Fuel margin per gallon: a worked example

On this page

1. Why cents per gallon
2. The selling price side
3. The cost side: the blended tank cost
4. Card fees come off the top
5. The whole example in one place
6. Blended cost and replacement cost do different jobs
7. Mid-grade from a blending dispenser
8. A weekly routine

Ask a few station owners what they make on a gallon and you will hear a few different methods. One takes the street price and subtracts the price on the last delivery. Another uses the rack price the jobber texted that morning. Someone else leaves card fees out completely. Each method gives a different answer, and only one of them comes close to the money that lands in the bank.

This article walks through a method that holds up: margin in cents per gallon, using the blended cost of the fuel actually sitting in your tank, with card fees taken out. Every number below is made up for the example. Swap in your own.

Why cents per gallon

Fuel margin is normally measured in cents per gallon rather than as a percent. Pump prices move a lot, but the cost of running the station does not rise and fall with them. A percent margin would drift every time the price changed, even if you were making the same money on each gallon.

The formula is short:

Margin per gallon = selling price per gallon minus cost per gallon

The work is in getting each side right.

The selling price side

Start with the price customers actually paid.

• Cash and credit prices. If you post a cash price and a higher credit price, you have two selling prices. Get the gallons sold at each from your register or pump report, then work out the margin for each, or blend them by gallons.
• Taxes on both sides. Your posted price normally includes federal and state fuel taxes, and your jobber normally bills you those same taxes as separate lines. Compare a price with taxes to a cost without them and your margin will look much bigger than it is. If your state also charges a sales tax on fuel, find out whether it is collected at the pump or prepaid on the jobber invoice. The rule: whatever taxes are inside your price must also be inside your cost, or come out of both.

The cost side: the blended tank cost

The tank is never empty when the truck shows up. It still holds fuel from the last load, bought at a different price. Once the new load goes in, the two mix. Every gallon you sell after that is part old fuel and part new, so its honest cost is the weighted average of everything in the tank.

Start with the all-in cost of each load: the product price, plus freight, plus every tax and fee on the jobber invoice, divided by the gallons you were billed for.

Worked example: a delivery lands

Say your regular tank has 2,000 gallons left that cost you $2.80 a gallon, all-in. The truck drops 8,000 gallons that cost $2.90 a gallon, all-in.

• Old fuel: 2,000 gallons at $2.80 is $5,600
• New fuel: 8,000 gallons at $2.90 is $23,200
• In the tank now: 10,000 gallons that cost $28,800
• Blended cost: $28,800 divided by 10,000 gallons is $2.88 a gallon

Until the next delivery, regular costs you $2.88 a gallon. That is neither the $2.90 on today’s invoice nor the $2.80 you paid last time.

When the next truck comes, repeat the math: whatever is left in the tank at $2.88, plus the new load at its own price. The blended cost moves a little with every delivery. It follows the market without jumping around.

Card fees come off the top

When a customer pays by card, your processor keeps a share of the sale. On fuel, that share is taken on the full price, taxes included. It never appears on the jobber invoice, but it is a real cost on every card gallon.

To turn card fees into cents per gallon, you need two numbers from your own records:

1. Your effective card rate: total card fees divided by total card sales, from your processing statement.
2. The share of your gallons paid by card, from your register’s payment report.

For this example, say your effective rate works out to 2 percent and three out of every four gallons go on a card.

• Fee on a card gallon sold at $3.19: about 6.4 cents
• Spread across all gallons (6.4 cents times 0.75): about 4.8 cents a gallon

If your processor also charges a flat amount per transaction, add that too. A flat 10 cents on a 10-gallon fill-up adds a penny a gallon.

The whole example in one place

Say regular is posted at $3.19 and you sell 1,000 gallons of it in a day.

Line	Per gallon	On 1,000 gallons
Selling price	$3.19	$3,190
Blended tank cost	$2.88	$2,880
Margin before card fees	31.0 cents	$310
Card fees, spread over all gallons	4.8 cents	$48
Margin after card fees	26.2 cents	$262

Now look at the shortcuts. Using today’s invoice price of $2.90, you would have called it 29 cents before fees and felt squeezed. Using last week’s $2.80, you would have called it 39 cents, and you might have dropped your price when you should have held it.

Blended cost and replacement cost do different jobs

The blended cost tells you what you made. It does not tell you what the next load will cost. When wholesale prices are rising, your blended cost lags behind, and the margin report looks fine right up until you pay for a truck at the new price. When prices are falling, it works the other way: the report looks thin while each new load gets cheaper.

So keep both numbers, each for its own job:

• Blended cost: your margin report, your profit and loss, and judging how a week went.
• Replacement cost, meaning what the next load will cost: setting the price on the sign.

Mid-grade from a blending dispenser

Many stations have no mid-grade tank. The dispenser blends mid-grade from the regular and premium tanks. In that case, mid-grade’s cost is a mix of the two blended costs, in the same ratio the dispenser uses. The ratio depends on the octane of each grade, so check what your dispensers are set to.

For example, if your dispensers blend two parts regular to one part premium, and your blended costs are $2.88 for regular and $3.42 for premium, mid-grade costs two-thirds of $2.88 plus one-third of $3.42. That is $1.92 plus $1.14, or $3.06 a gallon.

Every gallon of mid-grade sold also takes fuel out of both tanks, in that same ratio. Count it against both when you check tank levels.

A weekly routine

1. Enter each delivery’s all-in cost when the invoice arrives.
2. Update the blended cost for that tank.
3. Pull gallons and dollars by grade from the register or pump report.
4. Take card fees off using the effective rate from your latest processing statement.
5. Write down margin per gallon by grade for the week, next to last week’s.
6. When the number moves, find out why before you touch the price.

A few things eat into fuel margin without ever showing up on an invoice: drive-offs, pump meters that drift, short deliveries and gallons lost in the tank. Track them on their own so you know what your margin report leaves out.

Advantage’s Fuel Margins report works out cost from each tank’s weighted average after every delivery and shows margin per gallon by grade, with mid-grade costed from your store’s own blend.