Gas stations
Fuel gallons vs. inside sales: what really drives a C-store's value
High gallons look impressive on a listing. But for most stations, the store, not the pumps, is where the profit is.
By [Founder name], Ph.D. 5 min read
Listings for gas stations often lead with fuel volume: "1.2 million gallons a year." It's a useful number, but on its own it can be misleading. To understand what a station is worth, you have to look at where the profit actually comes from.
Fuel: volume brings traffic, margin pays the bills
Fuel margins are usually measured in cents per gallon, and they move with wholesale prices, competition and the terms of your supply agreement. A station selling a lot of gallons at a thin margin may earn less from fuel than a smaller site with better pricing power.
What a valuation looks at:
- Gallons by grade over at least three years, and the trend
- Cents-per-gallon margin, net of credit card fees
- Pricing relative to the nearest competitors
- Rebates, incentives and the remaining term of the supply contract
Inside sales: where margins are higher
Merchandise, beverages, food service, tobacco and lottery typically earn a far higher percentage margin than fuel. Food service in particular can transform a station's economics. Two sites with identical gallons can have very different values because of what happens inside the store.
Fuel brings customers in. The store is where value is made.
The supply agreement can add or subtract value
Branded stations often receive upfront incentives that are repaid if the contract ends early. A buyer will either assume that obligation or price it in. Remaining term, volume commitments and rebates all belong in the analysis.
Don't forget the tanks
Underground storage tanks, monitoring records and any history of contamination affect both value and financing. Lenders will often require environmental reports, and known issues are better addressed early than discovered late in a deal.
Real estate and business value
Many stations are owned with the land. A good valuation reports the real estate, the equipment and the going-concern value separately, which is what lenders (especially SBA lenders) need to see.