Promotion for independent gas stations

by Neil Moncrief on September 9, 2008

I was talking with an acquaintance who owns an independent gas station. We were discussing how the high cost of gas affected his petroleum business. Up to that point, like most Americans, my only concern had been how it affected my family. (We actually canceled a trip to the Florida Keys because of the ridiculous cost to pull our camper that far!) This station owner reminded me that profits for gas stations are a function of gallons sold, not income/dollars received. Unlike most businesses that calculate their profit margin as a percent of gross sales (and sets prices accordingly), gas station owners calculate profits on a per-gallon basis. Regardless of whether gas is selling high or low, this particular owner always sells gas for $.05/gallon above his wholesale cost. At first glance, it appears his profits should remain constant, as long as consumption remains level. But then I asked him about credit cards. As we say in the South, if looks could kill, they’d have to bury me twice!

Before he could open his mouth to explain, it hit me how his pricing of gasoline and my pricing of credit card transactions were working together, against him. Consider this simplified example: Suppose a gas station owner pays an overall average cost of 2% (including all discounts and fees) to accept credit cards. Most other business owners would be satisfied to roll that into their cost of doing business. But remember the gas station owner is trying to get by on a profit of $.05/gallon (not 5% on the gross.) If he sets his price any higher, he’ll lose customers to other stations. When customers pay with cash, he does OK. But think about what happens when a customer buys gasoline at today’s prices, and pays with a credit card. At the current price of about $4.00/gallon and a hypothetical CC acceptance cost of 2%, this station owner pays the credit card company $.08/gallon! And because his markup was only $.05/gallon, he’ll realize a net loss of $.03/gallon. My Chevy Avalanche hold 29 gallons, so he’d lose $.87 by selling me a tankful of gasoline on credit!

Most of you reading this won’t have any sympathy for the gas station owner, although he has nothing to do with the price of gas and doesn’t usually benefit from higher prices. But we can all agree that more competition helps drive prices down. And we should agree that when small, independent gas station owners can’t make a living (and are forced out of business), it hurts us all. In the spirit of helping the small business owner, I’m introducing a new rate promotion specifically for independent gas station owners.

I can’t post all the details here because some station owners might use this article as leverage against their current processor. If you want the details, just call me. But in a nutshell, I’m offering Interchange Plus (a.k.a. Straight Pass Through) pricing with an extremely thin markup. Although Interchange Plus is a common pricing approach, it’s the extremely low markup that will make this offer so attractive. For those not familiar with his type of program, it means you’ll get a statement showing the wholesale cost of each and every transaction. (If your current account uses 3-tier or 4-tier pricing, your cost will drop significantly compared to what you’re accustomed to seeing.) For instance, many gas customers pay with debit cards, which are usually processed as credit cards. Many of those debit transactions have an Interchange cost as low as 0.80%! Although this doesn’t include the minimal markup that I’ll have to add, the savings for a typical gas station should be huge.

Anyone who takes advantage of this offer will receive this rate structure permanently. My markup will never increase. If Visa/MasterCard/Discover change the Interchange rates, we’ll simply pass the new rates through to you. If you’re interested in hearing more about this offer, call me toll-free at (866) 587-8618. I would appreciate the opportunity to talk to you!

Leave a Comment

Next post: