WHAT IS YOUR RENT TO REVENUE RATIO?

One financial metric that many business owners are unfamiliar with is the industry rent-to-revenue ratio (I-RRR).  The math is simple; rent paid divided by total revenue from operations.  Naturally, some industries will pay a higher percentage of their revenue in rent; a retail shop will surely pay a different percentage of revenue to rent compared to a small law firm.

So what is your I-RRR?  With data collected across the entire nation, manufacturers, on average, paid 1.78% of their total revenue from operations toward rent.  In 2017, they paid 1.87%; 2018 they paid 1.77%; and in 2019, they paid 1.69%

The amount of rent a business must pay involves many factors.  Location, site access, building quality, and, most importantly, market conditions are all factors.  A business in New York City will certainly pay more in rent while a business in rural Minnesota may pay less.  The formula is simple, but the underlying factors can be quite complicated.  Many companies believe their I-RRR should be much lower during this economic slowdown.  However, the dramatic drop in rents that occurred in 2008-2009 has not happened…yet.  It is possible that large-scale business closures create urgency on behalf of landlords to make low cost deals, but it is not happening now.  Stay tuned for more market information as we near the end of 2021.

Source of Data: Bizminer.com