Measuring capacity utilization is essential for fuel retailers

The most expensive assets on your books are your land and equipment. The cost to build or acquire a station can range anywhere from $2 million in smaller markets to more than $10 million for higher-traffic areas. Once built, you may end up spending more than half of your gross profits (fuel retail prices depending) to pay off these assets through mortgages, interest, rent, and other long-term capital expenditures.

Despite the outsized costs for these assets, few station owners track or measure how effectively they’re utilized on a daily basis. Every minute a pump stays empty is a minute you’re not using your land and equipment to their full capacity, effectively leaving additional operating income on the table.

We call this topic capacity utilization. It’s a fundamentally different way to think about your business. When capacity utilization increases, the financial results speak for themselves.

Measuring capacity utilization

Calculating capacity utilization is fairly straightforward - at least in concept. To determine your business’ utilization rate, take the number of transactions that occur during a given timeframe and divide that number by the total number of transactions that could have occurred during the same timeframe (if all of your existing resources were at full utilization). For fuel stations, this is effectively determining how much of a potential “pump hour” is spent actively pumping gas.

That being said, getting to a final number - your business’ capacity utilization - can be challenging. Many business owners manually count the number of customers that come through your doors in a given hour or hire an outside consultant. These methods are expensive, laborious, and offer only a point-in-time snapshot of your capacity utilization. 

For a more holistic view, Upside measures capacity utilization by taking a look at your time-stamped historical transaction data going back a full year. 

• To calculate average utilization, we look across 12 months and identify the single hour with the highest number of transactions; this becomes the benchmark for that site’s max capacity. Next, we take a look at every other hour that your business is open and record the number of transactions. Dividing the total number by the max capacity gives us your average capacity utilization.
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• To calculate utilization at the busiest times, we take the three busiest hours (most transactions per hour) on any given day (rush hour, for example) and calculate a separate average to see whether utilization reaches its full potential during those spikes in traffic.
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In an analysis of 30,000 gas stations nationwide — about 20% of all U.S. locations — we found that the average station’s pumps are only being utilized at 24% of available capacity. During peak hours - when stations see the most traffic - utilization jumps to 41%. This means pumps sit idle anywhere from 59% to 76% of the time, and that unused capacity represents a huge gap between what stations are earning and what they could be earning.

The gap between high-performing (top 20%) and low-performing (bottom 20%) stations exposes this missed opportunity even further, showing how many gallons stations are leaving on the table:

• Highest utilization stations = 30% on average with 53% during busiest times.
• Lowest utilization stations = 15% on average with 25% during busiest times.
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As clear a gap as this is, the obvious solutions - lowering prices, investing in loyalty programs - just don’t cut it.

That’s where Upside comes in. We fill your unused capacity with new, profitable transactions - enabling you to profitably grow your business just by using the equipment, land, and resources you already have!