Starting a petrol pump business in India is hard work. Besides getting the business basics right, you must also be aware of various government rules and regulations. However, you can rest assured that it is profitable and that you can indeed do good business. So, here’s how you can start a petrol pump business in India and become profitable in no time.
How to Start a Petrol Pump Business?
Table of Contents
On average, a petrol bunk business owner or dealer earns a profit margin of Rs. 1.2 for every litre of petrol sold, whereas he earns Rs 1.8 for every litre of diesel. So, a petrol pump is a low-margin business, where you can generate good revenue and become profitable.
Most petrol pumps across India make every month an equivalent of 250,000 liters of petrol and 150,000 liters of diesel in sales. So, when you do the math, the total sales generated every month is 400,000 liters. Moreover, we know that the average commission on one litre of petrol is Rs. 1.2, whereas on one litre of diesel it’s Rs. 1.8. So, the estimated average sales value every month is Rs. 5,70,000.
However, while this is the total sales that the petrol stations make every month, you should also consider the expenses incurred. Such costs may include rent, staff wages, electricity, maintenance, accounting, and fuel transportation charges, not to mention losses.
For instance, if you have rented land for setting up a petrol pump, you would be paying an average rent of Rs. 40,000 a month. Similarly, if you have ten employees as part of your staff, where each of their salaries is Rs. 10,000, then it means that the average total salary you will need to pay every month would be Rs. 1,00,000.
Likewise, you will also incur some expenses for electricity, maintenance and accounting, and transportation, which will sum up to about Rs. 72,000, on average.
So, now, if you consider all these expenses, the net profit you would be making in a month would be about Rs. 3,58,000.
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Prerequisites for Starting a Petrol Pump Business
There is no doubt that a petrol station business is indeed profitable. However, before you can even think about setting up a petrol pump business, you must know a few things: how much land you will need, your funding sources, what licenses you will need to get, and whether you are eligible to conduct such business.
1. Eligibility
Starting a petrol pump requires lots of effort and capital and is by no means an easy task. The process is tedious, where you also need to get all the necessary licenses and permissions from the government. Moreover, before you do that, you must also check whether you are eligible to start a petrol bunk business.
It would help if you met both these eligibility criteria to start a petrol pump business in India, as outlined below.
a. To start a petrol pump business, you must be an Indian citizen. Also, your age should lie between 21 and 55 years.
b. If you want to start this business in an urban area, you must have graduated, while to set up a petrol station in a rural area, you must have at least completed 12th grade.
So, these are the primary criteria for someone in India to start a petrol pump business.
2. Land Requirements
The land is another major prerequisite for starting a petrol pump business. When purchasing land for setting up a petrol station, you should also consider the location. Since you commonly find petrol stations in prime locations, such as busy junctions or remote places with no such petrol bunks, you must ensure that you also set yours up in such areas.
Also, though you may find such a prime location within cities, the best place to set up a petrol station would be on a highway.
Now, there are two reasons why you should set up your petrol station on a highway. First, most highways in the country don’t have petrol stations. Second, getting the land to set up a petrol station requires a host of permissions from the government, and so, you need to do all the necessary paperwork and get the documents ready. Since getting land for your petrol pump business is easier in a remote location than in a city, it would probably be better to establish your bunk in such a small place.
Note that you can also sign-up for a long-term lease if you do not want to own the land.
3. Funding
Funding is another essential prerequisite for starting a petrol pump business. Note that the location of the petrol station and the documents required also form a significant part of the costs that you will incur.
To set up a petrol pump in a rural area, you will need an investment of at least Rs. Twelve lacs, whereas you will need at least Rs to establish your bunk in an urban area. 25 lacs.
Purchasing the land and machines and setting up the saleroom, the canopy, and driveway, and the underground tank are some significant expenses that you will incur.
While land costs may vary, you will need at least Rs—ten lacs for installing the machines. Likewise, you will need another Rs. 10 lacs for setting up the saleroom, and at least Rs. Twenty lacs for the driveway and canopy that require a minimum 700 square feet area.
Lastly, each underground tank costs Rs. 5 lacs. So, installing two such underground tanks will cost you Rs. Ten lacs.
Besides these, you will also incur other expenses, such as getting the required documents and licenses and additional retail costs. These expenses may vary, depending on the business.
4. Licenses
It is mandatory to register your petrol pump business and get a valid license from the government. To get a permit to operate a petrol station, you must meet the minimum eligibility criteria. Also, you must submit a set of documents, including:
a. A duly filled application form.
b. The updated land documents. (Note that if you don’t own the land and have leased it out, you may need to submit all the required legal documents that you have got as part of the lease agreement).
c. Your investments and funding sources.
d. Expenses.
e. Your bank details.
f. Your Income Tax returns and VAT and GST registration papers.
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The Application Process
You can apply for starting a petrol pump dealership business in India in two ways: online and offline. To apply for a petrol pump dealership, check for its advertisements in newspapers or online, or visit the official websites of the respective petroleum companies. Also, note that you will be required to pay a fee to get your license and an application fee.
Both the fees vary depending on the location of the bunk. For example, if you are applying to set up a petrol station in a rural area, then you will need to pay an application fee of Rs. 100. However, if you plan to establish your bunk in an urban area, the application fee is Rs. 1,000.
Similarly, the license fee you may need to pay varies depending on several factors, including the company you want to collaborate with to set up your dealership and the area where you want to establish the bunk.
Petrol Pump Dealership Business Plan
Before you can even think about establishing the petrol station, you must first develop a robust business plan. While a petrol pump business plan differs from some other businesses, it primarily consists of the following elements.
- Market Analysis
Before you can even consider setting up your petrol pump business, you should research how the markets are doing, particularly your competitors. In general, though, the petroleum industry is classified into three types: turbo, mechanical, and electric fuel pumps. While you find mechanical fuel pumps in older vehicles, most newer ones employ turbo or electric pumps. So, this should be your target segment.
When you study the markets, you will also know about the various government rules and regulations regarding carbon emissions from automobiles and the standards that you must follow to reduce them.
Besides carbon emissions, other vital factors also play a prominent role in running a petrol pump business. Some of these factors, including increased fuel efficiency, easing engine startup, and reduced maintenance costs, are even growth drivers for the industry. Similarly, another significant factor that immensely contributes to the fuel industry’s growth is the adoption of high-speed fuel injection technologies that work on any engine type.
So, these are some factors that you will need to look at before you begin the groundwork for establishing your petrol pump business.
Also, don’t forget to include these things in your business plan, as they will help you make those critical decisions.
- Investment and Expenses
Market research is no doubt a crucial aspect of a petrol pump business plan. However, that’s not all the business plan should have, as there are more important things that you may need to include, such as the investments you plan to make and the expenses you may incur.
Like market research, the money you invest in your petrol pump business and the expenses you will incur during its operation are two crucial aspects that must be present in your business plan.
To include the estimated investment and expenses for your petrol bunk business, you can first study the markets to get a rough idea and then use those estimates to formulate the investment you will need and the expenses you may incur.
When estimating your investment and expenses, you should also consider the taxes, such as VAT, and GST, if applicable. Note that the VAT or GST may be different for different businesses. So, before you craft your business plan, be sure to know the taxes you will need to pay.
Also, when working out your net revenue and profit, don’t forget to deduct them from the total income generated every month.
- Commission
Your petrol pump business plan should also include the commission you get from the company for all the sales they make every month. So it would be best if you got a rough estimate of how much sales each petroleum company makes in the market research phase. Then, depending on the capital you can raise, you must decide on a petroleum company that you want to collaborate with to open your petrol pump.
When you conduct market research, you should also note how much commission each company will pay you as a part of the revenue they generate each month. Then, narrow down on one or two such companies that give you maximum commission compared to the others or industry standards.
That way, you will be able to make more money out of your petrol pump business. So, when writing the business plan, don’t forget to work out and include the commission you want to get each month.
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Thoughts
So, like any other business, running a petrol station can also be profitable if you get your basics right, which is why you should first do thorough research on the markets. It would be better to talk with the owners of some other petrol pumps nearby to know where and how to begin.
Also, when you get down to writing your business plan, don’t forget to include all the necessary elements, such as the market analysis, investment and expenses, taxes that you will be paying to the government, and the commission you get from the government petroleum company.
