| Scenario | Size (sq ft) | Rent / sq ft | Orders / mo |
|---|---|---|---|
| Small | 5,000 | $1.10 | 2,000 |
| Growing | 20,000 | $1.35 | 10,000 |
| High volume | 60,000 | $1.55 | 35,000 |
- Rent (monthly) = Warehouse size × Rent rate
- Setup amortized (monthly) = Setup cost ÷ Amortization months
- Fixed cost (monthly) = Rent + Utilities + Labor + Insurance + Maintenance + Taxes + Equipment + Setup amortized
- Variable handling (monthly) = Monthly orders × Handling cost per order
- Inventory carrying (monthly) = Avg inventory value × (Annual carrying rate ÷ 100) ÷ 12
- Total cost (monthly) = Fixed + Variable handling + Inventory carrying
- Cost per sq ft (monthly) = Total monthly cost ÷ Warehouse size
- Cost per order = Total monthly cost ÷ Monthly orders
- Enter warehouse size and the rent rate you were quoted.
- Add monthly utilities, labor, insurance, maintenance, and fees.
- Include equipment leasing if you rent forklifts or systems.
- Enter average inventory value and the annual carrying rate.
- Add monthly orders and handling cost per order.
- Optionally include setup cost and amortization months.
- Press Submit to see totals and unit costs above.
Cost drivers that usually dominate totals
Across many facilities, occupancy and labor are the two largest levers. If rent is $1.35 per sq ft per month and you lease 20,000 sq ft, rent alone becomes $27,000 monthly. Add utilities, insurance, maintenance, and local fees to see a realistic fixed baseline before any order handling. Fixed items often dominate slower months, so small rent changes matter.
Inventory carrying and working capital pressure
Carrying cost converts inventory value into a monthly expense. For example, $500,000 average inventory at a 24% annual carrying rate equals $10,000 per month ($500,000 × 0.24 ÷ 12). This line often surprises teams because it is “silent” cash usage. Use it to compare a bigger warehouse decision against tighter replenishment and faster turns. A 5-point rate reduction on $500,000 saves about $2,083 per month.
Throughput changes the per-order picture
Per-order cost is not only labor. If you process 10,000 orders monthly and handling is $1.20 per order, variable handling totals $12,000 monthly. When volumes drop, fixed costs remain, so cost per order rises quickly. Try 6,000 vs 12,000 orders with the same footprint to see the spread. This supports automation, batching, and cut-off decisions that change picks per hour.
One-time setup should be spread, not ignored
Racking, IT, security, and move-in expenses can distort early months. Amortizing $60,000 over 24 months adds $2,500 per month, which is easier to compare against a higher-rent site that needs little fit-out. Treating setup as a monthly equivalent also helps forecast payback on upgrades like WMS, conveyors, or docks.
Scenario planning with unit benchmarks
Track two unit metrics: monthly cost per sq ft and monthly cost per order. If total monthly cost is $60,000 on 20,000 sq ft, that is $3.00 per sq ft per month. Pair that with per-order cost to validate pricing, staffing, and lease options. Add sensitivity checks: rent ±10%, labor ±15%, and carrying rate ±5 points to find the biggest risk drivers. Document assumptions and refresh them monthly.
What should I include in “labor”?
Include warehouse wages, overtime, payroll taxes, and supervisor time tied to operations. If you outsource, enter the monthly fee and keep handling cost per order for variable pick-pack materials.
How do I estimate inventory carrying rate?
Use an annual percentage that reflects capital cost, shrink, insurance, and obsolescence. Many businesses start with 18%–30% annually, then refine using finance and loss history.
Should utilities be seasonal?
Yes, if heating or cooling swings are large. Run separate calculations for summer and winter and compare annualized totals. This improves budgeting for peak-demand months.
What if I do not know handling cost per order?
Start with direct labor minutes per order and pack materials. Multiply labor minutes by hourly wage rate and add packaging. Re-check after a few weeks of actual operations data.
Why does cost per order change so much?
Because fixed costs stay constant while order volume changes. Lower throughput spreads rent and overhead across fewer orders, raising per-order cost even if handling cost per order is unchanged.
Can I use this for multiple sites?
Yes. Run each site with its own rent, labor, and inventory assumptions. Compare monthly totals, cost per sq ft, and cost per order to support lease negotiations and network design decisions.