Is The Rent Worth It? How To Calculate Fair Rent For The Health of Your Retail Business
Jun 21, 2025

Business brokers use a simple formula to determine how much a retailer can afford to pay in rent per month: If a retailer can earn the monthly rent in three business days, the business is doing well. If the store can earn the rent in one day, the retailer is doing great; if it takes five days, the store is likely going out of business.
Unlike office and industrial properties where there are rental comparisons, landlords marketing retail space have a difficult time determining what rent is fair, maximal and competitive.
If a retail space offers great exposure to traffic, it may garner double the rent of a competing store next door with space that faces away from the street. Using this three-day earnings formula creates a realistic way for landlords and tenants to determine a fair rent.
For example, let’s assume that a landlord in San Francisco’s Union Square seeks $15,000 per month for 1,500 square feet of retail space and there is a prospective tenant that sells high-end clothing. Let’s further assume that the retailer is open 10 hours a day. The retailer would have to sell at least $500 per hour to pay the rent in three working days. At an average sales price of $1,000 per item, the retailer would need to sell one item every two hours. Assuming 10 customers per hour visit the store, and at least one out of every 10 customers buy something, this rent could be achievable.
Can this formula apply to office and industrial space? Absolutely.
If a company that has a gross income of $100,000 per month and has 10 employees using 200 square feet of space per person, it would need 2,000 square feet of space. If the asking rent were $40.00per foot, annually the monthly rent would be $6,700.00 Dividing the $100,000 by 30 days, the company earns $3,333 per day. Therefore, under this example, the company is paying its rent in just over two days meaning that this is a very acceptable rent. In fact, this firm could consider moving into higher end space and still be profitable under that formula.
Another way to calculate rent is to use a percentage. Typically, 6 to 8 percent of gross income also would work. Both are simple calculations, yet most businesses have no idea what they should be paying in rent.
This formula will provide your business a solid barometer as to how well your business is doing and whether they can afford the rent they are paying.
BY HANS HANSSON, President of Starboard CRE