Occupancy cost ratio
Occupancy cost ratio is a store's rent plus service charge as a share of its net sales excluding VAT for the same period; it shows whether the store's sales carry the cost of its space.
Also calledrent-to-sales ratio, rent to turnover ratio, kira ciro oranı
Formula
(Rent + Service charge) ÷ Net sales × 100- Rent
- Fixed rent, or in a shopping centre lease the higher of base rent and turnover rent (excl. VAT).
- Service charge
- Service charge, common area costs and any marketing contribution in the lease.
- Net sales
- The store's sales for the same period, excluding VAT and net of returns.
Calculator
Enter your own figures and the result updates instantly. The defaults are the figures from the worked example below.
Result%12
Worked example
How to read it, and what good looks like
Read the ratio against the store's own cost structure, not a fixed threshold. Rent ceiling = Gross margin − Labour ratio − Other cost ratio − Target operating profit. Set target profit to zero and the same calculation gives the break-even rent ratio; 22% in the example. A store above its ceiling has three options: grow sales, renegotiate the rent or reduce the space.
Under high inflation the ratio can move fast: when the escalation clause in the lease runs ahead of sales growth, the same branch's ratio rises without sales falling. That is why the escalation clause is read from the lease and set against the sales forecast for the next twelve months; the month in which the ratio will breach its ceiling becomes visible in advance. Decisions to close, downsize or renegotiate rent on an unproductive branch are made from that table.
Track the ratio monthly alongside sales per square metre and like-for-like growth; any store over its ceiling goes onto the regional manager's agenda. In Mindpera, Mind Ops monitors costs across all stores and flags lines that move out of pattern; Mind Space calculates sales per square metre and space productivity by category. Where rent sits in accounting and sales in the POS, installation brings them into a single model at store level.
Where it misleads
- Rent is divided by VAT-inclusive sales; the ratio looks lower by the VAT rate.
- Service charge, common area costs and marketing contribution are left out; a shopping centre store looks cheaper than a high-street one.
- When the turnover rent true-up is booked at period end, the monthly ratio runs low all year and spikes in the final month; accrue turnover rent monthly.
Data you need
- Lease terms: base rent, turnover rent percentage, indexation clause
- Service charge, common area and marketing contribution invoices
- Net sales excluding VAT by store
- Sales area (m²)
Mindpera products that calculate this KPI
Mind Ops
Run audits and performance across your grocery branches from one place, with a set of more than 100 KPIs. Audits, reporting and camera event tracking meet on the same screen.
Mind Space
Maximise revenue by managing branch floor space and shelf metres flexibly against customer demand, with profitability as the measure.
Frequently asked questions
- What is a good occupancy cost ratio?
- Work it out from the store's cost structure: Rent ceiling = Gross margin − Labour ratio − Other cost ratio − Target operating profit. With a 50% margin, 15% labour, 13% other costs and an 8% profit target, the ceiling is 14%. The ratio is also compared with branches of the same format and with the branch's own history.
- What is turnover rent and how does it enter the ratio?
- Turnover rent is a shopping centre lease model where the tenant pays the higher of a base rent and a percentage of store sales. A store with TRY 70,000 base rent and an 8% turnover share pays TRY 80,000 on TRY 1,000,000 of sales. The amount actually payable enters the ratio, accrued monthly; otherwise the ratio jumps at year end.
- Which sales figure is used for occupancy cost ratio?
- The store's net sales, excluding VAT and net of returns. Using VAT-inclusive sales makes the ratio look lower by the VAT rate. Define also which store gets credit for online orders collected in store; if those sales are not credited to the collection point, its ratio comes out higher than it really is and the closure decision is made on a false figure.