How Much Rent Can a Retail or Service Business Afford?
Calculate affordable commercial rent from sales capacity, occupancy cost, contribution margin, break-even sales, EBITDA and downside resilience.
Affordable rent depends on attainable sales and the concept's complete occupancy burden, not the landlord's asking rate alone. Estimate a conservative sales range, set the maximum occupancy cost that preserves target EBITDA, include common-area charges and other property costs, then test whether the downside case remains financeable.
Calculate total occupancy cost
Begin with base rent, percentage rent, common-area maintenance, property tax pass-throughs, insurance allocations and recurring property charges. Add any landlord-required capital or maintenance that functions like rent. Comparing base rent alone can understate the location's fixed burden.
Solve from sales capacity backward
Estimate downside, base and upside annual sales using reachable demand, competitive capture, access and unit capacity. Divide total annual occupancy cost by sales in each scenario. Then test how the ratio affects EBITDA and cash payback for the specific concept.
Industry occupancy benchmarks can provide context, but they should not substitute for the unit's labor, gross-margin and capital structure. A concept with lower gross margin or heavy labor cannot safely carry the same occupancy burden as a high-margin service business.
Include the capital tied to the lease
A low rent can still produce a poor investment when buildout, equipment, deposits and tenant-funded improvements are high. Measure total cash invested, expected unit-level cash flow and payback under each sales case. Treat tenant-improvement allowances and free rent as reductions in required capital, while keeping their lease conditions visible.
Set a rent ceiling before negotiation
Convert the model into a maximum total occupancy cost and a maximum opening investment. If the landlord's proposal exceeds either ceiling, negotiate the rent, allowance, delivery condition or term. Walk away when the economics require an unsupported sales case.