---
title: Why most gas stations don’t make money from selling gas
description: With gas prices climbing up, you may think station owners are getting greedy. But the economics behind the pump tell a different story.
---

[Hustle Originals ](https://hs-sbup.thehustle.co/originals)

# [Why most gas stations don’t make money from selling gas](https://hs-sbup.thehustle.co/originals/why-most-gas-stations-dont-make-money-from-selling-gas)

 Written by [Zachary Crockett](https://hs-sbup.thehustle.co/originals/author/zachary-crockett) | Dec 2, 2022 2:19:48 AM

Last month, gas prices hit a new national average record of $4.33/gallon, up nearly $1.50 from just a year ago.

The price of gas is largely to blame for America’s recent, 40-year-high inflation rate of [8.5%](https://www.nytimes.com/live/2022/04/12/business/cpi-inflation-report). Driven by up by covid-related supply chain issues and Russia’s invasion of Ukraine, it handily topped the list of consumer goods that saw the biggest year-over-year price bumps in 2022.

It’s easy to look at the gas pump right now and think that station owners are taking you for a ride.

But the business model of gas stations is a bit counterintuitive. 

Most gas stations barely turn a profit on their core product — and when the price of oil goes up they may even take a *loss* on it.

Battling small margins, cutthroat competition, and the looming threat of electric vehicles, many gas stations are more reliant than ever on secondary revenue streams.

#### **Who owns gas stations?**

Looking at those big signs along the freeway — Shell, 76, Chevron, ExxonMobil — it may seem like gas stations are all owned by big oil companies.

In reality, the majority of owners are **individual operators** who only own a single station.

*Zachary Crockett / The Hustle*

These owners fall into 2 main camps:

1. **Franchisees **who pay name-brand gas refineries royalties (anywhere from 3% to 14% of revenue) to use their branding
2. **Independent operators** who run generic “[no-name](https://abcnews.go.com/GMA/Business/story?id=2978563&page=1)” stations and buy gas on the open market

Most major oil companies have backed out of the retail business because selling gas generally **isn’t** **very profitable**.

According to IBISWorld, gas stations make an average net margin of just **1.4%** on their fuel.

That’s far lower than the 7.7% average across all industries — and ranks [beneath](https://www.forbes.com/sites/sageworks/2016/10/03/the-15-least-profitable-industries-in-the-u-s/?sh=7988a085618a) other notoriously low margin businesses like grocery stores (2.5%) and car dealerships (3.2%).

To understand why, let’s step back and take a look at the typical supply chain of gasoline.

#### **The profit pipeline**

Gasoline begins its journey as crude oil, largely [sourced](https://www.eia.gov/energyexplained/oil-and-petroleum-products/where-our-oil-comes-from.php) on home soil in states like Texas and North Dakota.

Once extracted from oil fields, this raw liquid is:

1. Sent to **refineries** to be processed into gasoline
2. Funneled via pipeline into **bulk storage containers**, and
3. **Transported** via freight trucks to gas stations, where it’s kept in 20k-gallon underground drums

By the time gas reaches the pump, the profit potential is pretty dismal.

Let’s say you buy one gallon of gas at your local station for **$4.09** (the [national average](https://gasprices.aaa.com/), as of April 13, 2022).

Here’s a rough breakdown of where that money goes:

*Zachary Crockett / The Hustle*

Gas stations typically only receive a fraction of the price listed on the sign. And after factoring in overhead — labor, utilities, insurance, credit card transaction fees — the **average profit is winnowed down to ~$0.03 to $0.07 per gallon**.

Now, there is a *lot* of variance here: Some owners *The Hustle* spoke to claim to make $0.30+/gallon; others, as little as $0.01.

But assuming daily [sales](https://www.card.iastate.edu/products/policy-briefs/display/?n=1188) of **4k gallons** at $0.05/gallon, your typical station might only bring home **$200-300/day **from gas.

By contrast, those coin-operated air machines you find at most stations can [rake in](https://www.quora.com/Do-gas-station-owners-make-profit-off-the-coin-operated-air-compressors) $300 to $500 in profit per month — even after paying the companies that lease them out.

Why don’t stations just raise their prices?

For starters, gas stations know that the [majority](https://www.convenience.org/topics/fuels/documents/how-consumers-react-to-gas-prices.pdf) of consumers choose where to go solely based on **price**.

They have an incentive to keep those numbers on the board as constant as possible.

And even if they didn’t, **local competition** keeps them in check: The best locations — high-traffic freeway exits and on-ramps — are often packed with clusters of stations that jockey for business.

*Zachary Crockett / The Hustle*

A misconception is that gas station owners *love* when gas prices go up.

In reality, they hate it as much as you do — largely because competition creates something of a pricing Catch-22:

1. When wholesale gas costs **go** **up**, many station owners would rather keep prices steady and take a loss than hemorrhage customers to competitors.
2. When wholesale costs **fall**, many gas stations are [wary](https://www.nbcnews.com/id/wbna23904590) of slashing their prices for fear of sparking a price war. 

Luckily, most gas stations don’t care much about gas profits.

#### **The real money is made *****inside***** the store**

Today, **80%** of all gas stations [have](https://www.convenience.org/Topics/Fuels/Who-Sells-Americas-Fuel#.WsKUICMrIy4) a convenience store on site.

According to a [study](https://www.convenience.org/topics/fuels/documents/how-consumers-react-to-gas-prices.pdf) conducted by the National Association of Convenience Stores, **44%** of gas station customers go inside. And among them, **1 in 3** ends up indulging in some kind of treat.

The goods inside these stores — Doritos, sunglasses, lotto tickets, energy drinks — only account for ~30% of the average gas station’s revenue, yet bring in **70% of the profit**.

Gross margins on certain items can be upwards of **50%**.

*Zachary Crockett / The Hustle*

Some forces are working against this business model.

Most modern pumps have card readers, negating the need to go inside to pay. The [average time ](https://www.iab.com/wp-content/uploads/2018/02/FootTrafficReportQ42017-3.pdf)a customer spends at a gas station is now just **2-3 minutes**.

Convenience stores also have some of the [**highest crime rates**](https://ucr.fbi.gov/crime-in-the-u.s/2016/crime-in-the-u.s.-2016/topic-pages/tables/table-15) of any business in America, with average annual losses to robberies topping $761 per location.

But stations have a bigger concern: The long-term future of gas.

#### **The gas station of tomorrow**

Over the past 20 years:

- The total number of miles we drive has [gone up by **~20%**](https://fred.stlouisfed.org/series/M12MTVUSM227NFWA)
- SUV sales have [**doubled**](https://motorlease.com/article/suv-rise/), and now outnumber cars
- The average household expenditure on gas has [risen](https://www.valuepenguin.com/average-household-budget#:~:text=Average%20Transportation%20Costs%20in%20the%20U.S.&text=Nearly%2090%25%20of%20U.S.%20households,gas%20per%20month%20is%20%24250.) to **$250 **per month

Last year, gas stations in the US sold ~[**135B**](https://www.eia.gov/tools/faqs/faq.php?id=23&t=10#:~:text=How%20much%20gasoline%20does%20the,8.80%20million%20barrels%20per%20day\).) gallons of fuel — enough to fill **204k** Olympic-size swimming pools.

Yet, gas stations have been in decline for several decades.

In 1995, there were **~195k **of them in the US; today, that number is down to **~115k**. 

*Zachary Crockett / The Hustle*

Among the major [contributors](https://slate.com/business/2016/06/why-americas-gas-stations-are-running-out-of-time.html) to this trend:

1. **Natural gas** is getting cheaper and more popular
2. **Electric vehicles (EVs) and driverless cars** pose a long-term threat to gas sales
3. **Real estate** in urban areas (NYC, DC, San Francisco, Boston) can be utilized for more profitable endeavors, like condos or office developments

Many stations have made the costly decision to [install](https://www.wsj.com/articles/gas-stations-face-tough-costly-choice-on-ev-chargers-11628600400) EV charging units, which can cost $100k a pop.

It’s a hard cost to justify, given that EVs currently make up [<1%](https://www.nytimes.com/interactive/2021/03/10/climate/electric-vehicle-fleet-turnover.html) of cars on the road. But the industry is experiencing a rapid rise: [4 in 10](https://news.evbox.com/en-US/197725-more-than-half-of-americans-say-evs-are-instrumental-in-the-fight-against-climate-change) consumers say they’d consider buying an EV for their next car, and stand-alone EV stations are [popping up](https://abcnews.go.com/Business/wireStory/electrify-america-double-ev-charging-stations-2025-78817717) all over the country to serve them.

EV-agnostic stations — and smaller operations that can’t afford the preemptive expense — risk getting left behind in the long term.

*Zachary Crockett / The Hustle*

But if all else fails, gas stations always have a secret financial weapon in their back pocket: Those mesmerizing [rotating hot dog machines](https://youtu.be/KHLeym3ApWY?t=962).

**BONUS FACTS:**

- **What’s up with that 9/10ths of a penny thing? **Almost a century ago, when gas was just $0.15/gallon, the government levied a gas tax of a [fraction of a cent](https://www.marketplace.org/2018/10/11/why-do-gas-prices-end-910-cent/). It’s irrelevant today, but station owners have kept it around because it makes prices look marginally better.
- **Explosions don’t just happen in the bathrooms**. On average, [~4.2k fires](https://www.nfpa.org/News-and-Research/Data-research-and-tools/Building-and-Life-Safety/Service-or-Gas-Station-Fires) break out at gas stations around the country each year, causing $30m in property damage. Most of them are caused by cars. A few are caused by hot dog machines.
- **Speaking of bathrooms… **a nice toilet can drive a gas station’s sales. According to one [survey](https://www.csnews.com/cleanliness-relevant-promotions-drive-fuel-only-customers-inside-c-store), 22.6% of customers who use a bathroom report “frequently” making an impulse purchase on the way out.
- **KFC started at a gas station**. Colonel (Harland) Sanders whipped up his first fried chicken plate in the 1930s while [running](https://www.hatchwise.com/blog/2020/09/29/how-kfc-was-made-from-a-gas-station-chicken-recipe) a gas station in North Corbin, Kentucky.

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