How can you use occupancy cost as a performance metric?

1 What is occupancy cost ratio?

Occupancy cost ratio (OCR) is a simple way to compare your occupancy cost with your revenue. It is calculated by dividing your annual occupancy cost by your annual revenue. The lower the OCR, the more efficient your space utilization and the higher your profitability. OCR can vary depending on the industry, location, and size of your business, but a typical range is between 5% and 15%. You can use OCR to benchmark your performance against your peers, your historical data, and your targets.

2 How to reduce occupancy cost?

Reducing occupancy cost can have a significant impact on your financial performance, which can be achieved through negotiating better lease terms and conditions, implementing space optimization strategies, adopting workplace solutions, and improving energy efficiency and sustainability. For example, you can negotiate rent, incentives, duration, and flexibility; consolidate, sublease, or dispose of underutilized or redundant space; adopt agile working, remote working, or coworking; and install LED lighting, smart thermostats, or renewable energy sources. All of these strategies can help reduce your space requirements and operating costs while enhancing productivity and employee satisfaction while reducing your environmental footprint.

3 How to measure occupancy cost impact?

Measuring the impact of your occupancy cost reduction initiatives can help you evaluate their effectiveness and identify areas for improvement. To do this, consider various metrics such as return on investment (ROI), payback period, net present value (NPV), and internal rate of return (IRR). ROI will show the ratio of the net benefits to the net costs of your initiatives, while payback period will show the time it takes for your initiatives to recover their initial costs. Additionally, NPV will show the difference between the present value of the cash inflows and outflows of your initiatives, and IRR will show the annualized rate of return of your initiatives.

4 How to communicate occupancy cost performance?

Communicating your occupancy cost performance to your stakeholders can help you demonstrate your value and gain their support. To do this, you can employ various tools, such as dashboards that provide a visual representation of your key metrics and trends, reports that offer a detailed analysis of your performance and achievements, stories that create a compelling narrative of your challenges and solutions, and feedback that give you the chance to solicit input and suggestions from your stakeholders.

5 How to improve occupancy cost performance?

Improving your occupancy cost performance is an ongoing process that requires constant monitoring and adjustment, and can be achieved by setting SMART goals and objectives, conducting regular audits and reviews, implementing best practices and standards, and leveraging technology and innovation. For instance, you can use artificial intelligence, big data, or blockchain to enhance your occupancy cost intelligence and decision-making.

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?