Things You'll Need
- Tape measure
- Financial data
- Calculator
- Pad and pencil
Having the ability to properly calculate and report the actual warehouse storage costs is a key to financial planning as well as logistics and inventory planning. There are many factors which must be considered when calculating these expenses. Capturing this data can be challenging, but it is critical if a company is to know its true costs and profit, and determine where improvements can and should be made.
Measure the outside walls of the warehouse. This should include all areas of the building on which you are paying rent and which are considered a part of the warehouse. If the building is oddly shaped or has been expanded multiple times, this task can be somewhat time consuming. Once you have completed the measurement, calculate the number of square feet in the warehouse. For this example, we will say the warehouse is 175 feet deep and 230 feet long. This results in a total of 40,250 square feet (175 X 230 = 40,250). This is the first number you will need to complete your storage cost calculations.
Review the financial statements to determine the expenses incurred by the warehouse during the previous 12 months. Add the cost to rent the building, utilities, security contracts and the cost for any services such as landscaping or janitorial services. Add to this the costs of payroll and any employee benefits provided, including health insurance, 401k contributions and taxes. Include insurance cost as well as equipment cost such as forklifts, copiers, computers and vehicles. To this list add any other expenses incurred by the warehouse during the time period in question. When all the data has been collected, total the amounts to determine the annual cost to operate the warehouse.
Divide the total expenses incurred by the warehouse by the number of square feet in the warehouse. If the total of Step 2 was $750,000 then your cost per square foot would be $18.63. This information is valuable when calculating the cost of a new facility as compared to an existing facility.
Calculate storage costs an additional way. Take the total number of units shipped during the previous 12 months and add the total number of units currently stored in the warehouse. This is the total number of units handled during the previous year. Divide the total warehouse cost of $750,000 by the number of units handled, which for this example will be 500,000 units, which gives you a warehouse storage cost of $1.50 per unit. This calculation can help to determine overall profitability, where improvements need to be made, and how changes can affect the cost per inventory unit.
References
About the Author
Tom Raley is a freelance writer living in central Arkansas. He has been writing for more than 20 years and his short stories and articles have appeared in more than 25 different publications including P.I. Magazine, Pulsar and Writer's Digest.
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