Are you looking to start your own convenience store? As part of your business plan, make sure to consider the total cost for startup and operating expenses to start and run a convenience store.
We’ve identified that it costs anywhere from $290,000 – $351,000 to start from scratch a 2,000 sq. ft. convenience store plus $125,000 in operating costs per month to run the business with 8 employees.
Want to know more? In this article we’ll go through all the different costs you will need to budget for before you can start running your convenience store. Read on!
For more information on convenience store businesses, make sure to read our guides below: How to Open a Convenience Store in 11 Steps? 6 Strategies to Increase Your Convenience Store Sales & Profits How to Write a Business Plan For a Convenience Store: Complete Guide
Convenience Store Startup Costs
The startup costs for opening a convenience store vary greatly by multiple factors such as location, traffic, and the upfront inventory.
When getting started, you always have three options depending on your preferences. You can buy a convenience store outright, purchase an already established franchise, or start your store from scratch. The startup costs will differ significantly from one option to another: whilst franchising will be the cheapest option to start your convenience store, starting from scratch and paying for renovation and equipment will cost you significantly more.
In this article, we will give you costs estimates to start a 1,500 sq. ft. convenience store from scratch.
There are 2 types of costs: startup costs and operating costs. Note that these costs are for illustrative purposes and depend on several factors which might not fully apply to you. Let’s first start below with startup costs:
|Renovation & equipment||$250,000 – $300,000|
|Lease deposit||$12,000 – $16,000|
|POS system||$3,000 – $10,000|
|Legal expenses and licenses||$2,000|
|Marketing (Business website)||$1,000|
|Total||$290,000 – $351,000|
Convenience store renovation & equipment cost
Whether you’re purchasing or leasing a store, there are good chances you will want the general theme to match your creative design idea. So, at this point, renovating the interior and exterior environments becomes an important element of your budget.
According to the National Association of Convenience stores, the average US convenience store goes through a renovation every 10 years which costs on average $409,582. The average cost of renovation per square feet is currently around $125 to $150/sq. ft. as per CTM Design and Architecture.
So assuming a 2,000 sq. ft. convenience store, you should budget anywhere between $250,000 to $300,000 for renovation itself (unless you buy an existing convenience store).
These renovation costs include all the equipment to manage and run your convenience store business: the shelves, refrigerators, menu boards, drive-thru ordering systems, etc.
Convenience store initial inventory cost
The upfront inventory is one of the major startup costs associated with opening a convenience store. Here, you should be clear on the type and number of products you intend to sell and where to find them.
Even though the products in a convenience store aren’t overly expensive, their costs can easily add up, requiring a significant figure to set up the initial inventory. While small stores can have as little as 500 stock units, larger convenience stores will stock up to 2500 different products at a time.
According to reliable sources, the typical expenses for setting up an upfront inventory for a small convenience store can be as high as $20,000.
Usually, the size of the convenience store also determines the full amount you will pay to stock the shop. If you have a large budget, there’s no harm in launching a deluxe convenience store. However, if you are on a tight budget, starting small is probably wiser as you make steady steps to the top.
No matter the size of your convenience store, you always need a suitable space to accommodate all consumers and attract potential customers. This is one of the highest startup costs for starting this business.
In many cases, business owners must pay a deposit covering up to 3 to 6 months to fulfil the rental agreement. So, assuming you set up your store on a 2,000 square foot space and pay about $4,000 in monthly rent ($20 / sq. ft. per year), you should expect to pay $12,000 to $16,000 upfront for the lease deposit.
The point of sale system (POS) is useful for order tracking, giving consumers a seamless way to complete every transaction. Usually, the cost of setting up this tool depends on the selected hardware and can be anywhere between $3,000 and $10,000.
Other useful equipment you may need for your convenience store business include the right furniture, display racks, and cases.
Legal Expenses and Licenses
There’s a good reason licensing is an important aspect of running any convenience store business. It is a legal requirement that helps you run your business in major US cities and states.
The typical documentation you need to run your convenience store depends on the nature of your business and the existing statutory laws and may include any or all of the following;
- Business permit
- City or county business license
- Occupancy permit
- Employer identification number (EIN)
- Health and safety permits
- Gas permits
- Lottery license
- Alcohol and tobacco license
- Tax or sales permit
To get these documents, you need time and money. And a good starting point would be to set aside at least $2,000 to help you secure all the relevant documentation for your convenience store business. You may need a lawyer to handle the business’s legal aspects, which may cost up to $2,000.
Marketing is essential when starting your convenience store because that’s how you will attract the attention of potential customers and even stay ahead of the competition. Here, you need a storefront sign to help draw your customers’ attention, which can cost between $200 and $1,000.
In addition to signage, a successful convenience store deserves an excellent website. Of course, the cheapest way to handle this is to design the website yourself. But if you lack the skills, hiring a website designer for this type of business will cost you about $5,000 to $10,000.
Typically convenience stores don’t rely on other standard channels such as social media and email marketing, the vast majority of new customers will come thanks for signage and location.
Convenience store business comes with liability. Here, property insurance coverage comes into play to cover the replacement costs associated with natural disasters such as vandalism, explosion, water damage, and fire.
To protect yourself from major liability risks, you need a business owner’s policy (BOP) for small and mid-sized businesses. The general liability insurance costs about $65 per month, while the business owner’s policy can go up to $99 per month.
On average, you should expect to pay $2,000 per year upfront for both insurance policies.
Convenience Store Operating Costs
The operating costs refer to the costs associated with running and maintaining your business on a day-to-day basis. They include the costs of goods sold (COGS) and other ongoing expenses such as rent, utility bills, payroll, and raw materials.
The actual expenses for maintaining your business depend on multiple factors such as location, inventory, store size, and employee salaries. So here’s a brief overview of the operating costs you can expect for a 1,500 sq. ft. convenience store.
|Operating cost||Amount (per month)|
Convenience store Cost of Goods Sold (COGS)
The biggest expense by far for convenience stores is the cost of inventory itself (Cost of Goods Sold). The profit margin varies by product: whilst cigarettes only have 15% profit margin, beauty and care products usually reach 50% profit margin instead.
RetailOwner estimates that the average gross profit for convenience stores is around 22% in 2021, meaning you will spend 78% of your revenues in sourcing the products themselves (including shipping and packaging).
For example, assuming your convenience store annual sales are the US average ($1.6 million), this means you would gross $130,000 in revenues, and spend $100,000 out of it in COGS each month.
Convenience store rental costs
Renting a space for your convenience store will cost a significant figure in the United States. However, everything depends on the size of the shop and the exact location you are setting up your business.
If you go to places like New York, renting commercial space costs about $40 per square foot per year. Assuming you pay $25 / sq. ft. in a tier 2 neighborhood instead, renting a 2,000 sq. ft. store will cost you to around $4,000 per month.
Convenience store staff costs
The staff will be an important part of your convenience store, helping with the day-to-day running of the business operations. In the US, the average pay for a convenience store clerk is $23,668.
So, assuming you have 8 employees, you may spend up to $20,000 to pay the employees’ monthly salaries. This assumes 2 shifts per day, 6 days a week as well as 20% in taxes and benefits.
There are a number of utility bills associated with running a convenience store (e.g. water, electricity and gas). This can get costly, especially if you set up your shop in a high-end neighborhood with high vehicle and human traffic.
Ideally, you should set aside a significant figure to cater to the utility bills together with the monthly rent. As a rule of thumb, you should budget 25% on top of your rental expenses as utility bills. So assuming you pay $4,000 per month in rent, you should spent approximately $1,000 extra for utility costs to run your convenience store.