8 Convenience Store Operating Expenses To Budget for in 2024

After a bit of a hiccup in recent years, US convenience stores are finally bouncing back consistently. Over 2000 new convenience stores opened nationwide in 2023, creating several new business owners and entrepreneurs.

But don’t start celebrating just yet. A recent trend shows that operating expenses for brick-and-mortar businesses have been climbing faster than profits in many stores. The result? Even if you’re getting new customers and growing your revenue month over month, you might still be operating at a loss.

So, what’s the solution? Understanding convenience store operating expenses.

In this blog, we’ll walk you through the eight major operating expenses that every prospective store owner must budget for. With this information, you’ll be ready to run a profitable convenience store.

What Are Convenience Store Operating Expenses (DSOE)?

Before we explore our list of the major operating expenses you must prepare for this year, let’s look at these questions a bit more broadly: what are convenience store operating expenses, and why is it essential to track them for our business?

Convenience store operating expenses, also known as Direct Store Operating Expenses (DSOE), encompass all costs associated with a convenience store's day-to-day operations. These expenses are essential to keeping your store running smoothly, including everything from inventory and labor costs to utilities and maintenance.

These expenses are different from fixed costs. Fixed costs remain relatively constant regardless of your store's sales volume or operational activities. Examples of fixed costs include rent, insurance, and specific equipment leases. On the other hand, operating expenses tend to fluctuate based on factors such as sales volume, seasonality, and operational efficiency.

Understanding and properly budgeting for your operating expenses is crucial to the success of opening a convenience store.

If you fail to budget for your DSOE, you may struggle with the following:

Cash flow problems: If you don't accurately account for your operating expenses, you may be short on cash when it comes time to pay bills or restock inventory.
Reduced profitability: Without a clear understanding of your operating expenses, it can be challenging to identify areas where you can cut costs or improve efficiency, leading to lower overall profitability.
Difficulty securing financing: Lenders and investors often require detailed financial projections, including a breakdown of your operating expenses. Securing the funding you need may be harder if you can't provide accurate information.
Inaccurate pricing: If you don't grasp your operating expenses well, you may struggle to set prices that allow you to remain competitive while still covering your costs and generating a profit.

By carefully tracking and managing your convenience store operating expenses, you can mitigate these risks and set your store up for long-term success. With this in mind, let’s explore the top operating expenses to include in your budget sheet.

8 Convenience Store Operating Expenses To Budget For This Year

1. Inventory Costs

Your inventory is the first operating expense you must consider when building your budget.

Inventory costs are a significant expense for convenience store owners. They primarily consist of the cost of goods sold (COGS), which represents the amount spent on acquiring the merchandise sold in the store. Strong inventory management practices are needed to manage inventory costs.

If you want to improve inventory management in your store, consider:

Regularly reviewing your inventory and sales data to identify slow-moving items and adjust your purchasing.
Building strong relationships with suppliers and negotiating favorable terms, such as volume discounts or extended payment periods.
Implementing a reliable inventory tracking system, such as a point of sale (POS) solution with real-time stock monitoring.

Actionable Tip: Conduct regular inventory audits to identify and remove expired or damaged products, ensuring your shelves are stocked with fresh, appealing merchandise that customers want to purchase.

Average Cost: Inventory costs typically account for 30-40% of the overall convenience store operating expenses, making it the largest expense category in most cases.

2. Staffing/Labor Costs

Staffing and labor costs are another significant expense for convenience store owners. This category includes wages, salaries, employee benefits, and costs related to hiring and training staff. These expenses will likely rise with minimum wage increases and competitive labor markets.

You can keep your staffing and labor costs under control by:

Optimizing your staffing levels based on sales data and customer traffic patterns.
Investing in employee training and development to improve staff performance, reduce turnover, and enhance the customer experience.
Implementing a performance-based pay structure or offering incentives to motivate employees and reward top performers.

Actionable Tip: Use your POS system to track employee performance metrics, such as sales per hour or average transaction value, and provide targeted coaching and recognition to help your staff improve.

Average Cost: Staffing and labor costs usually account for 20-30% of the overall convenience store operating expenses.

3. Rent or Lease Payments

Though rent or lease payments are not variable operating expenses, you must still be aware of lease costs when setting your annual budget. These fixed expenses can vary significantly based on location and market conditions.

Here are some factors to keep in mind before signing a lease or rental agreement on a new location:

Carefully evaluate the location and lease terms before signing a contract to ensure the rent is sustainable for your business and aligns with your long-term goals.
To manage costs, negotiate with landlords for favorable lease terms, like rent concessions or tenant improvement allowances.
Consider subleasing excess space or partnering with complementary businesses to share rent costs and drive additional foot traffic.

Actionable Tip: Regularly review your lease agreement and explore opportunities to renegotiate terms or relocate to a more cost-effective location when appropriate.

Average Cost: Rent or lease payments usually account for 5-10% of the overall convenience store operating expenses. However, this can be much higher if you plan to open your store in a premium location.

4. Utilities and Maintenance

Another variable expense to consider is utilities and maintenance costs. Utility costs cover equipment and the store's infrastructure and electricity, water, heating, and maintenance expenses. Setting aside a healthy budget for these expenses is essential with increasing energy prices.

The following tips can help you minimize these costs for your store:

Implement energy-efficient practices, such as using LED lighting, installing programmable thermostats, and properly maintaining equipment.
Regularly review utility bills and shop around for competitive rates from different providers.
Develop a preventive maintenance schedule to prolong the life of your equipment and minimize unexpected repair costs.

Actionable Tip: Conduct an energy audit to identify areas where you can improve efficiency and reduce utility costs, such as upgrading to Energy Star-certified appliances or installing motion sensor lights in storage areas.

Average Cost: Utilities usually account for 5-10% of the overall convenience store operating expenses.

5. Insurance Costs

Insurance costs are another significant expense for retailers. These costs include various types of coverage, such as property, theft, liability, and workers’ compensation. Insurance is expensive but critical for protecting your business against unforeseen incidents and claims.

When choosing and maintaining your business insurance policies, consider the following tips:

Work with an experienced insurance agent to ensure adequate coverage for your business needs and risks.
Review your insurance policies regularly and shop around for competitive rates to ensure you're getting the best value for your money.
Implement risk management practices, such as employee safety training and security measures. These practices will reduce the likelihood of claims and lower your insurance premiums.

Actionable Tip: Maintain detailed records of your store's safety protocols, employee training, and incident reports to demonstrate your commitment to risk management when negotiating insurance rates.

Average Cost: Insurance costs usually account for 3-5% of the overall convenience store operating expenses.

6. Credit Card Processing Fees

Gone are the days of cash-only payments, so modern businesses must prepare and budget for credit card processing fees.

Credit card companies charge credit card processing fees for processing customer payments. As more customers use cards for small transactions, these fees can become a substantial expense. If you need to keep your credit card fees down, consider:

Negotiating with your payment processor for the most competitive rates and exploring alternative processing options, such as mobile payment systems or cash discount programs.
Training your staff to encourage customers to use cash or debit cards for small purchases to minimize credit card fees.
Implementing a minimum purchase amount for credit card transactions to offset processing costs.

Actionable Tip: Invest in a POS system with dual pricing capabilities so you can set different prices for cash and credit card purchases and recoup some of the processing fees.

Average Cost: If most of your customers use credit cards for purchases, credit card processing fees can account for up to 2-4% of the overall convenience store operating expenses.

7. Marketing and Advertising Costs

You can’t run a profitable business if no one knows you exist. And so, you must invest some of your hard-earned money into marketing and advertising for your convenience store.

Marketing costs include expenses related to promoting your store and its products, such as digital marketing, traditional advertising, promotional materials, and loyalty programs. Effective marketing helps increase foot traffic and sales and keeps your business running.

Some tips for getting the most from your convenience store marketing efforts:

Develop a targeted marketing strategy focusing on your store's unique value proposition and what appeals to your ideal customer base.
Leverage cost-effective digital marketing channels, such as social media and email marketing.
Partner with local businesses or community organizations for cross-promotional opportunities and to share marketing costs.

Actionable Tip: Invest in a POS system with built-in loyalty program capabilities to streamline your marketing efforts, reward repeat customers, and collect valuable customer data for targeted promotions.

Average Cost: Marketing costs usually account for 1-2% of the overall convenience store operating expenses.

8. Technology and Security

Last but certainly not least, you must budget to keep your technology and security systems up and running. These expenses are a small but critical portion of your overall operating expenses and include tools like your point of sale system, security cameras, and anti-theft alarm systems.

When implementing your technology, keep the following tips in mind to minimize your operating costs:

Choose a POS system tailored to convenience store needs, such as inventory management, sales reporting, and loyalty program integration. This measure will minimize your need to invest in multiple tools and integrations.
Implement a comprehensive security plan that includes both physical measures (e.g., cameras, locks) and employee training on loss prevention and safety protocols.
Regularly update and maintain your technology and security systems to ensure they remain effective and secure.

Actionable Tip: Conduct regular security audits and training sessions to identify potential vulnerabilities and ensure your staff is prepared to handle security threats or emergencies.

Average Cost: Technology and security costs usually account for 1-2% of the overall convenience store operating expenses.

Get the Best POS System for Your Convenience Store

Keeping an eye on the convenience store operating expenses discussed in this post can help set your store up for profitability and success this year. However, tracking these expenses is often easier said than done. How can you keep your finger on the pulse of your business’ financial health?

When you implement the right technology and tools, understanding your operating expenses is far easier. The most important tool in your technology stack is your POS system. A powerful, modern POS system can help you streamline operations, optimize costs, and track inventory and expenses.

C-Store POS is a point of sale system designed exclusively for convenience stores. It simplifies inventory management, reporting, and transaction processing, ensuring that you not only keep up with expenses but also optimize your store's performance.

Schedule a demo of C-Store POS today and discover the power of our all-in-one platform.

Table of Contents