When your shop rent goes up

Turn the rise into what it costs you per day, then find that amount in four places, in order: old udhaar you have not collected, slow stock sitting on the shelves, better buying, and only last of all your own rates. Most rent rises are covered before you ever touch a price tag.

The number that changed while nothing else did

The landlord comes on a normal morning and says the rent goes from Rs 25,000 to Rs 31,000. He is not angry, he is not unreasonable, and he has probably been putting off the conversation for a while.

Nothing else about your shop has changed. The same customers walk past. The same goods sit on the same shelves. You sell about what you sold before.

The first feeling is that something has been taken from you, and the first instinct is to put your rates up on the same afternoon.

Do not do that. A rate rise made in anger, on the day, without arithmetic, is the most expensive way to answer this, because it is visible to every customer and it usually does not even cover the gap.

First, turn the rise into a daily figure

A monthly number is impossible to act on. Rs 6,000 a month sounds like a wall. Break it down and it becomes a task.

Say the rent goes from Rs 25,000 to Rs 31,000

Extra rent every monthRs 6,000

Days the shop opens in a month30 days

Extra you must earn every single dayRs 200

Your margin on an average saleAbout 12 out of every 100

Extra sales needed per day to stand stillRs 1,667

Made-up figures for the shape of the sum, not a claim about any shop. Put your own rent and your own margin into the same four lines.

Read the last line again, because that is the one shopkeepers get wrong. Rs 200 a day is not the target. The target is the extra sales that produce Rs 200 of margin, which at twelve out of every hundred means about Rs 1,667 of extra selling every day.

Now the number is honest, and it is also usable. Rs 1,667 a day is four or five more customers, or one more delivery to a nearby workshop, or one line of goods you do not currently keep. It is a business problem with a size, not a feeling.

If you do not know your own margin, work that out before anything else, because every decision after this depends on it. The method is set out step by step in how to work out your shop's real profit, and it takes an evening.

Do not start with your rates

Almost every shopkeeper reaches for the price tags first, and it is the worst of the four options for three reasons.

It is the most visible. Customers notice a rate change on the items they buy every day, and they notice it within a week. A rise they connect to your shop rather than to the market costs you goodwill you cannot buy back with Rs 6,000.

It is the slowest to arrive. A rate change earns you a little on each future sale, so it takes weeks to add up, while the rent is due on a fixed date.

And it is often unnecessary, because in most shops there is more money sitting in unpaid udhaar and unsold stock than the entire rise. That money is already yours. Collecting it does not cost a single customer anything.

Four places the extra rent can come from, in this order

1. 1Money already yours, stuck in old udhaarCollecting an old balance costs you nothing and no customer notices.
2. 2Money sitting on the shelves as slow stockClearing it turns dead goods back into cash for the rent.
3. 3Better buying: rates, delivery, and what you stop stockingOne improved rate on your biggest line can cover a whole rise.
4. 4Your selling rates, last of allSmall moves on many items beat one visible jump on a famous one.

Where the money actually is

Start with the khata. Go through it and find every balance older than two or three months, then sort them by size rather than by age. Chasing the largest six old balances for a fortnight will usually produce more than a rate rise produces in half a year, and none of your customers experience it as a price change.

A fortnight of steady collection also does something the rate rise never will: it tells you which balances are actually money and which have quietly become losses. Shopkeepers routinely count both as assets, and a rent rise is a useful reason to find out the difference.

Then look at the shelves with the same eye. Every carton that has not moved in months is rent you are already paying for storage, and now that rent has gone up. Clearing slow stock at a reduced rate is not a loss, it is turning a stone back into cash. The judgement about what to clear and what to keep is worked through in the stock that never sells and eats your cash.

Third, look at your buying. A rent rise is one of the few honest reasons to go back to a supplier and ask for a better rate on your biggest line, because you are not haggling for the sake of it. One improved rate on the line you sell most of can cover a whole rise by itself, and if your main supplier will not move, this is the moment to price a second one, which is the decision examined in one supplier or several.

The conversation with the landlord

Have it properly, once, after you have done the arithmetic and not before.

Sitting with the landlord

✓Ask for these

• Can we do it in two steps, half now and half after six months?
• If I pay a year in advance, what is the rent then?
• Can we fix it in writing for the next three years?
• The shutter and the wiring need work. Can that come off the rise?

✕Do not do these

• Tell him what you earn.
• Threaten to leave when you have nowhere to go.
• Agree on the spot because he is standing there.
• Leave the new figure unwritten.

The important idea is that the amount is often the least flexible part of the deal. A landlord who will not come down from Rs 31,000 will very often agree to reach it in two steps, or to fix it for three years, or to let the shutter repair come out of the difference.

Go with two numbers in your head before you sit down: the figure you can pay without changing anything, and the figure above which the shop stops being worth running. Everything between those two is negotiation, and everything above the second one is a decision about moving. Landlords sense very quickly which shopkeepers have done this arithmetic and which are guessing.

A fixed multi-year figure is worth more than a small reduction, and shopkeepers undervalue it constantly. Knowing your rent for three years lets you plan stock and a helper's salary with confidence, and it removes this same conversation from the next two years.

Never tell him what you earn. He is not asking as a friend, and a landlord who learns your takings will set the rent against them from then on. Talk about the shop, the street, the repairs and the length of the agreement.

And whatever you agree, get it written and dated, with both names on it. A rent agreed verbally is a rent that gets remembered upwards.

If the rate has to move, move it properly

Sometimes the first three places genuinely do not cover it, and your rates have to change. Do it deliberately.

Leave your famous items alone. Every shop has five or six things whose rate customers know by heart, and those are the ones that decide whether your shop is thought of as expensive. Move everything else instead, in small steps, and the same total lands with almost nobody noticing.

Round sensibly rather than raising by a fixed percentage on everything. Small, sane numbers on many items feel like normal drift; an odd figure on a familiar item feels like a decision aimed at the customer.

Change it once, not repeatedly. Three small rises in three months is remembered as a shop that keeps putting its rates up, while one adjustment is remembered as nothing at all. The full method for setting a rate you can defend is in how to price what you sell and still earn.

When the honest answer is to leave

Occasionally the rise is simply too much for what the location gives you, and moving is the right decision rather than the frightened one.

Work it out rather than feeling it out. Add the new rent to your other fixed costs and calculate the sales you now need every month just to break even, using the method in how much your shop must sell before you earn. If that number is above anything the shop has ever done in a good month, the location has stopped working at that rent.

Then be honest about what the address is worth. A shop that people have walked past for years carries customers who will not follow you two streets away, and a cheaper rent that costs you a third of your customers is not cheaper. The same trade-off, in the other direction, is what makes opening a second shop or growing this one such a hard decision.

Keeping the numbers where you can see them is what makes this a decision instead of a guess. When your daily takings, your expenses and your outstanding udhaar all sit in one place, a rent rise becomes a calculation you can do in ten minutes. Wasoolo keeps rent and the rest of your fixed costs as expenses against the shop, so the effect on your monthly profit shows up without you rebuilding the sum by hand.

Common questions

My landlord raises the rent every year. How do I stop the cycle?

Ask for a fixed figure over a longer term, and offer him something in return for it. Landlords value certainty as much as tenants do, so a three-year rent written down, or an offer to pay a quarter in advance, is often accepted where a straight refusal is not. Raise it before the increase is announced rather than after, because the conversation is much easier when nobody has taken a position yet.

Should I tell my customers the rent went up?

No. It is your cost, not theirs, and explaining a rate change with your own expenses invites an argument you cannot win. Customers accept quiet, small adjustments and resent justified ones. Keep the reason to yourself and let the shop look the same as it always did.

The rise is due immediately and I do not have the cash. What is the first move?

Ask for the increase to start from the following month rather than immediately, which is a small request most landlords grant and which buys you one full cycle to collect. Use that cycle on old udhaar, because it is the fastest money available to you. Do not borrow to pay rent unless the shortfall is genuinely one month long.

Is it worth taking a bigger shop when the rent is going up anyway?

Only if you can name the extra sales the extra space will bring, and name them in numbers. Space by itself does not sell anything. If the bigger shop lets you stock a line customers ask for every day and currently walk elsewhere to buy, it can pay for itself, and if it just looks better, it will not.

How much of my sales should rent be?

There is no single correct share, because it varies enormously by trade and by street, and any figure someone quotes you is a guess about somebody else's shop. What matters is your own break-even: the sales you need each month to cover every fixed cost. Work that out, compare it with what you actually sell in an ordinary month, and you have a real answer instead of a rule of thumb.

Should I sign a longer agreement at a higher rent, or stay flexible?

If the location works, take the longer agreement, because the rent you know is worth more than the rent you hope for. Flexibility is only valuable when you have somewhere better to go, so it is worth walking the nearby streets and pricing two or three alternatives before you decide. Once you know what else is available, the choice usually makes itself.