If you are growing your ecommerce business, proper storage and warehousing must be at the forefront of your mind. You need to have sufficient space when you want to scale your business so you can cope with the growing demand for your products. Calculating warehousing costs is important to maximise your profit and manage your costs.
This guide offers the information you need to plan your warehousing requirements and costs.
How Much Warehouse Space Do You Need?
Warehousing offers flexibility for your business because you can rent as small or as big a space as you need. The warehouse space is divided into lockers and storage bays. You also have the option to rent an entire warehouse.
But first, you must determine the actual space you need to ensure that you have the right storage solution and plan your budget accordingly. The warehouse space for rent is based on a per cubic metre measurement.
To get the actual measurement of the warehouse space that you need, you can stack all of your items together. Write down the length, width, and height of the items as they are stacked. Using the measurements, you can determine the actual warehouse space that you need to rent for your inventory. Using the measurements, you can also determine whether you need one or more lockers or storage bays.
The approach above enables you to accurately get the measurement of your inventory space so you won’t be renting more than you need. Using the measurements you’ve gathered, you can ask the warehouse for a quote for the rental cost.
How is warehousing cost calculated?
Calculating warehouse costs uses a simple formula: the cost of space per cubic metre multiplied by the total cubic metre space needed.
The more space you need, the higher the warehousing costs. A trusted logistics and warehousing company will be able to explain your warehousing bill in more detail per your request.
What are the warehousing costs?
When you are renting warehouse space, you are not just paying for the direct space you use. It is important to know about the three groups of storage space that could be a factor in determining your warehousing costs.
- Direct Space – The actual space you are renting for your goods.
- Indirect or Shared Space – The common spaces in teh warehouse that you share with other customers, such as the travel aisles and the staging areas
- Operating Space – The space used by the maintenance crew, utilities, security and others.
How Much Does it Cost to Rent an Entire Warehouse?
Warehousing facilities provide extensive space for storing your goods for inventory. The use of a warehouse is necessary for large businesses that store massive equipment, machinery, or a large inventory of items.
Renting an entire warehouse can be very expensive. You must consider the operating expenses of the warehouse on top of the base rental fee. The operating expenses include water, electricity, HVAC maintenance, and janitorial services.
Some rental agreements do not require you to pay for operating expenses. However, you will be responsible for hiring the services for maintenance. You must evaluate which of the two options is more cost-efficient for your business.
Should You Buy or Rent a Warehouse?
Unless you are a huge company, buying a warehouse may never be an option. But if you have sufficient funding and it will be more costly to rent a warehouse in the long run, buying a warehouse facility might be a better investment.
The cost of buying a warehouse facility will be based on the total square footage of the facility. Buying a warehouse also entails a lot of risks, such as laying out a lot of money to buy the property and having none left for insurance and maintenance. Buying a warehouse also leaves your business with little to no cash flow.
It might be wiser to rent the warehouse instead and use the extra cash for growing your business. Renting also gives you the flexibility to use only the space you need. The overhead costs of buying a warehouse make it a less viable option for small businesses.
Calculating warehousing costs is an important point of comparison for small and medium businesses. The costs will give you a reference of what you need to spend and compare it against how much you can afford.
Which are the three components of warehousing cost?
Three components make up the warehousing cost when you need the space for your inventory. The following are the top three components:
1. Handling
Handling is the first major component that determines the cost of renting warehouse space. It refers to any expenditure that facilitates the movement of your goods in and out of the warehouse. For example, warehouse staff must use warehouse equipment, such as a forklift, pallet jack, service carts, and monorails, to transfer the goods in and out, or to another part of the warehouse.
The warehousing costs also consider the cost of human labour. You need the services of the warehouse staff to receive, load, and document the goods for inventory purposes.
2. Storage
Once the staff has secured your items in the warehouse, the next component of the warehousing cost is storage. You are paying for the security of your goods in the warehouse and the opportunity to use a secured space. You are paying the rental fee for as long as your items are securely stored in the facility.
3. Operations administration
The final component of warehousing cost is the cost of maintaining the facility. It covers the overhead operation, clerical support, information technology, surveillance cameras and equipment, line supervision, and other essential expenses that enable the facility to stay open.
Several processes are involved in managing a warehouse. Therefore, it is expensive for small to medium businesses to operate their warehouse and as such opt to rent space instead. Renting a warehouse space maximises your business’ budget and streamlines inventory management. Finally, renting a warehouse space is more cost-efficient given the cost of acquiring a warehouse space.