In today’s economy it’s important to have insight on how much your business is worth based on its size. Knowing this gives you the ability to plan for the future and make inventory changes based on tangible numbers.
Have you ever considered the value of your store by square foot? If not, let’s start by taking a look at how you can determine your store’s overall value and then we can look at value by specific sections of your store.
The value of businesses by square foot
The idea of determining the value of each square foot of your business came after reading an old article on the value of Apple stores. Due to Apple’s popularity and the high-end consumer products they sell, the average Apple Store’s value was $4,709 per square foot annually. According to CNN, the value of the White House by square foot is $4,752 – a mere $43 more than an Apple Store.
The two are very different, of course, but it’s a neat comparison to see. Coming in behind the Apple Store was Tiffany’s, averaging $2,974 per square foot. You can clearly see a big difference between the first place and the runner up.
The point of this post isn’t to compare your store with the Apple Store or the White House. It’s to recognize the importance behind placing a value on your square footage to assure you're using the space to your best advantage.
Time for a little math
Want to know how much your business is worth per square foot?
First, you need to know the amount of square footage of your store of restaurant that customers can access. This doesn’t include any “back room” area that is used for storage or only accessible by employees. You potentially could use the total square footage of your store, including all “back room” area, but it won’t give you the most accurate data.
Once you have the number of square feet available, take a look at the total amount of revenue you generate. This number can be an average from a past quarter or a single month, depending on what figures you’d like to look at or what’s available to you.
For example: The estimated average revenue of an average coffee shop is $250,000 per year. Each month, that's $20,833 in revenue. Let's say the area of your cafe usable by guests is 800 square feet.
The equation we use to discover the value of your store’s square footage is revenue divided by square feet. For this example the equation would read: $20,833 / 800 = $26. So each square foot of the café accessible to guests would be worth $26 per month.
It sure isn't Apple money, but when choosing to purchase or lease new retail or restaurant space, knowing this number will be helpful in deciding how much you're willing to pay per square foot.
Tallying the value of special locations
The above number we determined is an overall estimate because there are likely areas of your store that are worth more. These might be display areas that are visible from outside or right as guests enter. Perhaps there are decorations in a particular area of your store that attract the eye of guests as well.
For an additional exercise, you may want to look at one of these special areas and determine the square footage of those, too. You can then do the same type of equation to determine what these special areas are worth. You might decide that you want to offer different products in those areas for potentially more revenue generation.
Plan on opening a new location?
If you’re in the startup phase of opening a new retail or restaurant establishment, consider some of the associated startup costs by looking at your current square foot value.
In the above example, the café was worth $26 per square foot. You can use this number to determine an affordable location for a new business because many commercial spaces are leased with a dollar value per square foot. In smaller cities, you can find retail space starting around $8-$10 per square foot. These would be reasonable costs for a new place since the original café generates more per square foot.
Have you ever determined the value of your business per square foot? Please share your experiences with us!