Convenience stores can be very profitable businesses. So if you’re about to open your own convenience store, you may want to understand when you will break even, and how much profits you can make with such business.
With a total size of $663.5 billion, the convenience store industry is a huge market in the US. Yet it’s also competitive: there are over 150,000 convenience stores scattered through the country.
So if you want to know how much profits you can make with this business, you first need to look at how much revenue you can generate as well as how much it costs to run such a business.
In this article we’ll look at public benchmarks as well as our own intelligence to investigate how profitable convenience stores really are. Let’s dive in!
What is the average turnover for a Convenience Store?
With a total size of $663.5 billion and 150,000 convenience stores across the country, the average turnover for a convenience store is $1.72 million a year. This excludes any gas sales.
Assuming that the store owner is also the store manager, the average take-home salary of a convenience store owner-cum-manager is $59,288. However, if a store doesn’t have a separate store manager, the owner can pay himself more.
In case there is a separate store manager, the owner will be free to decide his salary from the net profit instead (see more on that below).
What is the average profit margin for a convenience store?
The overall profit margin of a convenience store depends on the type of products sold by the store. According to Statista, health and beauty care products have the highest gross profit at a 50% margin while cigarettes have the lowest profit margin of 15%.
Thus, if you are planning on opening a convenience store, focus on items with a higher profit margin, but do keep a mix of different products to increase your overall sales and hence, profits.
In order to understand the overall profit margin you can make with such a business, you will need to consider not only the gross profit margins for the products you sell, but also all the expenses you must pay for to run the business.
We found that on average, you should reach net profit margin of 5% for a single store, and up to 10% for chains with multiples stores.
How much does it cost to run a convenience store?
There are certain recurring costs involved in running a convenience store and they include:
- COGS (40-50% sales): this is the inventory you need to purchase to keep your store stocked. COGS heavily depends on the type of products you sell. As explained earlier, whilst cigarettes typically have very low margins (15%), health and beauty care products can reach 50% gross profit margin
- Store rent (15-20%): You need to pay a monthly rent for the commercial space you are using as your store (assuming you do not own the real estate). This typically also includes utility bills
- Staff (5-10%): You will need a certain number of employees to run your store efficiently (sales, manager, etc.)
- Other expenses: includes marketing expenses, janitorial services, bookkeeping, insurance and other operating costs
In general, you will be spending around $80,000 per month to run a 2,000 sq. ft. convenience store in the US. To know more about how much it costs to start and operate a convenience store, make sure to read our complete guide here.
We’re including below the sales-to-profits breakdown of a typical convenience store with 3 locations (from our financial model template for convenience stores).
Please note this is purely for illustrative purposes and the exact revenues and costs may not fully apply to you. Instead, it gives you an idea of the different costs involved in running a convenience store and their amount relative to sales.
How to forecast profits for a convenience store?
In order to forecast profits for your own convenience store, you will need to forecast sales and expenses:
- Sales are easy to forecast: simply use an average order value as well as a number of orders (per month) for example
- Expenses should either variable (as a % of sales for example, like COGS), or fixed (e.g. salaries, marketing, rent, etc.)
In the end, you should obtain your profit-and-loss, as shown below. As you can see, EBITDA can reach 10-15%. Instead, net profit (after depreciation, interest expenses and taxes) can reach 5-10% for the most successful businesses.
How to increase your convenience store profits?
There are various strategies to increase the profits of a Convenience Store such as:
- Optimize signage: Optimize your signage to clearly display diesel signs and fuel prices, and also ensure that using a proper advertisement for products that sell most. Additionally, place product advertisements in locations that are easily visible
- Promotion discounts: Start offering promotional discounts to increase your sales and attract more customers. You can offer price-based promotions and discounts on food pairs
- Loyalty programs: Loyalty programs are a great way to gain the loyalty of your customers and increase their lifetime value
- Increase variety: Increase product variety in your store to attract different segments of customers and also to increase engagement for the existing customers
- Store layout: Showcase the most profitable products at the entrance, and also rearrange the layout to make people look around for longer and notice new items
- Consider vendor consolidation: Vendor consolidation will help to reduce labor costs, increase the number of weekly deliveries, and eliminate the need for ordering unnecessary items