What percentage of revenue should rent be? The maths before you move to a bigger site

There’s no magic percentage. Rent is affordable when your gross profit, less wages and other overheads, still leaves the profit you need. For a typical retailer that works out near 7% of sales. For a café or restaurant it can stretch to about 12%, and for a professional practice around 10%. Those figures are examples, not benchmarks. Your own margin sets your number.

This matters most when you’ve outgrown your space. The stockroom is full, the team is tripping over each other, and a bigger unit has come up nearby. Before you sign, you need two numbers: the most rent you can carry, and the extra sales the new site must produce so the move pays for itself.

Why isn’t there one “right” rent percentage?

Because the old rules of thumb were built on narrow, dated data. Published occupancy-cost ratios (rent plus outgoings as a share of sales) mostly come from shopping-centre retail. A National Retail Association submission to the Productivity Commission cited averages of about 16% of sales for regional centres in 2005/06, with wide variation around that figure. More recently, CBRE’s 2024 shopping centre report noted that occupancy cost ratios in categories such as women’s fashion and cafés or restaurants were around 15% lower than in 2019.

Two lessons. Ratios move with the sales cycle, and a figure from 2005 or from a newsagency blog in 2014 isn’t a number to plan a lease around. And a single-industry ratio says nothing about your gross margin. A shop that keeps 40 cents of each sales dollar after buying stock can’t carry what a clinic keeping 85 cents can, unless its other costs are very lean.

So build it from your own numbers.

How do you work out the most rent your business can afford?

Use this formula:

Rent ceiling = gross profit − wages − other overheads − the profit you need

Then divide the answer by sales to get a percentage you can sanity-check. Here’s how it plays out for three illustrative businesses, each at $1,000,000 in sales:

	Retail shop	Hospitality	Professional services
Gross margin	40%	70%	85%
Wages	17%	32%	55%
Other overheads	6%	18%	10%
Profit you need	10%	8%	10%
Rent ceiling (% of sales)	7%	12%	10%
Rent ceiling in dollars	$70,000	$120,000	$100,000

All three are made-up examples to show the method. Notice that the highest-margin business doesn’t get the highest ceiling, because its wage bill is the biggest cost. That’s why borrowing someone else’s percentage misleads.

Include outgoings in “rent” when you do this. Many retail leases pass on building costs such as insurance, rates, cleaning and maintenance. The Victorian Small Business Commission explains that a retail tenant is only liable for outgoings the lease sets out, and that the landlord must give an estimate before the lease is signed. If you’re comparing two sites, put both on the same footing: rent plus estimated outgoings, per year.

How much extra sales does a bigger site need to break even?

This is the question that turns rent into a growth decision. The new site adds cost: more rent, usually more outgoings, often more staff, plus fit-out and the cost of finance if you borrow. Each of those must be covered by gross profit on the extra sales.

Extra sales needed = extra annual cost ÷ gross margin

Using gross margin is the key step. At a 40% margin, every extra $1 of fixed cost needs $2.50 of extra sales to cover it. Our guide to gross margin and growth shows how to find yours.

A worked example (illustrative)

A homewares retailer in a regional city has outgrown a 120 square metre shop. A 240 square metre unit nearby is available. All figures are invented to show the method.

Today (annual):

Line	Amount
Sales	$1,000,000
Gross profit at 40%	$400,000
Rent and outgoings	$70,000 (7.0% of sales)
Wages	$170,000
Other overheads	$60,000
Profit before owner’s drawings and tax	$100,000

The new site:

• Rent and outgoings of $140,000 a year, which is $70,000 more.
• One extra part-time staff member and longer trading hours: $25,000 more in wages.
• Fit-out and move: $60,000, borrowed over three years with a total cost of finance of $12,000 ($4,000 a year).

Break-even sales. Extra running cost is $70,000 + $25,000 = $95,000 a year. Adding the $4,000 of annual finance cost makes $99,000. Divided by the 40% margin, that’s $247,500 of extra sales, so $1,247,500 just to stand still. To also repay the $60,000 fit-out principal over three years (another $20,000 a year), extra sales need to reach about $297,500, so around $1,297,500 in total.

The rent ratio. Rent of $140,000 is 11.2% of $1,247,500 and 10.8% of $1,297,500. The business can survive a ratio well above today’s 7%, but only because the extra space is expected to lift sales.

Three years of the plan. The owner expects a slow first year in the new site, then a rise:

	Year 1	Year 2	Year 3
Sales	$1,150,000	$1,350,000	$1,350,000
Extra gross profit vs today	$60,000	$140,000	$140,000
Extra rent and wages	−$95,000	−$95,000	−$95,000
Extra profit before fit-out and finance	−$35,000	+$45,000	+$45,000
Cumulative	−$35,000	+$10,000	+$55,000

The cost to recover is the $60,000 fit-out plus $12,000 of finance cost, so $72,000. Cumulative extra profit reaches that about $17,000 into year four, at roughly month 41. At full run-rate sales of $1,350,000, rent is 10.4% of sales, and profit before drawings is $100,000 + $45,000 − $4,000 finance cost = $141,000 in year three while the loan is still being repaid.

What this tells the owner. The move works, but slowly. A payback near month 41 of a five-year lease leaves about 19 months of clear profit. That’s why the lease term and any option to renew matter as much as the rent. If year-two sales only reach $1,250,000, the extra gross profit falls to $100,000 and the extra profit before fit-out is just $5,000 a year. That plan never pays the fit-out back inside the lease. Running that low case through the Growth ROI calculator shows the gap in dollars before anything is signed.

If your numbers look like the first case rather than the second, you can check what funding would suit the move. It only takes about a minute.

What costs do owners forget when they move?

Rent is the line everyone checks. These ones turn up later:

• Bond or bank guarantee and rent in advance. Cash out before you trade a single day.
• Fit-out and relocation. Shelving, counters, cabling, signage, plus the cost of moving stock and equipment. Our fit-out finance playbook covers the funding side.
• Downtime. Every closed day is lost gross profit. Plan the move for your quietest week.
• Overlap rent. Paying two sites for a few weeks while you hand back the old one.
• Make-good on the old premises. Restoring the space at the end of a lease can be a real bill, so check your old lease now, not on the last day.
• Annual rent increases. Scentre Group reported that average specialty rent escalations were 4.5% in 2025, with 80% of its specialty leases carrying inflation-linked annual escalations and an average term of 6.8 years. Not every landlord matches that, but a fixed or CPI review means year-five rent is higher than year-one rent. Run the last year of the lease through your ceiling formula, not just the first.

For the lease terms to check before you sign, see our second-site lease checklist. That checklist covers the clauses. This guide covers whether the rent is affordable at all.

How do you stress-test the move?

Run three versions of the same plan:

1. Plan case. Sales reach your target by the end of year one.
2. Slow case. Sales take twice as long to arrive.
3. Flat case. Sales rise by half of what you expect, and stay there.

For each, work out the rent as a percentage of sales, the cash left after rent, wages and finance repayments, and the payback month. If the flat case still leaves you able to make repayments, the move is carrying its weight. If it doesn’t, either negotiate a lower rent, a rent-free fit-out period or a shorter lease, or stay put and use space better. Our stress test guide walks through it, and the payback period page explains how to read the result.

When does borrowing for the move make sense?

It tends to make sense when:

• you’re turning work away, running out of room, or losing sales because of space, so the extra gross profit has a clear source;
• the flat case is a result you can live with;
• the borrowing covers one-off costs (fit-out, bond, moving) rather than propping up trading losses;
• the payback month lands comfortably inside the lease term.

The cost to compare is the total cost of finance in dollars, not a headline rate. Secured finance over property can suit larger fit-outs. Unsecured or line-of-credit funding can suit smaller moves. Our second location funding page sets out the options.

The move looks right on paper. What next?

You’ve worked out your rent ceiling, found the sales the new site must produce and stress-tested the slow case. If the plan still stands, the last piece is paying for the fit-out and the first months without squeezing everything else.

That’s where we come in. Telling us about your move takes about 60 seconds, and asking doesn’t involve a credit check, so your credit file stays untouched. Your details aren’t fired off to a pile of lenders either; they go to a person who looks at your situation and calls you to talk it through. Please fill in the form accurately, with your real sales, your real rent figures and the fit-out costs you’ve quoted, so we can point you to the right option the first time.

Find out where your move stands →