Table of Contents
Table of Contents
Understanding the full cost of running a retail store is key to maintaining profitability. From rent and inventory to staffing and marketing, expenses add up quickly. Without a clear breakdown, overspending can cut into margins and hurt long-term success.
In this guide, we’ll break down all the costs of running a retail store, including fixed and variable expenses. Whether you’re opening a new store or optimizing an existing one, knowing where your money goes helps you budget smarter and boost profits.
How much does it cost to open a retail store?
Opening a retail store comes with a range of expenses, from securing a location to stocking inventory. Here’s a breakdown of the key costs:
Business Plan – Free if self-written, but costs vary if hiring a consultant.
Rent – Depends on location; U.S. shopping centers average $28.10 per sq. ft.
Utilities – Electricity averages $1.47 per sq. ft., gas around $0.29 per sq. ft.
Security system – Ranges from a few hundred to several thousand dollars, depending on features like cameras and monitoring.
Licensing, permits & insurance – Costs vary by location and business type.
Professional fees – Lawyers, business associations, and consulting fees depend on services required.
Employees – Salaries vary, but retail associates earn around $13–$15 per hour, while store managers can make $31–$47 per hour.
Professional services – Cleaning costs $15–$50 per hour, accounting starts at $150+ per hour.
Initial inventory – Costs depend on the type and amount of stock purchased.
Marketing – Includes signage, branding, and social media, with managers earning around $31 per hour.
Retail POS system – Costs $79–$300 per month, plus hardware.
Ecommerce & web hosting – Starts at $119 per month, with additional domain costs.
Payment processing – Typically 2.6% + $0.10 per transaction.
Interior decor & equipment – Includes shelving, checkout counters, and possible contractor fees.
Financing costs – Startup costs average $48,000, but vary widely.
Grand opening event – Can be a few hundred dollars for a small event or over $10,000 for a large launch.
Costs depend on location, store size, and business needs, but careful planning ensures a strong start.
Breaking down the costs of a retail store
Let’s look at a few of these subjects in a little more detail…
Rent and utilities
Rent is one of the largest fixed expenses for a retail store, heavily influenced by location, store size, and lease terms. High-traffic areas like shopping malls or downtown districts tend to be more expensive, with U.S. shopping centers averaging $28.10 per square foot. Larger spaces cost more, but a strategic location with strong foot traffic can justify the investment. Longer lease agreements may offer better rates, but they also require a bigger commitment.
Utilities add to the monthly costs, with electricity averaging $1.47 per square foot and gas around $0.29 per square foot. Additional expenses include water, sewer, internet, and phone services, all of which are essential for daily operations. Energy-efficient lighting and climate control can help reduce these costs, and negotiating lease terms may provide some flexibility in managing expenses.
Security systems and software
A reliable security system is crucial for protecting your store from theft, fraud, and losses. Basic setups with cameras and alarms can cost a few hundred dollars, while more advanced systems with monitoring and analytics may run higher. But having security isn’t enough—it needs to be easy to use and actually help your business.
With Solink, you get more than just cameras. Solink connects your security footage with your point-of-sale (POS) system, automatically flagging suspicious transactions, monitoring employee activity, and helping reduce shrink—all without the need to sift through hours of video. It’s an affordable, smart way to improve security while gaining valuable business insights.
Book a demo today to see how Solink can help protect and optimize your store.
Licensing, permits, insurance, professional fees
Setting up a retail store requires securing the right licenses, permits, and insurance, with costs varying based on location and business type. A basic business license typically ranges from $50 to $400, while sales tax permits may be free or cost up to $100. Health permits for food-related businesses can range from $100 to $1,000. Skipping these steps can lead to fines or delays, making them a necessary investment.
Insurance protects your business from unexpected losses. General liability insurance costs around $500 to $3,000 per year, depending on store size and risk factors. Property insurance, workers’ compensation, and additional coverage may increase costs but help safeguard your business against theft, accidents, and lawsuits.
Professional fees also add to startup costs. Hiring a lawyer for lease agreements or business registration can range from $150 to $500 per hour. Accounting services for bookkeeping and tax preparation typically cost $150 or more per hour, while joining local business associations may cost a few hundred dollars per year. Factoring in these expenses upfront ensures legal compliance and financial stability.
Employees and professional services
Employees and professional services are key investments in running a successful retail store. Labor costs depend on store size, location, and required roles. Retail sales associates earn an average of $13–$15 per hour, while assistant store managers make around $15–$19 per hour. Store managers typically earn between $31 and $47 per hour, though salaries vary based on experience and region. Payroll taxes, benefits, and training costs should also be factored into the budget.
Beyond employees, professional services help keep operations running smoothly. Cleaning services range from $15 to $50 per hour or $0.01 to $0.40 per square foot, ensuring a clean shopping environment. Accounting services for bookkeeping and tax preparation cost $150 or more per hour, depending on the complexity of your finances. These services may seem like additional expenses, but they free up time and reduce costly mistakes, making them valuable investments for long-term success.
Initial inventory and marketing
Stocking your store with the right inventory is one of the biggest upfront costs. The total expense depends on your industry, product selection, and supplier pricing. Some retailers start with as little as $10,000 in inventory, while others invest $100,000 or more. Buying in bulk can lower per-unit costs, but overstocking ties up cash and storage space. Careful planning based on projected demand helps balance supply and cash flow.
Marketing is another essential expense, covering everything from branding to promotions. Designing a logo and storefront signage can cost a few hundred to several thousand dollars, while digital marketing expenses—like social media ads and email campaigns—vary based on reach and frequency. A social media manager earns around $31 per hour, and paid ads can range from a few dollars per day to thousands per month. A mix of online and offline marketing ensures steady customer traffic and brand awareness.
Retail POS system, payment processing, eCommerce/web hosting
A retail POS system is essential for processing transactions, managing inventory, and tracking sales data. Costs vary based on features, with subscription fees ranging from $79 to $300 per month, plus additional hardware costs for registers, card readers, and barcode scanners. Investing in a reliable POS system streamlines operations and improves checkout efficiency.
Payment processing fees depend on the provider and transaction volume. Most processors charge a flat rate, such as 2.6% + $0.10 per transaction, while others offer lower rates for high-volume businesses. These fees may seem small, but they add up quickly, so it’s important to compare providers and choose the best fit for your store.
For retailers selling online, an ecommerce platform and web hosting are additional costs. An omnichannel POS system with ecommerce integration starts at around $119 per month, with domain hosting fees on top. A seamless online and in-store experience helps maximize sales and customer convenience.
Financing costs, decor and equipment
Financing costs vary widely depending on the size of the store and the funding source. On average, startup costs for a retail store are around $48,000, though they can be much higher depending on location and inventory needs. Business loans, lines of credit, or investor funding may come with interest rates ranging from 4% to 12% or more. Understanding repayment terms and securing the right financing helps manage cash flow and long-term profitability.
Decor and equipment costs depend on the store’s size, branding, and functionality. Basic setup, including shelving, checkout counters, and display cases, can cost several thousand dollars. Painting, flooring, lighting, and signage add to the expense, while larger renovations requiring contractors can push costs even higher. Investing in a well-designed space improves customer experience and encourages sales, making it a critical part of store setup.
Key definitions for retail store costs
Here are some basic definitions you’ll need to know if you want to understand our retail store cost breakdown.
Income statement
An income statement, often referred to as a profit and loss statement, is a financial report that provides a summary of a company’s revenues, expenses, and profits/losses over a specific period, typically a fiscal quarter or year. It offers insight into a company’s financial performance, showcasing its ability to generate profit by increasing revenue, reducing costs, or both.
In the retail industry, the income statement would highlight the sales revenue, cost of goods sold, operating expenses, and other financial metrics to show the store’s profitability during the period in question.
Expense
An outflow of money or other resources that a retail store incurs as a result of its primary operations and activities. It represents the cost of doing business and is subtracted from the store’s revenues to calculate its profit.
Variable expense
Costs in a retail environment that fluctuate in direct proportion to sales or production volumes. Examples include cost of goods sold, credit card fees, or packaging. As sales increase, these expenses rise; as sales decrease, they drop.
Fixed expense
Costs that remain constant regardless of the sales volume or business activity in a retail store. These costs have to be paid even if the store has zero sales. Examples include rent, insurance, and salaries for permanent staff.
Operating expense
All costs associated with the daily operations of a retail store, excluding the cost of goods sold. This encompasses both fixed and variable expenses. These expenses are necessary for the store to conduct its regular business, such as paying for utilities, marketing, or security services like those provided by Solink.
Non-operating expens
Costs that are not directly tied to the core retail activities of the store. These might include interest payments on debt, losses from selling an asset, or costs from a lawsuit. They are not a regular part of the business’s primary activities.
Expenditure
The act of spending or using funds by a retail store. While all expenses are expenditures, not all expenditures are considered expenses in the short term. For instance, purchasing inventory is an expenditure but becomes an expense (COGS) only when the inventory is sold.
Capital expenditure
Funds used by a retail store to acquire or upgrade physical assets such as property, buildings, or equipment. This is an investment intended to improve the store’s capacity or efficiency in the long run. Unlike regular expenses, capital expenditures are typically spread out over several years in the form of depreciation or amortization.
Retail store cost break down
Here are all of the expenses associated with running a retail business. Can you guess which ones are variable expenses and which ones are fixed expenses?
Shipping and freight
Shipping refers to the process of sending goods to customers, while freight involves the movement of large quantities of goods, usually to the store from suppliers. Both represent costs related to transporting products.
Sales commissions
These are payments made to sales staff based on the volume or value of sales they achieve. It’s an incentive to motivate employees to sell more.
Credit card fees
These are charges retailers pay for the privilege of accepting credit card payments from customers. They’re usually a small percentage of each transaction.
Packaging
This relates to the materials used to wrap or protect products for sale. It ensures goods are presented well and reach customers in good condition.
Discounts and returns
Discounts are reductions in the original price of products to entice customers, while returns represent refunded sales from unsatisfied customers. Both can decrease a retailer’s total revenue. You can help minimize this expense by auditing for discount abuse.
Seasonal decorations
These are decor items or themes used in a store to align with various seasons or holidays. They create an ambiance, encouraging customers to shop for specific occasions.
Temporary staff
Retailers often hire additional employees on a short-term basis during busy periods. This ensures adequate staffing during peak sales times or events.
Inventory write-downs
This is the reduction in recorded inventory value when market prices drop below purchase prices. It reflects a more accurate value of inventory on hand. It’s important to reduce inventory shrink in the retail environment.
Promotional events
These are special activities or sales to promote products or the store itself. They aim to attract more customers and boost sales for a limited time.
Miscellaneous variable expenses
These are costs that don’t neatly fit into other defined categories but still fluctuate with sales volume. They can include a variety of unexpected or one-off costs.
Total variable expenses
This is the sum of all costs that fluctuate with the level of sales or business activity. It provides insight into how costs might change as business conditions vary.
Rent
This is the periodic payment made by retailers to use a physical space or property. It’s often one of the most significant fixed costs for a retail business.
Salaries and wages
These are regular payments made to employees for their work. They represent a significant portion of operating expenses in retail.
Utilities
These are essential services like electricity, water, and heating required for store operations. They’re recurring costs necessary for daily operations.
Insurance
This provides protection for the retailer against potential losses from various risks. It can cover damages from events like theft, accidents, or natural disasters.
Marketing and advertisi
Activities and costs associated with promoting the store and its products. Effective marketing drives customer traffic and sales.
Depreciation
This accounts for the reduction in value of assets, like equipment or fixtures, over time. It spreads the cost of an asset across its useful life. By connecting your existing cameras to the cloud, Solink can help extend the useful life of your expensive security equipment.
Licensing and permits
These are fees paid to local or national authorities for the right to operate. They ensure the store operates within legal parameters.
Security
Measures taken to protect the store and its assets from risks like theft or vandalism. Utilizing services like Solink can offer cloud video security and loss prevention capabilities.
Maintenance
This involves the upkeep and repair of equipment, fixtures, and the store itself. Regular maintenance prevents major breakdowns and ensures a pleasant shopping environment.
Software and tech services
These are tools and platforms used for managing various aspects of the business. They streamline operations, from inventory management to sales tracking.
Amortization
This is similar to depreciation but for intangible assets like patents or goodwill. It spreads the cost of these assets over their useful lives.
Income statement for a retail store
Here’s an example income statement for a big box store with $10,000,000 in annual sales.
Income Statement for “Big Box Store”
For the year ending December 31, 2023
Sales Revenue: $10,000,000
Cost of Goods Sold (COGS): $6,500,000 Gross Profit: $3,500,000
Operating Expenses:
Variable Expenses:
- Shipping and Freight: $100,000
- Sales Commissions: $50,000
- Credit Card Fees: $100,000
- Packaging: $50,000
- Discounts and Returns: $150,000
- Seasonal Decorations: $25,000
- Temporary Staff: $75,000
- Inventory Write-downs: $40,000
- Promotional Events: $50,000
- Miscellaneous Variable Expenses: $60,000 Total Variable Expenses: $650,000
Fixed Expenses:
- Rent: $500,000
- Salaries and Wages: $1,200,000
- Utilities: $150,000
- Insurance: $100,000
- Marketing and Advertising: $250,000
- Depreciation: $50,000
- Licensing and Permits: $25,000
- Security: $10,000
- Maintenance: $75,000
- Software and Tech Services: $75,000
- Amortization: $50,000 Total Fixed Expenses: $2,575,000
Total Operating Expenses: $3,315,000
Operating Income: $275,000
Other Income/Expenses: Interest Expense: -$25,000
Net Income Before Taxes: $340,000 Taxes (assuming a 25% rate): -$85,000
Net Income: $255,000
This is a simplified version of an income statement and the figures are illustrative. Actual expenses and their distribution can vary widely based on numerous factors, including store location, management efficiency, and more.
Let Solink protect your profits
In the retail industry, unseen costs often lurk in the form of shoplifting, discount abuse, and various liability risks. Solink emerges as a powerful ally in this scenario, offering state-of-the-art cloud video security and loss prevention solutions.
By integrating Solink’s technology, retailers can significantly reduce these costs, ensuring that hard-earned revenue isn’t lost to theft or abuse. Furthermore, the peace of mind and reduced liabilities lead to a positive ROI, positioning stores for financial resilience and sustained growth. In essence, with Solink by your side, you’re not just safeguarding your merchandise; you’re solidifying your store’s future profits.
To see how Solink can help you control unnecessary costs, sign up for a demo today.
