The Definitive Guide: What is a Good Convenience Store Profit Margin?
American businessman and Camping World CEO Marcus Lemonis once said, “If you don’t know your numbers, you don’t know your business.”
For convenience store owners, one of the most important numbers you need to know is your profit margin.
Your profit margin is your revenue minus the costs of running your convenience store. It’s used to gauge how well your store makes money. Because of this, many convenience store owners (or aspiring owners) ask, “What is a good convenience store profit margin?”
In this article, we’ll dissect all aspects of convenience store profit margins and how a good profit margin is relative. We’ll also dive into how you can improve your profit margin using your convenience store point of sale (POS) system.
Your Convenience Store Profit Margin: What Do You Need to Know?
Knowing your store’s profit margin is crucial. It tells you whether your store is making money, how efficient it is, and ultimately, what your profit will be as a store owner.
While some people’s eyes glaze over at the mention of “profit margin,” not knowing this number can be risky. You won’t know if your store is making or losing money, and won’t be able to forecast your available capital for future equipment purchases or store improvements.
Don’t make the mistake of solely looking at total revenue! While it’s an important number, revenue hasn’t been calculated in all the costs of running your business.
What is Profit Margin?
Let’s go over the definition again: profit margin compares the revenue you’re bringing in to the cost of running your business. It’s a profitability ratio used to gauge how well your business is doing.
It indicates how many cents of profit your business generates for each dollar of sale. For example, if a business achieves a 22 percent profit margin in a quarter, it makes $0.35 for each dollar of sales.
However, there’s more to profit margins than this definition and simple example. Let’s dig in a little more.
- Gross profit is the profit a company makes once the costs associated with making its product or providing its services are deducted.
- To calculate gross profit, you subtract the cost of goods sold (COGS) from revenue (sales) made on the products or services sold.
Revenue - COGS = Gross Profit
Gross Profit Margin
- Gross profit is your top line earnings, as calculated above.
- Gross profit margin takes the gross profit figure and divides it by revenue to get a handle on how much gross profit is generated on a percentage basis after taking costs into account.
- To make things simpler, gross profit is a dollar amount whereas gross profit margin is displayed as a percentage.
Gross Profit Margin = Revenue - COGSRevenue
- Also called net profit.
- Net income is calculated as revenue (sales) minus the cost of goods sold and fixed costs such as selling, general and administrative expenses, operations, interest, and taxes.
- It’s often referred to as the bottom line on an income statement.
Net Income = Revenue - Total Expenses
Net Profit Margin
- Again, instead of a dollar amount, net profit margin is displayed as a percentage.
- Net profit margin measures how much income is generated as a percentage of revenues received.
- It’s a clear indication of whether your business is generating enough profit and whether operating costs and overheads are well-managed.
- Net profit margin is one of the most crucial indicators of your store’s health.
Net Profit Margin = Net Income Revenue x 100
What is a Good Convenience Store Profit Margin?
Based on the above deep-dive on profits and profit margins, the most important number is your net profit margin. Profit margins provide a more realistic picture as to the health of your convenience store’s profitability.
- Your store generated $30,000 in the last month. Expenses were $20,000, which resulted in a net profit of $10,000. Divide $10,000 in profit by $30,000 in income and times that by 100 to get a profit margin of 33 percent.
This is important because it shows how much return you get from the money you’re spending.
There are other stores with different levels of sales and profit.
- Store B generated $40,000 in the last month. Their net profit was also $10,000 because their expenses were higher. Their profit margin is 25 percent.
Between your store and Store B, your store is more profitable because your profit margin (33 percent) is higher than Store B’s profit margin (25 percent).
“Good” is subjective. It’s more important to have a good profit margin because it's a better indicator of long-term viability. Plan for unexpected developments:
- Insurance, rent, and utilities costs could go up
- Sales might dip
- You might expand your product line and increase your spending (at first)
How to Improve Your Convenience Store Profit Margin
There are three ways to increase your profit margin:
- Reduce your costs
- Increase prices
- Increase sales
To reduce your costs, you can:
- Consolidate food and beverage vendors
- Change payment processors
- Use your POS system to reduce shrinkage and costly cashier mistakes
You could raise prices but that’s risky. Price increases have to be well-considered and only done on certain products.
Increasing sales can also be tricky. Discounts and promotions must also be thoroughly vetted to ensure they positively impact the bottom line.
Using a Modern Point of Sale (POS) System to Improve Your Profit Margin
Fortunately, you can use a lot of the data and features within your convenience store POS system to increase your profit margin by reducing costs, smartly increasing prices, and increasing sales.
Better inventory management
- Know exactly what you have in stock, and set reorder thresholds to reorder more products to prevent out-of-stock situations automatically.
- What’s selling well? Sales and transaction data shows you what your top sellers and most profitable products are so you can stock more of those and similar items.
- What isn’t selling well? Your POS data can also show you what items are taking up valuable shelf space.
- A POS system with remote access allows for price changes on the fly.
- Make pricing decisions based on your data combined with any industry trends you identify.
- Use employee management data and loss prevention features to reduce waste, shrinkage, and theft.
- Do you need more cashiers and stock staff? POS data can help you identify areas for hiring or cutting back on costly overtime.
- Use a modern POS system to tie in inventory, sales, and marketing efforts.
- Automate some time-intensive inventory tasks to keep employees at the registers and helping customers.
Upsell and Cross-sell
- A modern POS system can track customer trends and help you stay informed about top sellers.
- You could make impulse buys and upsells more visible with signs, placing them near top sellers, and bundling them together to leverage the data you collect.
- Make it easy for them to purchase goods and increase their basket size.
Seamless Checkout Experiences
- Could your store offer buy-online-pickup-in-store (BOPIS)?
- You can incorporate curbside pickups into your offerings
- A modern POS has the capabilities you need, including:
- Ensuring you have the products in stock that your customers want
- Contactless payment options
- E-commerce and mobile checkout options
A Good Convenience Store Profit Margin: It’s Personal
A good convenience store profit margin is personal to you and your store. If you’re savvy, you can improve your margins by optimizing inventory and reducing expenses. A modern convenience store POS system can help as well by:
- Speeding up checkout
- Simplifying inventory management
- Providing the data to help you make growth-oriented decisions