Occupancy cost encompasses the total expenses required to maintain and utilize the physical spaces used for business activities. These costs typically include rent or lease payments, property taxes, utilities such as electricity and water, and routine maintenance and repairs to the property. Additionally, it may include expenses such as insurance for the property, janitorial services, and security systems or monitoring fees.
For example, if a retail store pays $3,000 per month in rent, $300 in property taxes, and $200 for utilities, its total occupancy cost for the month would be $3,500. Proper management and understanding of occupancy costs are crucial for businesses aiming to optimize financial performance. Reducing unnecessary expenditures or negotiating better lease terms can contribute to controlling these costs effectively.