How to Calculate Warehouse Storage Costs

How to Calculate Warehouse Storage Costs

Read time: 6 minutes

To calculate your warehouse storage costs, add together all the expenses associated with operating the warehouse during a set period. You can then divide this total by your floor area, usable pallet locations, average number of SKUs or units handled.

Understanding these figures can help you make better decisions about space, stock, future investment and overall warehouse efficiency.

Calculating the total cost involves more than looking at rent alone. Utilities, staffing, security, taxes and other operating expenses all affect how much it costs to store or handle each unit.

In this guide, we explain how to calculate:

• Total warehouse operating costs
• Storage cost per square foot
• Average cost per unit handled
• Storage cost per pallet location

Contents

• Warehouse storage cost formulas
• Four-step warehouse cost calculation
• Monthly storage cost per location
• What your warehouse cost figures mean
• Factors that affect warehouse storage costs
• How to reduce your warehouse storage costs
• Explore warehouse fit-out solutions

Warehouse storage cost formulas

The most useful calculation will depend on what you want to measure.

Cost per square foot:

Annual warehouse operating costs ÷ total warehouse area = annual cost per square foot

Cost per usable square foot:

Annual warehouse operating costs ÷ usable storage area = annual cost per usable square foot

Cost per unit handled:

Annual warehouse operating costs ÷ total units handled = average cost per unit handled

Cost per usable pallet location:

Monthly warehouse operating costs ÷ usable pallet locations = monthly cost per pallet location

Use costs and operational figures from the same reporting period. For example, do not divide annual costs by a monthly stock or throughput figure.

Four-step warehouse storage cost calculation

1. Calculate the size of your warehouse

Measure the total floor area of your warehouse in square feet.

Example:

500 ft long × 200 ft wide = 100,000 ft²

If you want to calculate the cost of usable storage space rather than the whole building, use the floor area that can genuinely be occupied by your storage system.

Keep the total warehouse area and usable storage area separate. The difference can help you understand how much space is occupied by access routes, working areas, offices and building obstructions.

2. Calculate your annual operating costs

Review your financial statements and add together the costs associated with operating the warehouse.

These may include:

• Rent or lease payments
• Utilities
• Business rates
• Insurance
• Security
• Staff salaries
• Equipment and maintenance
• Other warehouse services

Use figures from the same 12-month period to establish a consistent annual baseline.

Example:

Total annual warehouse operating costs = £2,000,000

3. Calculate the cost per square foot

Divide your annual operating costs by the total warehouse area:

Annual operating costs ÷ warehouse area = annual cost per square foot

Example:

£2,000,000 ÷ 100,000 ft² = £20 per square foot per year

You can repeat this calculation using the usable storage area. This will show the cost of the space that is genuinely available for storing stock.

4. Calculate the cost per unit handled

Divide your annual warehouse operating costs by the number of units handled during the same period:

Annual operating costs ÷ units handled = average cost per unit handled

Example:

£2,000,000 ÷ 1,600,000 units = £1.25 per unit handled

This figure measures operational throughput rather than the cost of storing one unit for a specific length of time. If products remain in storage for significantly different periods, you may also need to calculate costs by storage duration or location.

Expert insight on warehouse storage costs

Eton Clarke, Head of Business Development, Oakway

“Stage 1: Calculate total monthly warehouse cost

(Capital investment ÷ lease period in months) + monthly lease payment + monthly overhead costs = total monthly warehouse cost

Monthly overheads may include utilities, business rates, insurance, maintenance, labour and equipment costs.

Stage 2: Calculate monthly storage cost per location

Total monthly warehouse cost ÷ number of usable pallet locations = storage cost per pallet location per month

Alternatively:

Total monthly warehouse cost ÷ average number of SKUs stored = storage cost per SKU per month”

These calculations measure different aspects of warehouse performance. Cost per usable pallet location measures the cost of your available capacity, while cost per SKU considers the range of products occupying the warehouse.

What do your warehouse cost figures tell you?

Your cost per square foot and cost per unit provide a baseline against which you can monitor warehouse performance.

These figures become more useful when calculated consistently. A rising cost per unit may mean that operating costs are increasing, throughput is falling or both are happening simultaneously.

A high cost per square foot does not automatically mean the building is too expensive. The result may also be affected by:

• Poor use of vertical space
• Excessive aisle space
• Unsuitable storage systems
• Low stock movement

Compare your cost calculations with operational information before deciding whether the warehouse, layout or storage system needs to change.

Factors that affect warehouse storage costs

Location and property costs

Operating a warehouse in a prime location may involve higher rent and salary costs. Access arrangements and local operating expenses can also affect the total.

Consider all relevant costs when comparing facilities. Lower rent may not produce a lower total operating cost if the location creates additional staffing or transport expenses.

Storage systems and layout

Changes to your storage systems will add to your short-term costs. However, increasing usable storage capacity may allow you to accommodate more inventory within the same building.

The objective should not simply be to install more storage. The layout must also support safe access and an efficient flow of goods.

Inventory profile

Slow-moving or dead inventory occupies space without contributing regularly to stock movement.

Reviewing stock levels and storage locations can prevent valuable capacity from being occupied unnecessarily. Fast-moving products should also be positioned to support efficient picking and replenishment.

Throughput and handling

The number of units moving through the warehouse affects your average cost per unit.

If operating costs remain stable while throughput falls, the cost per unit will increase. If throughput rises without a similar increase in operating costs, the average cost per unit may decrease.

How to reduce warehouse storage costs

Once you have established a baseline, review where space and resources are being used inefficiently.

Potential opportunities may include:

• Adjusting storage systems to make better use of height
• Reducing space occupied by slow-moving inventory
• Reviewing aisle widths and product locations
• Improving picking and replenishment routes

Any proposed change should be assessed against storage capacity and operational performance. A denser layout may create more locations, but it must still allow stock to move through the warehouse efficiently.

Turn your warehouse cost calculation into action

Calculating your warehouse storage costs is only the first step. Once you know your cost per square foot and cost per unit, you can investigate what is driving those figures and where your available space could be used more effectively.

We help businesses assess their storage requirements and explore systems designed around their warehouse, inventory, operational needs and available budget.

Before reviewing a new layout, gather:

• The total and usable size of your warehouse
• Details of your current storage systems
• Your main space or capacity constraint
• Your current stock and throughput figures

Explore warehouse fit-out solutions

A well-planned warehouse fit out can help you make better use of your available space while supporting storage, picking, replenishment and goods movement.

Explore our warehouse fit out solutions to see how Oakway can help turn your warehouse cost calculations into a practical plan.

Written by: Eton Clarke | Head of Business Development | Oakway