By Jeff Kinder
I’ve always liked this old joke: “What was the first sport?” Answer: Baseball! It says so in the “Bible,” Book of Geniuses, which reads, “In the big inning...”
What does baseball have to do with self-storage? Well, have you ever bought the game program? It lists the players, their batting averages, slugging percentages, on-base averages, strikeouts, etc. Why are there so many stats? Maybe because the game moves so slowly, you need something to do so you don’t get bored!
Now let’s think about the “stats” for a self-storage business. Have you taken the time to go through all of your management-software reports? As Harry Caray would say, “Holy cow!” There are reports for gross potential rent, gross occupied rent, actual rent, cash-basis receipts, accrual-basis income, cash, checks, prepaid rent, delinquent rent, delinquent units, and so on. There are also a half-dozen alerts as well as summaries, histories, charges, discounts, waived fees, credits … If you looked at all these reports every week or even every month, you’d never have time to accomplish anything else.
Leveraging Key Data
So, what performance indicators are important to track on a regular basis? We need enough information on the management overview to know what’s going on and see any red flags. These will tell us where to dig when there’s a problem or opportunity. Self-storage is a top-line-driven business. Expenses are important, and we need to have the systems in place to control them. However, the real points of leverage for our bottom line are at the top, where we drive revenue.
First, make sure you have a common vocabulary with your software. For example, “What’s your delinquency rate?” That’s a simple question, isn’t it? Is your software tracking delinquent units, delinquent rent or delinquent charges? Do your delinquent charges include everybody who moved out years ago and still owe something? Are your customers showing “current” even though they owe a late fee from last year?
Next, pick the reports that give you the top-line statistics and review them regularly. There’s a pace to the self-storage business. As in baseball, you don’t need 20 different stats just to tell you, “ball one.” When you find a problem, you can start drilling down into the hundreds of reports that are available to you. On a weekly and monthly basis, you need to examine each of the following areas:
Unit activity. This includes move-ins, move-outs, current occupancy number, current occupancy percentage and your budgeted occupancy. If you can’t compare your actual numbers to your plan, how else are you going to know if you’re doing well?
Deposits. Pay attention to cash, check and electronic deposits as a percentage of total revenue. If the percent of cash hits a pothole or trends continually down, it’s a leading indicator that your staff is stealing.
Delinquency. Whether you’re tracking percentage of delinquent units or delinquent dollars, pick one and stick with it. Delinquency revolves around customer communication, office organization, and adherence to systems and procedure. When delinquency starts to slip, it’s often an indicator that there are bigger problems with you or your staff. When focus starts to drift, for good reasons or bad, delinquency is usually one of the first places it shows up.
Rental income. Other income is always nice, but don’t let it mask what’s going on in your core business. Rental income isn’t as easy to get your hands around as some of your other fees. For instance, with an administrative fee of $10 and 15 move-ins, it’s pretty easy to know you should have $150 in fees. Track your rental income, or the money that specifically comes from renting your spaces, but know that it only tells you something if you put it in context with the other things you need to track, such as:
- Actual rent charged. Somewhere in that vast forest of reports, and probably somewhere on a one-page management-summary report, is the number your software actually charged your current customers for their current rent. How does your current rent collected, i.e., rental income, prepaid and delinquent rent collected, compare to what you actually charged?
- Prepaid rent. In most software packages, your rental-income line counts all of the money that was applied to rent. However, in a case where your total rental income stayed normal but your prepaid rent spiked upward, you might be headed for trouble because that’s money you won’t be collecting in the future.
- Past-due rent. Even if your total rental income is normal, if your past-due collected spiked up or went down, you should drill down into other reports to find out what’s going on. Are you in trouble? For example, if your rental income is the same but is comprised of more past-due collections, maybe your occupancy or actual rates are declining and you’re living on past glory. Maybe it’s good news, as your balance sheet is getting healthier and delinquency is declining. Maybe it was just a single deadbeat that finally caught up. No matter what the story, it’s worth a look.
- Merchandise sales. How do you know if you’re doing a good job? If you only have one store, maybe your goal is to just do better than before. If you have multiple stores, find another yard stick. After all, not all self-storage locations are good retail establishments. Consider using the number of move-ins to establish a general activity level at the store. You may not have this report in your software, but calculate the merchandise sales divided by move-ins to give you a relative number of dollars per move-in that you can use to compare your stores to each other.
Other Income
What other goals do you have for your store? Are you tracking them with or without your software’s help? Total dollars is a nice thing to know, but what can you compare it to so you have an idea as to how effective your operation is? Locks sold per move-in and insurance sold per move-in are two good things to track. Late fees as a percentage of total revenue or as a percentage of delinquent dollars is another.
Have you ever seen a picture of a graceful athlete flying through the air? It looks amazing until you then see the video of the idiot falling on his butt. The picture was true, but the video gives it context and meaning.
With the reports available for all of these top-line aspects of the self-storage business as well as the profit-and-loss statement, it’s important to look beyond the snapshot. Compare your current numbers to your budget. Compare them to the same period last year. Look at them as part of a trailing 13-month report. When you see the numbers in the context of time, the meaning changes from what you can see in a snapshot to what you can understand from the video.
Jeff Kinder is president of Advantage Advisors LLC, a self-storage syndication and management company he founded in 1997. Besides operating its own portfolio, Advantage provides direct investment, syndication, management and consulting services to the self-storage industry. For more information, e-mail [email protected]; visit www.advantagestorage.com.
