How Much Should Your Warehouse Storage Cost?
There comes a time in the life of most e-commerce businesses when storage becomes an issue. To make room for inventory, the majority of these businesses will turn to a warehouse facility. Of course, warehouses come in many sizes, and as such, costs can vary wildly. Plus, it’s important to remember that some landlords will want you to cover other expenses, such as electricity, janitorial service, and HVAC maintenance. So, let’s take a look at what to expect!
Components of Warehouse Costs
Calculating warehouse expenses is not as difficult as it may seem at first, despite acronyms seemingly designed to confuse renters. To determine your monthly or annual cost, you need three numbers:
- The amount of warehouse space you need (in square feet).
- The base rental rate (monthly or annually).
- The estimated operating expenses (these may be referred to as Triple Nets (NNN), Net Net Net (NNN) or Common Area Maintenance (CAM) fees). This generally includes property taxes, property insurance, and common area maintenance costs (such as cleaning or repair costs).
How to Calculate Warehouse Storage Costs
Now that you know what you’ll need to determine warehouse storage costs, let’s calculate some monthly and yearly costs based on some average warehouse costs per square foot and the average costs of NNN/CAM. For space you’re renting, let’s assume 5,000 square feet.
- Space: $.67 per square foot per month, $8 per square foot per year
- NNN/CAM: $.33 per square foot per month, $4 per square foot per year
Your Monthly Calculation:
Space Needed: 5,000 SF
Rental Rate: $.67 per month
NNN/CAM Rate: $.33 per month
Total Cost: 5,000 x $1.00 (Rental + NNN/CAM) = $5,000 per month
Your Yearly Calculation:
Space Needed: 5,000 SF
Rental Rate: $8.00 per year
NNN/CAM Rate: $4.00 per month
Total Cost: 5,000 x $12.00 (Rental + NNN/CAM) = $60,000 per year
In this example, you’ll notice that if you rent monthly, you’ll pay the same as a yearly rental. That’s often not the case; most landlords will offer you a discounted rate if you choose a yearly rental option.
Additional Warehouse Rental Costs
Those calculations weren’t so bad, right? Of course, it’s only fair to warn you that there could be a few other warehouse expenses you may need to cover. This includes:
- Electric (generally $1-2 per square foot per year).
- Janitorial (generally $1-2 per square foot per year, if you want it).
- HVAC Maintenance (generally $500-1000 per year; otherwise, the landlord may require that you hire a third-party HVAC technician).
Renting vs. Buying Warehouse Space
Perhaps you’re thinking a better route would be to invest in warehouse space—purchasing it rather than renting it. While there are certainly some advantages to purchasing a warehouse, such as equity-building, there are also a lot of risks involved, which is why generally only very large, well-established companies purchase warehouse space.
If you choose to buy warehouse space, you’ll have to pay higher upfront costs, which many small and medium-sized businesses simply can’t afford; even if they have the capital, this money might be better spent on growing the business. In addition, you’ll bear the full burden of maintenance and repairs, further cutting into your finances and your time. Ultimately, unless you’re one of the kings of e-commerce like Amazon or Target, renting is probably in your best interest.
Is a Fulfillment Center a Better Option?
There’s an alternative to basic warehousing that you may also be interested in, especially if you’re looking for more than just storage: fulfillment centers. A fulfillment center typically stores fast-moving products that are frequently shipped out. Their job is to get products to customers or end-users as quickly as possible.
Fulfillment services work with retailers, e-commerce companies, corporations, and others to fulfill both B2B and B2C orders, shipping goods to end-users. Whereas warehouses did to be static, there’s always activity in a fulfillment center. People work, often around the clock, to process, pack, label, and ship orders to customers. There’s also incoming inventory and customer returns to manage. To ensure a smooth process, good fulfillment centers are outfitted with the best technology for processing orders, managing inventory, organizing transportation, and more.
If a fulfillment center sounds like the ideal arrangement for your business, work with the best in the business: The Fulfillment Lab. Our fulfillment services include:
- Reliable global fulfillment and eCommerce fulfillment
- 14 total fulfillment centers (2 domestic and 12 international) for faster deliveries
- Expedited shipping options with delivery guaranteed in 3 days or less
- End-to-end visibility throughout our entire fulfillment process
- Proprietary, easy to use fulfillment software
- Customized packaging for limitless branding potential
- Dynamic integration with every major eCommerce system
- No storage fee for rotated inventory
Contact us today to learn how we can help grow your brand and your business!