Cost Allocation Model
Fixed vs. variable cost breakdown, overhead allocation, and expense categories.
1. Facility Cost Summary
Base Assumptions
| Parameter | Value | Source |
|---|---|---|
| Suite Count | 18 suites | Phase 3 Business Model |
| Gross Square Footage | 3,000 SF | Phase 3 (lower end of 3,000-3,500 target) |
| Rentable Suite SF | 2,330 SF | Phase 3 (8×100 + 5×130 + 3×160 + 2×200) |
| Common Area | 670 SF | ~22% of gross (reception, break room, laundry, restrooms, halls) |
| Target Occupancy Cost | $10,000/month | Phase 6 Site Selection |
| Maximum Occupancy Cost | $11,000/month | Phase 6 Site Selection |
Suite Mix Reference
| Suite Type | Count | Size (SF) | Total SF | % of Rentable |
|---|---|---|---|---|
| Standard | 8 | 100 | 800 | 34.3% |
| Plus | 5 | 130 | 650 | 27.9% |
| Large | 3 | 160 | 480 | 20.6% |
| Executive | 2 | 200 | 400 | 17.2% |
| Total | 18 | - | 2,330 | 100% |
2. Cost Category Breakdown
2.1 Occupancy Costs (Allocated by Square Footage)
Facility Total: $10,000/month (target occupancy)
| Component | Monthly | Annual | Notes |
|---|---|---|---|
| Base Rent | $7,000 | $84,000 | ~$28/SF at 3,000 SF gross |
| NNN/CAM | $2,500 | $30,000 | ~$10/SF estimate |
| Property Tax (in NNN) | (included) | - | Part of NNN |
| Insurance (in NNN) | (included) | - | Part of NNN |
| Total Occupancy | $10,000 | $120,000 | Within budget target |
Allocation Method: Pro-rata by suite square footage
- Allocate based on rentable SF (2,330) + fair share of common area
- Each suite pays for its SF as proportion of 3,000 SF gross
Per-Suite Occupancy Allocation:
| Suite Type | SF | % of Gross* | Monthly Allocation |
|---|---|---|---|
| Standard | 100 | 5.06% | $506 |
| Plus | 130 | 6.57% | $657 |
| Large | 160 | 8.09% | $809 |
| Executive | 200 | 10.11% | $1,011 |
*Gross % = (Suite SF / 2,330 rentable) × (2,330/3,000) + (Suite SF / 2,330) × (670 common / 3,000) Simplified: Suite SF × ($10,000 / 2,330) × (3,000/2,330 common load factor) Effective rate: $4.29/SF/month after common area load
Verification:
- 8×$506 + 5×$657 + 3×$809 + 2×$1,011 = $4,048 + $3,285 + $2,427 + $2,022 = $11,782
- Adjustment needed: Using simpler pro-rata: Suite SF / Total Rentable SF × Total Occupancy
- Revised allocation: Suite SF / 2,330 × $10,000
Corrected Per-Suite Occupancy:
| Suite Type | SF | % of Rentable | Monthly Allocation |
|---|---|---|---|
| Standard | 100 | 4.29% | $429 |
| Plus | 130 | 5.58% | $558 |
| Large | 160 | 6.87% | $687 |
| Executive | 200 | 8.58% | $858 |
Verification: 8×$429 + 5×$558 + 3×$687 + 2×$858 = $3,432 + $2,790 + $2,061 + $1,716 = $9,999 ✓
2.2 Utilities (Allocated by Usage Proxy)
Facility Total Estimate: $500-750/month base
| Utility | Monthly Estimate | Allocation Method |
|---|---|---|
| Electric | $300-450 | Base by SF + usage adjustment by type |
| Water/Sewer | $150-200 | Base by SF + high for hair (shampoo) |
| Gas (if applicable) | $50-100 | Even (heating only) |
| Total Utilities | $500-750 | Using $625 midpoint |
Usage Adjustments by Suite Type:
Certain specialties have higher utility consumption:
- Hair suites: +15% (shampoo bowl water usage)
- Nail suites: +10% (UV lamp electrical)
- Esthetics: +5% (steamers, minor electrical)
- Massage: Base (minimal utility impact)
Conservative Approach: Use flat allocation by SF to simplify (true-up annually if needed).
Per-Suite Utility Allocation (Flat by SF):
| Suite Type | SF | Utility Share | Monthly |
|---|---|---|---|
| Standard | 100 | 4.29% | $27 |
| Plus | 130 | 5.58% | $35 |
| Large | 160 | 6.87% | $43 |
| Executive | 200 | 8.58% | $54 |
Verification: 8×$27 + 5×$35 + 3×$43 + 2×$54 = $216 + $175 + $129 + $108 = $628 ✓
2.3 Insurance (Facility-Level, Allocated Evenly)
Facility Total: $400/month ($4,800/year)
| Insurance Type | Annual | Monthly | Notes |
|---|---|---|---|
| General Liability | $3,000 | $250 | $1M/$2M policy |
| Property Insurance | $1,800 | $150 | Based on TI value (~$300K build-out) |
| Total Insurance | $4,800 | $400 |
Allocation Method: Even per suite (all suites equally benefit from coverage)
Per-Suite Insurance: $400 / 18 = $22/month
2.4 Maintenance & Repairs
Facility Total: $1,350-2,700/month
| Category | Per Suite/Month | Facility Total | Notes |
|---|---|---|---|
| Routine Maintenance | $50-75 | $900-1,350 | HVAC filters, minor repairs, touch-ups |
| Capital Reserve | $25-50 | $450-900 | Future HVAC, flooring, equipment replacement |
| Emergency Reserve | $0-25 | $0-450 | Unplanned repairs |
| Total Maintenance | $75-150 | $1,350-2,700 | Using $100 midpoint |
Allocation Method: Even per suite (maintenance largely independent of suite size)
Per-Suite Maintenance: $100/month (even allocation)
2.5 Common Area Costs (Allocated Evenly)
Facility Total: $800-1,200/month
| Category | Monthly | Notes |
|---|---|---|
| Laundry Operations | $100-150 | Washer/dryer maintenance, minor utilities (free to tenants) |
| Common Area Cleaning | $400-600 | Daily janitorial (hallways, restrooms, break room) |
| Supplies | $100-150 | Toilet paper, paper towels, soap, cleaning supplies |
| Break Room | $100-200 | Coffee, water, minor supplies (optional amenity) |
| Total Common Area | $800-1,200 | Using $950 midpoint |
Allocation Method: Even per suite (all have equal access)
Per-Suite Common Area: $950 / 18 = $53/month
2.6 Administrative Costs (Allocated Evenly)
Facility Total: $600-1,100/month
| Category | Monthly | Notes |
|---|---|---|
| Software/Systems | $200-400 | Access control, CRM, billing, scheduling |
| Accounting/Legal | $200-300 | Bookkeeping, tax prep allocation, legal retainer |
| Marketing (ongoing) | $100-200 | Listings, social media, tenant acquisition |
| Miscellaneous | $100-200 | Postage, office supplies, bank fees |
| Total Administrative | $600-1,100 | Using $800 midpoint |
Allocation Method: Even per suite (overhead applies equally)
Per-Suite Administrative: $800 / 18 = $44/month
3. Total Cost Allocation Summary
Per-Suite Costs by Tier
| Cost Category | Standard (100sf) | Plus (130sf) | Large (160sf) | Executive (200sf) |
|---|---|---|---|---|
| Occupancy | $429 | $558 | $687 | $858 |
| Utilities | $27 | $35 | $43 | $54 |
| Insurance | $22 | $22 | $22 | $22 |
| Maintenance | $100 | $100 | $100 | $100 |
| Common Area | $53 | $53 | $53 | $53 |
| Administrative | $44 | $44 | $44 | $44 |
| TOTAL/MONTH | $675 | $812 | $949 | $1,131 |
| TOTAL/WEEK | $156 | $187 | $219 | $261 |
Facility-Level Cost Verification
| Category | Per-Suite Avg | × 18 Suites | Facility Total |
|---|---|---|---|
| Occupancy | $556 | - | $10,000 ✓ |
| Utilities | $35 | - | $628 ✓ |
| Insurance | $22 | $400 | $400 ✓ |
| Maintenance | $100 | $1,800 | $1,800 |
| Common Area | $53 | $950 | $950 ✓ |
| Administrative | $44 | $800 | $800 ✓ |
| TOTAL | - | - | $14,578/month |
Annual Facility Operating Costs: $14,578 × 12 = $174,936
4. Gross Margin Preview
Revenue vs. Cost by Tier (At 100% Occupancy)
| Suite Type | Weekly Revenue | Monthly Revenue | Monthly Cost | Gross Margin | Margin % |
|---|---|---|---|---|---|
| Standard | $285 | $1,233 | $675 | $558 | 45.3% |
| Plus | $315 | $1,363 | $812 | $551 | 40.4% |
| Large | $345 | $1,493 | $949 | $544 | 36.4% |
| Executive | $385 | $1,665 | $1,131 | $534 | 32.1% |
Monthly revenue calculated as Weekly Rate × 4.33 weeks/month
Key Observations
- Standard suites have highest margin % (45.3%) due to lower occupancy cost allocation
- All tiers are profitable with positive gross margins
- Gross margins range from 32-45% across tiers
- Portfolio blended margin (see next analysis)
Portfolio Gross Margin (18 Suites at 100% Occupancy)
| Metric | Value |
|---|---|
| Monthly Revenue | $22,640 (from Phase 3) |
| Monthly Costs | $14,578 |
| Gross Profit | $8,062 |
| Gross Margin % | 35.6% |
5. Allocation Methodology Notes
Justification by Category
| Category | Method | Rationale |
|---|---|---|
| Occupancy | By SF | Larger suites use more space, should pay proportionally |
| Utilities | By SF | Reasonable proxy; specialty adjustments optional |
| Insurance | Even | All suites equally covered by policy |
| Maintenance | Even | Repairs/upkeep largely size-independent |
| Common Area | Even | All tenants have equal access to amenities |
| Administrative | Even | Overhead applies equally to all tenants |
Alternative Considerations
-
Usage-based utility billing: Could install sub-meters for precision; adds complexity and cost (~$500/suite). Recommendation: Defer unless disputes arise.
-
Tiered maintenance: Larger suites could pay slightly more. Current approach uses even allocation for simplicity.
-
Common area load factor: Industry practice adds 10-15% to rentable SF. Current model uses simpler direct allocation.
6. Cost Sensitivity Analysis
Impact of Occupancy Cost Variance
| Occupancy Cost | Change | Per-Suite Impact (Avg) | Portfolio Margin |
|---|---|---|---|
| $9,000/month | -10% | -$56/month | 38.6% |
| $10,000/month | Base | $0 | 35.6% |
| $11,000/month | +10% | +$56/month | 32.6% |
Break-Even Occupancy by Scenario
| Scenario | Monthly Costs | Break-Even Revenue | Break-Even Occupancy |
|---|---|---|---|
| Low cost ($9K occ) | $13,578 | $13,578 | 60.0% |
| Base ($10K occ) | $14,578 | $14,578 | 64.4% |
| High cost ($11K occ) | $15,578 | $15,578 | 68.8% |
Break-even % = Required Revenue / Full Revenue = Costs / $22,640
Appendix: Monthly Cost Summary Table
Quick Reference by Suite Type
| Suite | Size | Rent | All Costs | Net Margin | Margin % |
|---|---|---|---|---|---|
| Standard | 100 SF | $1,233 | $675 | $558 | 45.3% |
| Plus | 130 SF | $1,363 | $812 | $551 | 40.4% |
| Large | 160 SF | $1,493 | $949 | $544 | 36.4% |
| Executive | 200 SF | $1,665 | $1,131 | $534 | 32.1% |
Cost Allocation Model Complete - Ready for Unit Margin Analysis (Task 2) Phase 7: Unit Economics - Task 1 Complete
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