eCommerce business owners need to handle many operating expenses tied to their businesses. The warehouse costs a certain amount of money for them to be operational.
As experienced sourcing experts, we have dealt with clients who question these costs. You’ll get solutions about the fees required to buy warehouse space.
You can save more hourly fees on your order volume with adequate knowledge. You can also understand the differences between different fulfillment services.
This article includes the costs of warehouses and ways to reduce them. Let’s get started.
What are Warehousing Costs?
A warehouse is a large building where you can store many kinds of goods. They usually will require a certain amount of expenditure.
Warehousing costs generally mean the management needed for the warehouse. It includes the operations fees, like wages, utilities, and equipment handling.
But, different companies will have different costs. It differs in terms of the storage they handle and the warehouse’s scale. Also, safety management is part of the expense.
Types of Warehouse Costs
There are 4 types of costs for the warehouse. Let’s see what it is.
Handling
It is the largest cost in warehousing costing. It includes the receiving, put-away, order picking, and loading of goods. I minimize my handling cost with packaging optimization and choosing small packages.
The equipment used in the warehouse is also part of the handling fees. It is associated with the electricity used to power the equipment. The goods here are called ‘goods in motion.’
Storage Pricing
The goods in storage are called ‘goods at rest.’ Even if the goods are not moved, they will charge the fees. My client chooses Dark storage near cities for lower storage pricing.
Usually, it will charge per pallet for goods, called monthly cost after accumulation. The fees include the expenditure of occupying the facility. The facility has a total occupancy charge if the whole building is used.
Operations Administrations
The operations inside a warehouse also require a cost. The operating expenses are tied with the wages of the employees. Employees such as clerks and laborers are under operations administrations. There are also costs such as information technology, supplies, and insurance.
General Administrative Expenses
The general administrative expenses are indirect. They are excluded from the operating fees. For example, wages for non-operating staff and general office expenses. The allocation of these expenses is from the headquarters of the organization.
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How to Calculate Your Need for Space
To calculate the total cost of space of the warehouse, you need to calculate the space. Here are the steps you can take to calculate:
1.Stack All Goods Side by Side
The lesser need for warehouse space, the lesser the cost of warehousing. You can compact the goods so they will only use small storage space.
After compacting the goods, you need to measure them. You have to measure the stack’s height, width, and length. If I don’t know about these measurements, then my supplier give me this information. Later on, my storage manager handles these calculations.
2.Multiply the Length of the Stack
Multiply the length and the width of your pallet storage. The final number is the total square foot that you need for storage.
3.Multiply the Square Foot Number with Height
You have to measure the highest point of the pallet stacks. Then, you can multiply the number with the calculated square foot. That will be the warehouse space needed per cubic foot.
4.Divide the Numbers By Size
After calculating the square foot area, you need to divide it by bay or locker. For example, the bay area is 250 square feet. But you have 500 square feet of goods. So you need to divide your goods into two bays.
How are Warehouse Costs Calculated?
The costs vary based on different warehousing costs. You can see the different types of costs listed here.
Space Costs
You can calculate the storage space according to the rate after calculating the storage space. Some companies charge the storage space cost by square feet, cubic feet, or bay.
Base Rental Rate
The rental rate would be calculated annually or monthly cost. This cost will not change due to the warehouse space used. So, it is a fixed cost in the warehousing cost. Some landlords will offer discounts if you rent yearly. These rates vary by location, so I try to choose cheap warehousing spaces.
Estimated Operating Expenses
Operating expenses include Triple Nets (NNN) or Common Area Maintenance (CAM) costs. The total cost generally is property taxes and insurance. It also includes the typical area maintenance cost like cleaning or repairs.
Additional Warehouse Cost
Additional warehouse costs included the utilities used in the warehouse. Water, electricity, janitorial, and maintenance services are part of the expenses.
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Reasons for Increased Warehousing Costs
Many reasons cause the increase in warehousing costs. Let’s see what they are.
Real Estate Availability
In 2019, the Covid-19 pandemic caused the low availability of warehouse space. So there is a scarcity of spacing. In the USA, only 4% of warehouses were available. Yet, in those cases, I choose distant warehousing far from big cities. These are usually dark storage houses which are perfect for my long-term warehousing.
With the low warehouse space, the rent price and the warehousing cost will increase.
Increased Labor Costs
The labor costs usually take up to 40%-60% of the budget. The wages were reported to be increased by over 11%. There was also the Great Resignation with workers quitting their jobs.
The labor shortage caused increases in wages. With the increase in wages, the costs of warehousing will increase too.
Increased Cost of Building
Some companies might build new warehouses to solve the scarcity problems rather than invest in buying a warehouse. The prices of building materials increased by around 19%.
When the new building is more expensive, the landlord will charge more. It will then increase the warehousing cost.
Increased Lead Times
Lead times are the time that inventory stays in the warehouse. If it stays longer, the price will increase.
With the global logistic turbulence, there are fewer workers. So the workers could not pick and pack as fast as before. It will lead to the inventory staying in the warehouse. The warehousing price will then increase.
Ways to Reduce Warehouse Costs
There are ways to reduce warehouse costs with improvements.
Inventory Visibility
Most companies overlook inventory visibility with other responsibilities. But if the workers know where the inventory is stored, it will be easy to pick and pack. With the reduction of lead times, you can cut the warehousing cost.
Storage Optimisation
The most common way to reduce cost is storage optimization. You can adjust the physical structure, warehouse flow, product placement, and retrieval methods.
As a result, the flow of the inventory will be effective. The efficiency of an optimized storehouse can help you save the warehousing cost. I choose small packages with less light branding material. It reduces the dimensional weight of my packages.
Theft Prevention
Theft can cause you to lose money. But if you use prevention, you most likely can avoid losses. You can consider prevention with specific systems applications. It includes the schedule of workers or storage checking.
Cross Docking
Cross-docking helps in saving money as it cuts down the middle man. It can send the products directly to the customers.
You would not need a middle man for the delivery. It can cut the pathway cost and, subsequently, the warehousing cost.
Effective Slotting
Slotting is where you categorize and organize your inventory. By optimizing the process, you can boost the productivity of the warehouse. When productivity increases, it will help you save budget.
Optimize Picking Process
The picking process takes much time, especially in giant warehouses. The workers need to take a lot of time to retrieve the products.
You can optimize the picking process by reducing the time taken. Besides, it would help if you stocked according to urgency. Ensure to store the popular products in the nearer zone than slower ones. My main inventory is in fulfillment centers & my excessive stock is in distant warehouses.
Benchmarking
Benchmarking helps you to know the issues in your warehouse. If you do a benchmark, you can rectify the warehouse process. They will streamline the workers to keep on track. Customers will be happy, and it increases your profit.
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FAQs
1.What does the average warehouse costs?
The average warehouse costs include base rental and operating expenses. The average base rental is 0.85 USD per square foot per month. Besides, the operating expenses are 0.25 USD per square foot per month. The total monthly rent will be 1.10 USD per square foot.
2.Is it better, long-term storage or short-term storage?
Long term and short term storage costs are different. Usually, the long-term storage fee is cheaper than the short-term storage fees. However, you need to choose one with fees that best suit your business and customers.
3.Is fulfillment centers a better option?
Fulfillment centers are diverse with more functionality with fulfillment services. But, fulfillment centers charge more, mainly on fulfillment costs and fulfillment fees. Still, fulfillment centers are better for saving your time and costs in shipping.
4.What is the most crucial factor affecting warehousing cost?
The most crucial factor affecting warehousing costs is the wages and space cost. The warehouse needs workers to load and unload the inventory. Their wages are a big part of the costs. On the other hand, space costs depend on the used warehouse space.
5.How do we ensure the safety of the warehouse?
Warehouses store the goods that are your profit source. You need to make sure of the safety to avoid losses. For instance, insurance or safety precautions. It makes sure that your storage is taken good care of.
What’s Next
In short, you will incur many expenses in a warehouse. It includes operations, administration, wages, and maintenance services. They are crucial to ensure efficient warehouse operation.
You need to understand such expenses to avoid losses in your business. Still, there are ways to reduce them, even with outsourced services. By planning them well, you can optimize your profit better.
I hope this article shares all you need about warehouse costs. If you have any inquiries, do not hesitate to contact us on our service pages.
