How to Start Kerosene Business in Nigeria + BUSINESS PLAN
Kerosene also known as paraffin or lamp oil is one of the finished products from refined crude oil. It is one of the most popular products of refined crude oil because of its use and demand. The other products being Premium Motor Spirit (PMS ) popularly known as fuel and Automotive Gas Oil also known as diesel. The popularity of this product does not begin and end in Nigeria alone, but is well known in other parts of the world including Britain and America. Some of its uses includes ; to power jet engines, used for rocket engines, as lighting fuel for fire toys such as poi, and in some countries to power small outboard motors and motorcycles. Its is also used for cooking.
The use of kerosene as a cooking fuel is perhaps the number one thing this product is used for in Nigeria. It also serves to power lanterns which are very common in Nigeria owing to the epileptic power situation in the country. According to statistics, about 1.2million barrels of this product is consumed every day all over the word, and in Nigeria, about 8million litres of this 1.2million barrels of this product is consumed daily. This gives an idea about how lucrative selling of this product will be if anyone chooses to venture into this business.
The Nigerian National Petroleum Corporation (NNPC), which is responsible for making available refined crude oil products to the citizens of this country have not being able to independently carryout this task, and therefore have made room for those who have the financial ability to become independent marketers of this product to join this business. The NNPC as of 2017, have only being able to meet 60% of kerosene demand of Nigerians , which is about 5million litres daily. This leaves the remaining 40% of kerosene supply to independent marketers, which is about 3million litres per day. The NNPC pegged the sale of kerosene at #150 per litre but independent marketers sell between #200 and #220 per litre. If you buy from NNPC or an independent marketer, you could sell between the range of #250 and #270 per litre depending on location, which could be less or more than the stated price range. Now let’s do some math.
If you buy at #200 per litre and sell at #250 per litre, you make a profit of #50
If you sell 1000 litres in a day that will give you #50,000 profit for a day ( that is : 1000*#50 = #50,000)
#50,000 for a month will be, #50,000*30 days= #1, 500, 000
#1, 500, 000*12 months= #18, 000, 000.
That gives you 18million naira profit in a year. This quick calculation shows that no matter how much capital you put into this business, you are sure to get it back within months of operation depending on your purchase ad selling capacity, provided you are constant with the business. Seeing this is definitely enough for anyone to take a decision to launch into this profitable venture. This article therefore provides some details about what you need to set up your kerosene business in Nigeria.
This is the first thing you need to consider in starting up a kerosene business. Situating your business in or close to a populated residential area will give you more earnings as you will sell more. However, you need to target a location where there are average and low income earners because it is these people that consume the highest quantity of this product. A location by the roadside is also strategic, however, avoid locating your business where there are businesses that make use of fire, as Kerosene is highly flammable. If where you reside has enough space and there will not be any issues with your landlord or you are the owner of the property, then you can make use of the available space, provided it is enough to accommodate your business.
This is the next most important thing you need to see to. In order to operate legally and be able to get products from either the NNPC or independent marketers, you need to register with Department of Petroleum Resources (DPR) and Petroleum Products Marketing Company. Registration and licensing is important if you are purchasing more than 10,000 litres. However, if dealing below that, then you do not need to register and obtain license. Also, depending on which state your business is situated, you may need to register with kerosene sellers association.
Another important aspect is storage facility. Underground storage tanks are by far preferable because of its safety. Safe from thieves ,reduces the chances of explosion and corrosion, however they are more expensive. That is why surface tanks are the more commonly used ones. Surface tanks can be constructed for you depending on the litre capacity you intend to start with, if you do not want to purchase already made ones. The inside should be painted with anti rust paint as kerosene becomes corrosive with exposure to higher temperatures which is what will happen when your tank sits outside everyday. The outside should be painted blue with white lines, which is the colour for kerosene storage tanks.
Automatic Fluid Dispenser
This is what is used in filling stations for dispensing fuel, kerosene or diesel. This is will be necessary if you are going for an underground tank. A surface tank may not necessarily need this. For a surface storage tank you will need hose, drums, funnels and Jerry cans.
Source for your product
This is another crucial aspect of setting up this business. If you do not have products to sell, then you are not involved in the business in the first place. It is important to find and engage reliable suppliers. You can buy from the NNPC or you can get from independent marketers, but be sure that your supplier will be able to deliver products at all times, even in scarcity because this business thrives on continuity. Also, be careful when buying products. Deal with the main people to avoid buying adulterated products which can lead to the withdrawal of your license and possibly face paying huge fines and even prison, as it is against the law to sell adulterated kerosene.
You may need to employ one extra hand to assist in running the business, especially when you have to leave to take care of pressing matters. It is not advisable to keep the business locked if you are not available especially in the face of competition. It will cost you your customers, so you may need to get an extra hand. However, it is advisable that you go to your business place everyday even if you have an assistant in order to reduce the possibility of theft. Due to the nature of the business, keeping record for every litre sold may very difficult, the only way therefore to prevent theft is to manage it and be there always, otherwise if you are starting very big, then you can employ a manager who is reliable and can keep track of things for you.
This is only necessary if you will be dealing in very large volumes. You will need it to convey your product to your business location. You can buy one, which would be very expensive or you can hire the services of one when you need it.
The last on the list but not the least important is a business plan. A business plan is not just useful for you alone as it serves as a guideline for the implementation of your business, but will come in handy if you have to get a loan. A good business plan that is properly laid out will give you an advantage of getting your desired loan.
Depending on your location, you may sell per litre or use bottles for measurement if that is what is in use in that area popular. If there are already sellers in your choice location, then you may need to reduce the price of your products by #5 or #10, and see how much customers you will attract in a short time. If you do not have the capital to invest big, then you can start small by using small metal drums which can take up to 20 litres. If you have 10 of such drums, that will give you 200 litres. If you make an average profit of #50 per litre for the sales of 200 litres, that will give you #10,000 profit for the sales of every 200 litres. You can always expand from there, however, you have to keep the products far from sources of fire and safe from thieves.
Availability of product is very important if you have to stay in business and this can become a challenge in time of scarcity. You may need to keep more than one supplier and never be afraid to buy products when they become expensive. It is better to make little profit and have a quick and huge turnover from huge patronage than huge profit from little patronage. The later will hold up the sales of your products.
There may be bottlenecks you may experience when trying to get operational license. So it is advised you do proper research and reading of the guidelines from NNPC and PPMC, to know what to do and what not to do, so that when your business is visited for inspection, you will not be found wanting. Do not cut corners as this can turn out disastrous.
I hope this article helps ton give you an head start on setting up a kerosene business in Nigeria.
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