By Magen Smith
Savvy self-storage operators know they have to capture every possible dollar of rent to make their company profitable. The large companies, including the real estate investment trusts, have sophisticated programs and spend massive amounts of money to fine-tune their revenue management, but how is a small operator supposed to compete and still deliver outstanding customer service?
After all, storage units aren’t just numbers on an income statement. They’re filled with people’s precious belongings. We never want to remove the human element from our operation and risk alienating our customer base for the sake of a dollar.
To get the best results, you need to develop a proper pricing strategy. It should address two elements: street rates and rate increases for existing tenants. The following will help you establish an approach that’s fair to customers while generating new revenue for your business.
Street Rates
Having proper street rates is the first step in being strategic with your pricing strategy. If your rates are too high, your move-in numbers will suffer. If they’re too low, you can’t raise them fast enough to compensate for the loss of revenue. You should know all of your competitors’ street rates as well as any specials they offer.
Use your prices as a tool to distinguish yourself in the market. If you have the most state-of-the-art facility in town and want to cater to higher-income clientele, set your prices slightly above average. If you want to be seen as a locally owned facility catering to middle-class America, set your prices as such. If you desire to be the low-cost leader, a la Walmart, then offer the cheapest rates out there.
Your prices should tie directly to the value you bring to the customer. For example, if you’re the lowest-priced facility but provide the most facility features, you’re leaving money on the table, as customers would likely pay a premium for your amenities. If you’re priced high but don’t offer the same value as competitors, you probably aren’t getting the customers, since they can get more for less somewhere else.
Determining what differentiates you from the competition can be difficult when you see your facility every day. Some of the basics to keep in mind are a facility’s physical attributes, such as location and security measures, as well other perks like a feature-rich website that offers online billpay and reservations.
Put yourself in your customer’s shoes and look at everything from his perspective. You can also hire a professional to provide an assessment of your facility or a mystery shopper to give you feedback. We can’t be all things to all people. Even a storage company needs to determine where it wants to sit in the marketplace and how it defines its brand.
Once you’ve set your street rates, you need to a way to constantly monitor them. This isn’t something you set and forget. Unfortunately, I see owners do this way too often. Look at your facility and competition and adjust your street rates at least monthly. Ideally, street rates should be reviewed weekly. When you’re going over these numbers, look at units by size, not the facility as a whole. As units fill up, your prices should increase. Your last 10-by-20 should sell for more than the first.
Most self-storage management software includes a feature for automatic rate increases. Once occupancy hits a certain percentage within a unit size, the program increases the price. Think of street-rate pricing as an experiment to see what your market can handle. You can generally be much more aggressive in a primary market than a secondary or tertiary one.
Rate Increases for Existing Customers
Once you’re comfortable setting your street rates, focus your attention on raising rates for existing tenants. It’s foolish to believe that once someone moves in he can pay the same rate for 10 years. Prices increase. It’s a part of life.
Again, you can use your software to automatically increase rates for existing customers, however, some facility operators are uncomfortable with this option. Increases tend to feel personal, especially when you know your customers. It can be difficult to raise the rent on “sweet Mrs. Jones.” However, if you do use the software feature, you’ll likely make more money because it removes the human element. Try to get comfortable with this and set up the system so you don’t have to worry about increases ever again. It’s done for you.
If you can’t get on board with automatic increases, that’s OK. Most operators need to go through a manual process for a while until they feel at ease with an automatic one. If you’ve never raised rates before or haven’t done it in some time, here are some conservative ways to do it:
- Increase by size. If you have a unit size that’s full or nearly full, raise the rate for those customers. If you only have one 10-by-20 left on the property, everyone who rents that size gets an increase. Even if a few customers move out, you can re-rent those units quickly according to your history.
- Hand select tenants. Sit down with your rent roll and raise the price for the tenants you know can handle the increase or are likely to accept it with little pushback. Pre-determine a number of customers, for example, 30 percent of your total customer base is a good place to start.
- Raise rates in stages. You don’t have to raise the rates on all your existing tenants at once. Review who’s been paying the same rate for the longest amount of time and raise those first.
Most operators hesitate to raise rates due to fear that tenants will move out. However, research shows only 1 percent of tenants will move out over a rate increase—as long as it’s a tolerable amount. Use percentages or a flat rate. Five percent on a $100 unit is only $5 a month. Most people won’t go through the hassle of emptying their unit for so little an amount.
If you want to limit the likelihood of move-outs, also pay attention to your timing. Moving out of a storage unit in Louisiana in August isn’t worth $5 a month, nor is vacating a unit in Maine in January. You can also time your increases to coincide with times when tenants won’t miss the money. For example, if you’re in an area where people rely on tax refunds to pay off bills, then raise your rates on March 1. If you’re in a community in which people travel for the summer, raise rates on June 1.
Before you send your increase letters, think through all related concerns. Make sure you and your staff know what to say if a tenant complains. If you want to allow a postponement for upset customers, set those parameters up front.
Rate increases are always easier to stomach if you’ve made improvements to your facility, but this is your business, and you don’t have to justify your price to customers. You do, however, want them to feel appreciated and heard. Facility operators who take care of their tenants will always be more successful than those who make every decision based on the income statement.
Magen Smith is a former self-storage manager turned certified public accountant (CPA). Her company, Magen Smith CPA LLC, helps storage operators understand the financial side of their business. Services include monthly financial management, simplifying bill-paying functions, revenue management and strategy. For more information, e-mail [email protected]; visit www.selfstoragecpa.com.
