Rent..How much is to much?

[brian..k]

I have read many things regarding what percentage is appropriate/typical for cost of goods. I haven't read many things (I am sure I've just missed them) on what percentage of your monthly gross income should be spent on rent. I wanted to hear some thoughts on what is an appropriate amount to expect to pay for your monthly rent.

Just curious because I feel we are paying to much.

[brian..k]

I am just talking in general terms here btw. I do realise that many diferent factors contribute to the price of rent. The big three being Location, Location and oh yeah that important one Location.

[Bob Carter]

Hey Brian-I am almost universally alone in thinking that the single biggest obstacle to attaining much better than average sales is to spend some dad-gummed money on rent

Most folks do try and "save" money on rent when, just like good help, good equipment or good product, you gotta part with some shekels

There are a few very good examples of very low rent yielding the necessary results, but a lot more of perpetually struggling framers that never quite get out from behind the eight ball because of poor location

I think you might be wise in looking at rent as an expense with a proportional value. The next wise course might be to lump all your "occupancy" charges into one category (things like taxes, CAM, Maintenance, electricity, heating/cooling, water, trash pick up). That way you get a much more defined comparative

Now, you think you are paying too much? Might that be that the location yield less than satisfactory sales? My surmise would be you are paying too little

Imagine all the "fixed" overhead items like insurance (yours, your employees medical,w/c,etc, your space), salaries, phone, office equipment, leases on shop equipment (CMC etc), auto expense-you get the idea. Those will be the same in a lousy location or a great location

But, how about some of the variable expenses? Employee wages-wouldn't you like to have to hire more employees because of workload? And how about advertising? Most will tell you 5-10% is about right. There will be many more horror stories on dollars wasted on advertising than success stories

Add that 5-10% into a better location and I'm certain it will be worth much more

Percentages are important, for sure, but if you think you are paying too much, will paying less really get you more sales reducing your percentage?

I know people that do quite well with occupancy charges in the 25% range and I know many that struggle mightily in the 10% range

[brian..k]

Bob,
Somehow I knew you would be the first to respond to this. I took your retailing clas in Vegas and got alot out of it. I was one of those pesky people with to many questions.

The shop is in an expensive neighborhood to live in thus the average rent is higher than most areas. Of course that means that we have access to clients with more lofty ideas about what expensive framing realy is.

But I'm less interested in weather or not I am paying to much for rent than what a "typical" percentage should be. I figured mine to be somewhere in the 13 to 16 percent range depending on that months sales. If I could pull in 100k a month based on my location I would gladly pay 25%. Alas, much like 99% of framers in America I do not make $100k a month.

[Roxanne Langley]

Brian:

The current location that I relocated to last year is in a much, much better location which of course constitutes the higher rent. Currently I'm running about 19 1/2% for rent. At my previous location for which I was there 6 1/2 years it averaged 11%. Even though I added about 600 sq feet to the new place my rent dollars only increased by 8% combining rent, CAM & utilities.

Hope some of that helps or is what you're looking for.

Roxanne Langley

[JRB]

Brian, Many years ago when I was a Jr. exec. with Aaron Brothers, we shot for a ten percent rent with a total overhead, rent, employees, utilities, etc. of thirty percent. Most of the time that is where we kept it. My rent in my location now never exceeds ten percent unless my sales drop below a certain dollar amount. That is the deal I worked when I leased my building.

Bob, however, is correct, you get what you pay for. My location sucks. For me, that just fine, I'm winding my working life down.

It's kinda like Las Vegas, the more you put on the table, the more you can win. Like Las Vegas, if your playing with the big boys, you better understand the game, real well.

If you do not understand high rent locations, it's probably better to stay away until you learn a little more.

Bob Carter is an accomplished businessman, he does know what he is doing. If you follow his advise, you will probably do just fine. If you follow my advise, plan on working your butt off for every penny you earn, for the rest of your life. smile.gif

John

[Bob Carter]

John always has great advice and speaks with such great clarity to the "average" framer. I do disagree that you might follow my example. If I had it to do overagain, I wouldn't do it the same (Heck, I probaly would select another trade)

One thing that I must clarify is that I do not recommend High Rent locations-just higher than most framers currently employ. I remember fondly a few emails with Roxanne in her location quest and I think she made the absolute correct decision by stepping up to something "higher" than expected. It looks like she could certainly teach us all a lesson

But,If I was starting out in today's environment, I would look closely at Warren's model

But, that's a whole 'nother discussion

[JRB]

Bob, that is what I meant about understanding the "game". Blindly renting a five hundred dollar a foot prime mall location does not necessarily mean you will succeed as a picture framer, or say a meat cutter, in that location.

Understanding your market, and what it takes to reach it at a realistic cost, would be more in line.

Factoring the unknowns is the hardest part. Gas prices, something I never considered when I rented my place, now is having a noticeable impact on my sales. Then there's my attitude, that's something I should have thought of, oh well.

John

[Roxanne Langley]

Brian, Bob & John:

Currently my percentage's in this newer location seemed high to me when I first looked at this, but this past year with a somewhat shaky growth (hurricanes, relocation & such) it may actually be inline from what I've read. However, I feel I have at least another year of really hard work and the goal is to have the rent and other things down to a more manageable 14% for year 2. May will mark year 1 in this location and I can tell you that all the talk about location and leveraging your neighbors, associations, etc is all true. This old dog is learning some new tricks about our ever changing business environment.

Roxanne

[Jay H]

When I was recently looking at new units the highest rent in the whole town was a new 4 unit strip on main street. It had its very own entrance and had Nextel on one end, Quizno’s Subs on the other, and a check cashing place in the middle. There is no doubt in my mind that a frame shop would sink faster than a sub there, even with its “prime” location.

I wished we could find a different measure to judge spaces besides just raw rent/sales.

I finally just went with my gut. My gut has mislead me a few times. Maybe it did this time too.

[FrameMakers]

I strongly feel that presence has more to do with sucsess then even location.

A 1200 sq ft space in a strip center has little to no presence. At the same center 3000 sqft has little more.

Look at the major retailers (Bath & Body Works etc...) out there that use simular sized boxes. Look at there signage. Look at the height of there facades and the ceiling heights inside.

Very very few frame shops make me think that I would want to shop there from driving by.

[Paul N]

Sometimes a rent is high due to a location that has traffic. But not every traffic is really conducive to producing framing customers.

I am not located on Main Street, which obviously is the best place to be, around here at least. But rents on Main are VERY high and parking is a PIA.

My current location, 2 blocks from Main Street, is in a shopping strip with its own parking. The traffic is quite good: Dry cleaners, hair-dresser / spa, interior designer, professional photographer, and a florist are the other occupants, beside me.

But being 2 blocks from Main Street doesn't translate in much lower rent either.

[Tim Hayes.]

Jay makes an excellent point. Simply higher rent in a "prime" location does note necessarily guarantee a sucesseful business. There is no simple formula you can simply plug numbers into and get a success ratio.
I was looking for a high profile retail space for several years prior to opening my second space in Dec.'03. As Bob C had suggested let the big boys do the some of the market research for you. In my case I pay $5600/month for 1200 sq ft to enjoy the company of neighbors like Williams Sonoma, Crate & Barrel, Orvis, Joseph Banks, Ann Taylor, Apple, etc. In locating here I realized that few other framers would even consider such rent as so many many have expressed here on the Grumble. I am the only one here in the midst of a high density corridor following a subway line to Washington DC. My decsision was based on several factors and I spent a fair amount on my buildout as well. The numbers are proving that I made the right choices. My approach is not feasable or right for everybody. It is unfortunate that many enter into business greatly undercapitalized to open a viable concern and without the necessary acumen to succeed. I started the biz 20 years ago and chose to wisely speculate in order to accumulate.

[Bob Carter]

Sometimes these discussions become a little "boxers or briefs" type of decision. You have to find a fit that works for you

I am at the absolute extreme in this discussion an ddo not recommend it to any one. It's a little bit of a high wire act with no net. yet, the rewards can be stunning

But's let's take Joe Average

Let's assume that anticipated sales are at industy average and that would be around $12,500/month. Expected Rent at that level (at 10%) would be $1250/mon. If we followed the expected trend of advertising 8-10%, that would commit another $1000-$1250 for $2250-$2500 "fixed" outlays per month

My suggestion would be that spending that extra $1000-$1250 and upgrading your location would yield far superior dividends than any media expenditures. I would suspect that the difference between a $1200/month space and a $2500/mon space might be of quantuum proportions.

Now, couple that location "advantage" with th efact that most all Grumblers have to be the smartest merchants in the game (another powerful ingredient) and I think we have a formula for sucess.

Carry that forward to $4000 or $5000 a month (or more) and you can be even that much further ahead

And, the wild card is always that as you increase your sales, you still may, if you wish, plow that 8-10% back into some ad rep's commission check

As Tim and others have so accurately suggested, it isn't smart or feasible for everyone. It just seems to work for many

[Judi]

In 25 years of business, I have had 3 different stores in the same two block strip of a very high end shopping strip that gets a great deal of foot traffic. With each new and better location, I have doubled my street presence, my space and my rent and my sales.

I'm with Bob. Go for the absolute best location you can see your way to paying for. For me, rent always seems to be an investment that comes back with dividends.

Judi