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Written by: Esther Strauss
Esther is a business strategist with over 20 years of experience as an entrepreneur, executive, educator, and management advisor.
Edited by: David Lepeska
David has been writing and learning about business, finance and globalization for a quarter-century, starting with a small New York consulting firm in the 1990s.
Published on July 22, 2021
Investment range
$12,500 - $62,500
Revenue potential
$1 million - $5 million p.a.
Time to build
3 - 6 months
Profit potential
$200,000 - $900,000 p.a.
Industry trend
Growing
Commitment
Full-time
Essential points to keep in mind for a successful warehouse business:
You May Also Wonder:
Is owning a warehouse profitable?
Owning a warehouse can be extremely profitable as e-commerce demand continues to rise. This demand is fueled by reduced physical shopping activities and the ease of online shopping.
How do empty warehouses make money?
If your warehouse is mostly empty, you may still be able to utilize the space to generate revenues. You may consider letting it to other warehousing companies, event organizers, entertainment businesses, art galleries, gaming organizations, or you could even convert it into a parking space.
How do I start a small warehouse?
You can start a small warehouse by focusing on a niche segment and handling products that don’t require racks, shelves, or a controlled environment (e.g., refrigerated storage). If possible, the stock should be stored in easy-to-move boxes that can be transported with minimal equipment. You should also focus on reducing equipment costs as it can take a while to generate a return on investment when operating on a small scale.
How can I make my warehouse profitable?
To make your warehouse profitable, you’ll need to choose the right location and market niche. You should also work on automating warehousing tasks that reduce labor needs and increases efficiency. Besides these, you will simply need to ensure that you’re providing value to your clients.
How do I rent my warehouse?
To find an available-for-rent warehouse in your target area, you may look into various commercial property rental platforms such as Warehouse Space, LoopNet, and Showcase.
To gauge whether starting a warehouse business is right for you, it’s a good idea to learn about the industry. In this section, you’ll learn about where the industry is heading, what to expect, and potential costs and revenues.
Let’s get started with some pros and cons.
Before diving into a business venture, it’s prudent to look at both the positives and the negatives of the opportunity. Viewing an opportunity this way will help you determine whether it’s viable.
Trends in the warehousing industry include:
Challenges in the warehousing industry include:
You could start a warehousing business for as little as $12,000, or lay out $60,000 or more for a more ambitious firm. The average startup cost for a warehouse business is around $37,000. On the lower end, you’d be looking at a smaller warehouse dedicated to serving a niche market, while the higher figure would cover a large warehouse meant for a variety of clients.
Across the board, though, your main startup costs will be the building, wages, and any necessary equipment such as storage shelves and machinery.
The type of equipment you need depends on your warehouse and the type of stock you hold. Here is a list of general equipment that you may need:
| Start-up Costs | Ballpark Range | Average |
|---|---|---|
| Licenses and permits | $100 - $400 | $250 |
| Insurance | $1,000 - $3,500 | $2,250 |
| Warehouse and office equipment | $7,750 - $40,000 | $23,875 |
| Paper and stationery | $50 - $100 | $75 |
| Branding, marketing, and advertising | $1,000 - $5,000 | $3,000 |
| Website and software | $100 - $1,000 | $550 |
| Wages (first month) | $2,500 - $12,500 | $7,500 |
| Total | $12,500 - $62,500 | $37,500 |
The average warehousing company generates $1-10 million in annual revenue and employs 12-22 people. With profit margins of 18-20%, you could expect to earn $180,000 to $2 million per year not long after launch.
The main way a warehousing firm generates revenue is by holding stock for businesses — shoes or dresses or electronic devices. Another way is by providing a long-term storage option for people with inadequate space for their belongings. Finally, there is the third-party logistics segment, in which the warehousing company’s revenue comes from storage and from the shipment of products.
The largest ongoing expenses for a warehouse business are rent and wages. Wages will typically make up the bulk of your expenses as operating a warehouse requires a lot of manual labor, but this could be lowered by investing in machinery.
In your first year or two, you could simply provide storage services and make $1 million in annual revenue. This would mean $200,000 in profit, assuming a 20% margin. As your brand gains recognition, you could expand to third-party logistics and earn a total of $5 million in annual revenue. At this stage, you’d hire more staff, reducing your profit margin to 18%. You’d still make a tidy profit of $900,000.
When it comes to the warehouse industry there are a couple of entry barriers to be aware of. The first barrier is high fixed operating expenses such as rent and wages. But these can be counteracted by having enough operating capital saved for at least the first six months in business.
Secondly, high levels of competition will make it more difficult to break into the industry. In the beginning, you’ll likely need to endure minimal profits to compete with bigger players.
Now that you have an idea of the different segments of the industry and what to expect, it’s time to fine-tune your business idea. First, we’ll start with why you’re starting your business and identifying an opportunity.
Market research will give you the upper hand, even if you’re already positive that you have a perfect product or service. Conducting market research is important, because it can help you understand your customers better, who your competitors are, and your business landscape.
Before you start your business it’s important to understand why you’re starting it and the gap you’re going to fill in the marketplace. If you already know how you’re going to differentiate yourself from your competition and have a rock-solid value proposition, that’s great! If not, here are a few ways to identify market opportunities.
Now let’s dive into a current real-world opportunity. Aging warehouses signal a potential market need.
E-commerce is booming and all those online retailers need somewhere to keep their goods. As a result, US warehouses are struggling to keep up with demand, but this isn’t the only problem the market faces.
The average age of a warehouse is 34 years old, according to real estate firm CBRE. While that may not seem very old in human years, for a warehouse that’s elderly. Many US warehouses are dilapidated and aging fast, and many of these older warehouses are far from urban areas and more suited for industrial use.
Now, with e-commerce on the rise, there is great demand for the development of new modern warehouse facilities.
Leading the list of cities with the oldest warehouse space is Northern New Jersey, where warehouses average 57 years. It’s followed by Pittsburgh, Boston, Philadelphia, and Cleveland. The cities with the newest warehouse space, on the other hand, are Inland Empire, Las Vegas, Phoenix, Salt Lake City, and Nashville.
In the modern age, warehouses are increasingly offering special facilities and services that are a world away from your grandfather’s warehouse. These services range from logistics to fulfillment and anything in between.
The most common services include:
There are various types of warehouses. The most common types are outlined below:
Now that you know about potential solutions, it’s time to figure out which one will best fit your chosen market and how you can stand out. To start you might want to answer these questions:
While this isn’t an exhaustive list of questions, it’s a good place to start. Remember, you have to make your service fit your market, not the other way around. So make sure to put your effort into this step.
Your prices will vary greatly based on the services you provide and the storage space required. Some warehouses charge per cubic foot while others set monthly rates for a minimum amount of space.
Once you know your costs, you can use this Step By Step profit margin calculator to determine your mark-up and final price points. Remember, the prices you use at launch should be subject to change if warranted by the market.
Now that you know what you want to provide to clients it’s time to get crystal clear about who those clients are. While there may be a range of clients that can benefit from your services, it’s a good idea to narrow your market to those who gain the most.
In the warehousing business, the principal target market usually consists of B2B clients. Some B2C clients may have small stores and need warehousing and fulfillment solutions but prefer not to work with big companies like Amazon.
Here’s a list of where you could find your potential target market:
A crucial step is of course finding and renting, or buying, your first warehouse. It needs to be the right size for your needs, in good condition, and in a decent location. Find commercial space to rent in your area on Craigslist, Crexi, and Commercial Cafe. When choosing a space, you may want to follow these rules of thumb:
You may target a wide customer base or choose a niche, such as specialty e-commerce and Etsy sellers.
Here are some ideas for brainstorming your business name:
Once you’ve got a list of potential names, visit the website of the US Patent and Trademark Office to make sure they are available for registration and check the availability of related domain names using our Domain Name Search tool. Using “.com” or “.org” sharply increases credibility, so it’s best to focus on these.
Finally, make your choice among the names that pass this screening and go ahead with domain registration and social media account creation. Your business name is one of the key differentiators that set your business apart. Once you pick your company name, and start with the branding, it is hard to change the business name. Therefore, it’s important to carefully consider your choice before you start a business entity.
Here are the key components of a business plan:
If you’ve never created a business plan, it can be an intimidating task. You might consider hiring a business plan specialist to create a top-notch business plan for you.
Registering your business is an absolutely crucial step — it’s the prerequisite to paying taxes, raising capital, opening a bank account, and other guideposts on the road to getting a business up and running.
Plus, registration is exciting because it makes the entire process official. Once it’s complete, you’ll have your own business!
Your business location is important because it can affect taxes, legal requirements, and revenue. Most people will register their business in the state where they live, but if you are planning to expand, you might consider looking elsewhere, as some states could offer real advantages when it comes to warehousing.
If you’re willing to move, you could really maximize your business! Keep in mind, it’s relatively easy to transfer your business to another state.
Business entities come in several varieties, each with its pros and cons. The legal structure you choose for your warehouse business will shape your taxes, personal liability, and business registration requirements, so choose wisely.
Here are the main options:
We recommend that new business owners choose LLC as it offers liability protection and pass-through taxation while being simpler to form than a corporation. You can form an LLC in as little as five minutes using an online LLC formation service. They will check that your business name is available before filing, submit your articles of organization, and answer any questions you might have.
Choose Your State
The final step before you’re able to pay taxes is getting an Employer Identification Number, or EIN. You can file for your EIN online or by mail or fax: visit the IRS website to learn more. Keep in mind, if you’ve chosen to be a sole proprietorship you can simply use your social security number as your EIN.
Once you have your EIN, you’ll need to choose your tax year. Financially speaking, your business will operate in a calendar year (January–December) or a fiscal year, a 12-month period that can start in any month. This will determine your tax cycle, while your business structure will determine which taxes you’ll pay.
The IRS website also offers a tax-payers checklist, and taxes can be filed online.
It is important to consult an accountant or other professional to help you with your taxes to ensure you are completing them correctly.
Securing financing is your next step and there are plenty of ways to raise capital:
Bank and SBA loans are probably the best options, other than friends and family, for funding a warehouse business. You might also try crowdfunding if you have an innovative concept.
Starting a warehouse business requires obtaining a number of licenses and permits from local, state, and federal governments.
Federal regulations, licenses, and permits associated with starting your business include doing business as (DBA), health licenses and permits from the Occupational Safety and Health Administration (OSHA), trademarks, copyrights, patents, and other intellectual properties, as well as industry-specific licenses and permits.
You may also need state-level and local county or city-based licenses and permits. The license requirements and how to obtain them vary, so check the websites of your state, city, and county governments or contact the appropriate person to learn more.
You could also check this SBA guide for your state’s requirements, but we recommend using MyCorporation’s Business License Compliance Package. They will research the exact forms you need for your business and state and provide them to ensure you’re fully compliant.
This is not a step to be taken lightly, as failing to comply with legal requirements can result in hefty penalties.
If you feel overwhelmed by this step or don’t know how to begin, it might be a good idea to hire a professional to help you check all the legal boxes.
Before you start making money you’ll need a place to keep it, and that requires opening a bank account.
Keeping your business finances separate from your personal account makes it easy to file taxes and track your company’s income, so it’s worth doing even if you’re running your warehouse business as a sole proprietorship. Opening a business bank account is quite simple, and similar to opening a personal one. Most major banks offer accounts tailored for businesses — just inquire at your preferred bank to learn about their rates and features.
Banks vary in terms of offerings, so it’s a good idea to examine your options and select the best plan for you. Once you choose your bank, bring in your EIN (or Social Security Number if you decide on a sole proprietorship), articles of incorporation, and other legal documents and open your new account.
Business insurance is an area that often gets overlooked yet it can be vital to your success as an entrepreneur. Insurance protects you from unexpected events that can have a devastating impact on your business.
Here are some types of insurance to consider:
As opening day nears, prepare for launch by reviewing and improving some key elements of your business.
Being an entrepreneur often means wearing many hats, from marketing to sales to accounting, which can be overwhelming. Fortunately, many websites and digital tools are available to help simplify many business tasks.
Warehousing software such as 3PL Warehouse Manager, Deposco, and ShipHero will help boost your company’s efficiency, cutting shipping costs, sync distribution and help with forecasting, management and workflow.
Website development is crucial because your site is your online presence and needs to convince prospective clients of your expertise and professionalism.
You can create your own website using services like WordPress, Wix, or Squarespace. This route is very affordable, but figuring out how to build a website can be time-consuming. If you lack tech-savvy, you can hire a web designer or developer to create a custom website for your business.
They are unlikely to find your website, however, unless you follow Search Engine Optimization (SEO) practices. These are steps that help pages rank higher in the results of top search engines like Google.
Here are some powerful marketing strategies for your future business:
Unique selling propositions, or USPs, are the characteristics of a product or service that set it apart from the competition. Customers today are inundated with buying options, so you’ll have a real advantage if they are able to quickly grasp how your warehouse meets their needs or wishes. It’s wise to do all you can to ensure your USPs stand out on your website and in your marketing and promotional materials, stimulating buyer desire.
Global pizza chain Domino’s is renowned for its USP: “Hot pizza in 30 minutes or less, guaranteed.” Signature USPs for your warehousing business could be:
You may not like to network or use personal connections for business gain. But your personal and professional networks likely offer considerable untapped business potential. Maybe that Facebook friend you met in college is now running a warehouse business, or a LinkedIn contact of yours is connected to dozens of potential clients. Maybe your cousin or neighbor has been working in warehouses for years and can offer invaluable insight and industry connections.
The possibilities are endless, so it’s a good idea to review your personal and professional networks and reach out to those with possible links to or interest in warehousing. You’ll probably generate new customers or find companies with which you could establish a partnership. Online businesses might also consider affiliate marketing as a way to build relationships with potential partners and boost business.
As your business grows, you will likely need workers to fill various roles. Potential positions for a warehouse business include:
At some point, you may need to hire all of these positions or simply a few, depending on the size and needs of your business. You might also hire multiple workers for a single role or a single worker for multiple roles, again depending on need.
Free-of-charge methods to recruit employees include posting ads on popular platforms such as LinkedIn, Facebook, or Jobs.com. You might also consider a premium recruitment option, such as advertising on Indeed, Glassdoor, or ZipRecruiter. Further, if you have the resources, you could consider hiring a recruitment agency to help you find talent.
It’s time to get the word out about your warehousing solutions. Combining your USPs with a solid marketing strategy will help you stand apart from the competition which is a must in the crowded warehousing industry.
Aside from implementing the marketing ideas listed above, it’s important that you become an International Warehouse Association member to get listed as a local warehouse. It’s also wise to build business-to-business relationships and advertise in leading industry magazines and journals.
You can also do affiliate marketing, in which you compensate third parties in order to generate traffic to your website. You’re now ready to open your warehouse and start making good money!
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