Years ago I read that a gasoline station doesn’t make money by selling gasoline. The gasoline draws people to the station, and some of those people buy tiny $3 bags of Cheetos to go with their gasoline. The margin on the gasoline is tiny, but the margin on tiny bags of Cheetos is not tiny.
Writing a blog works the same way. A blogger doesn’t make any money by posting content. The content draws people in, and a few people click on ads. At least that’s what I hear.
Back to gasoline. All these years I’ve marveled at the gasoline business model:
- Sell a popular low-margin product to draw in crowds;
- Make high margin products easily available;
- Hope that some people buy the high margin products.
When I stop at a gas station I fill up my tank and I leave. Unless I’m traveling a long distance I never go in to buy something. Even worse for the gas station, I always use my American Express Blue Cash or my Discover Gas Card, both of which pay 5% cash back on gasoline. The gas station gets charged a higher fee for rewards cards than other credit cards.
Since I use a rewards card and don’t buy Cheetos, I always figured gas stations might actually lose money when I buy their gas. That would make me a gas station’s worst nightmare.
I’m Not Their Worst Nightmare After All
A few days ago I learned that “gasoline accounts for 70 percent of a typical station’s revenues, but only 30 percent of its profits.”
It surprised me for two reasons:
- If gasoline is 70 percent of revenues, then the other 30 percent is Cheetos and other junk food. Check my math, but if the average price of a fill up is $50, then the average motorist is buying $21 of Cheetos per stop.
- 30 percent of profits on gasoline is a lot more than I had thought. For years I thought it was basically zero. If the gas stations are making 30 percent or their profits on gasoline, then their margin on gasoline is much higher than I thought, which means they’re not losing money when I use my rewards card, which means I’m not their worst nightmare.
I never felt guilt when I thought gas stations were losing money on me. But it’s nice to know the gas station can make a small profit even if I don’t buy Cheetos.
The gas stations that may actually lose money on gas purchases are most likely the mom and pop shops.
I wouldn’t think any of the larger chain gas stations are losing money on anything. When was the last time you saw a gas station go out of business? They seem to be popping up everywhere, all the time.
Since it’s easy to find stations that charge 10-15 cents more per gallon than the station across the street, some stations certainly make more profit from gas than others.
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