Unit Margin Analysis

1. Margin Calculation Framework

Revenue Conversion

Cost Components (From Task 1)

Margin Definitions

• Gross Margin = Revenue - All Allocated Costs
• Margin % = Gross Margin / Revenue × 100
• Contribution Margin = Revenue - Variable Costs (SF-based only)

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2. Per-Tier Margin Analysis

2.1 Standard Suite (100 SF) — 8 Units

Performance Metrics:

• Revenue/SF: $12.34/SF/month ($148/SF/year)
• Margin/SF: $5.59/SF/month ($67/SF/year)
• Cost/SF: $6.75/SF/month

2.2 Plus Suite (130 SF) — 5 Units

Performance Metrics:

• Revenue/SF: $10.49/SF/month ($126/SF/year)
• Margin/SF: $4.25/SF/month ($51/SF/year)
• Cost/SF: $6.25/SF/month

2.3 Large Suite (160 SF) — 3 Units

Performance Metrics:

• Revenue/SF: $9.34/SF/month ($112/SF/year)
• Margin/SF: $3.41/SF/month ($41/SF/year)
• Cost/SF: $5.93/SF/month

2.4 Executive Suite (200 SF) — 2 Units

Performance Metrics:

• Revenue/SF: $8.34/SF/month ($100/SF/year)
• Margin/SF: $2.68/SF/month ($32/SF/year)
• Cost/SF: $5.66/SF/month

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3. Tier Comparison Summary

Margin Comparison Table

Margin Waterfall (Text Visualization)

Standard Suite (100 SF):
Revenue:     ████████████████████████████████████████ $1,234 (100%)
- Variable:  ██████████████░░░░░░░░░░░░░░░░░░░░░░░░░░ $456  (37%)
- Fixed:     ███████░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░ $219  (18%)
= MARGIN:    ██████████████████░░░░░░░░░░░░░░░░░░░░░░ $559  (45%)

Plus Suite (130 SF):
Revenue:     ████████████████████████████████████████ $1,364 (100%)
- Variable:  █████████████████░░░░░░░░░░░░░░░░░░░░░░░ $593  (43%)
- Fixed:     ██████░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░ $219  (16%)
= MARGIN:    ████████████████░░░░░░░░░░░░░░░░░░░░░░░░ $552  (41%)

Large Suite (160 SF):
Revenue:     ████████████████████████████████████████ $1,494 (100%)
- Variable:  ███████████████████░░░░░░░░░░░░░░░░░░░░░ $730  (49%)
- Fixed:     ██████░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░ $219  (15%)
= MARGIN:    ██████████████░░░░░░░░░░░░░░░░░░░░░░░░░░ $545  (36%)

Executive Suite (200 SF):
Revenue:     ████████████████████████████████████████ $1,667 (100%)
- Variable:  ██████████████████████░░░░░░░░░░░░░░░░░░ $912  (55%)
- Fixed:     █████░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░ $219  (13%)
= MARGIN:    █████████████░░░░░░░░░░░░░░░░░░░░░░░░░░░ $536  (32%)

Tier Ranking

Key Finding: Standard suites are the most efficient tier on every margin metric.

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4. Sensitivity Analysis

4.1 Occupancy Impact on Portfolio Margin

Portfolio at 18 suites, $22,640/month revenue at 100% occupancy.

*Costs adjusted for vacancy: Variable costs scale with occupancy; fixed costs ($3,942/mo) remain constant.

4.2 Rent Variation Impact (at 85% Occupancy)

4.3 Cost Variation Impact (at 85% Occupancy)

4.4 Combined Scenario Matrix (Margin % at 85% Occupancy)

Worst Case (rent down, costs up): 17.4% margin Base Case: 31.6% margin Best Case (rent up, costs down): 45.0% margin

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5. Break-Even Analysis

5.1 Portfolio Break-Even Occupancy

Fixed Costs: $3,942/month (insurance, maintenance, common area, admin) Variable Costs per Suite: Average $514/month (occupancy + utilities allocated) Average Revenue per Suite: $1,258/month

Break-Even Formula:

Break-Even Suites = Fixed Costs / (Avg Revenue - Avg Variable Cost)
                  = $3,942 / ($1,258 - $514)
                  = $3,942 / $744
                  = 5.3 suites

Break-Even Occupancy = 5.3 / 18 = 29.4%

However, this ignores that occupancy costs are committed regardless of vacancy:

Revised (Including Committed Occupancy):

Committed Costs = Fixed ($3,942) + Occupancy ($10,000) = $13,942/month
Revenue Needed = $13,942
Suites Needed = $13,942 / $1,258 = 11.1 suites
Break-Even Occupancy = 11.1 / 18 = 61.7%

Conservative Break-Even: 62% occupancy (to cover all committed facility costs)

5.2 Break-Even by Tier

*All tiers are cash-flow positive when occupied; no suite-level break-even issue.

5.3 TI Amortization Break-Even

Build-Out Costs (From Phase 6): $100-150/SF average Assumed TI Allowance: $30/SF from landlord

*Net TI = Build-out - Landlord TI allowance (at $30/SF)

Key Finding: All suite types pay back build-out investment within 3 years.

5.4 Minimum Occupancy for Positive Cash Flow

After accounting for all costs including owner compensation:

Implication: At target 85% occupancy, facility supports ~$5,400/month owner compensation after all costs.

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6. Strategic Recommendations

6.1 Tier Prioritization for Marketing

Priority 1: Standard Suites (8 units)

• Highest margin % (45.3%)
• Highest revenue/SF ($12.34)
• Largest demand pool (entry-level professionals)
• Fastest payback (17 months)
• Recommendation: Prioritize Standard suite leasing first

Priority 2: Plus Suites (5 units)

• Strong margin (40.5%)
• Natural upgrade path from Standard
• Appeals to growth-oriented professionals
• Recommendation: Market as "growth tier" for established stylists

Priority 3: Large Suites (3 units)

• Moderate margin (36.5%)
• Niche demand (dual-station, teams)
• Recommendation: Target specific segments (couples, small teams)

Priority 4: Executive Suites (2 units)

• Lowest margin % (32.2%) but highest absolute revenue
• Premium positioning, limited demand
• Recommendation: Reserve for specialty/premium tenants; accept longer lease-up

6.2 Pricing Strategy Validation

Pricing Recommendation:

• Consider raising Plus to $325/week (+$10) to improve margin parity with Standard
• Consider raising Executive to $395/week (+$10) for better margin recovery
• Standard pricing optimal at $285/week

6.3 Mix Optimization (Future Consideration)

If building a new facility or modifying layout:

Verdict: Current mix is reasonable; Standard is slightly underweighted but impact is marginal.

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7. Portfolio Summary

At Target Occupancy (85%)

Key Performance Indicators

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Unit Margin Analysis Complete - Ready for Turnover Model (Task 3) Phase 7: Unit Economics - Task 2 Complete