his customers.

What are the margins? Margins depends on the cost of purchase and sell price for the day to day business.

How are daily prices determined? Most all gas stations get their daily prices by email/fax/web from their distributor/jobber at the end of the day called the RACK PRICE for whatever their brand/Unbranded gasoline/DSL, This is what the cost price for that station + all taxes. If the gasoline sales are managed by station owner (mostly), The owner decided the selling price for the station...whatever price they decide to sell it for that becomes the selling price.

What are the average profit per year? Depends on the stations location, competition around that station but average station makes about 10-15 cents a gallon after all credit cards fees.

Why are some brands of gas more expensive than others (i.e. Shell vs Coastal Gas). because of the brand they carry...if it's a premium branded gasoline (Exxon, Chevron, BP, Shell)...they are little expensive because of their additives they add to the gasoline and that's why the most stations nowadays prefer to remain unbranded, they do not carry big brands..like pilot, Loves, Wawa, 7-11 you will not see branded gasoline at these places.

Overall, the gasoline business is very tricky and more like a gambling business to me (13 years in Gasoline business as a retailer station owner)