How do you budget for warehouse costs?

1 Fixed costs

Fixed costs are the expenses that do not change with the level of activity in the warehouse. They include rent, property taxes, insurance, depreciation, and security. Fixed costs are usually determined by the contract or agreement with the landlord or owner of the warehouse. To budget for fixed costs, you need to estimate the annual or monthly amount and divide it by the expected number of orders or shipments. This will give you the fixed cost per order or shipment, which you can use to compare with other warehouses or benchmarks.

2 Variable costs

Variable costs are the expenses that change with the level of activity in the warehouse. They include labor, utilities, maintenance, supplies, and packaging. Variable costs are usually influenced by the volume, complexity, and variability of the orders or shipments. To budget for variable costs, you need to track and analyze the key performance indicators (KPIs) of your warehouse, such as labor hours, productivity, energy consumption, and waste. This will help you identify the drivers of variable costs and find ways to reduce them.

3 Overhead costs

Overhead costs are the expenses that are not directly related to the warehouse operations, but are necessary for the overall management and administration of the warehouse. They include salaries, benefits, training, software, and office supplies. Overhead costs are often allocated to the warehouse based on a percentage of revenue or profit. To budget for overhead costs, you need to review and justify the allocation method and rate, and ensure that they are fair and accurate.

4 Capital costs

Capital costs are the expenses that are incurred for acquiring, upgrading, or replacing the assets of the warehouse, such as buildings, equipment, and technology. Capital costs are usually amortized over the useful life of the assets, and are considered as investments rather than expenses. To budget for capital costs, you need to evaluate the return on investment (ROI) of each project or purchase, and prioritize the ones that have the highest impact on the warehouse performance and profitability.

5 Contingency costs

Contingency costs are the expenses that are unforeseen or unexpected, such as accidents, damages, thefts, or emergencies. Contingency costs are difficult to predict or prevent, but they can have a significant effect on the warehouse budget. To budget for contingency costs, you need to set aside a reserve fund or insurance policy that can cover the potential losses or liabilities. You also need to have a risk management plan that can mitigate the likelihood and severity of contingency costs.

Budgeting for warehouse costs is not a one-time activity, but a continuous process that requires regular monitoring and adjustment. By understanding the different types of warehouse costs and how to measure and optimize them, you can create a realistic and effective budget that can support your warehouse goals and strategies.

6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?