One of the most important aspects of operating a self-storage business—if not the most important—is correctly pricing your units. Over the last few years, facility operators have gotten to be excellent at managing expenses. We have a pretty good idea how to manage line items such as credit cards fees, facility maintenance, office supplies and utilities. Unfortunately, facility expenses don’t stop there. There’s also insurance, payroll, property taxes and more. To maximize revenue in every way possible, we need effective pricing strategies for existing and new tenants.
Increases on Existing Tenants
Every facility operator should be conducting periodic rent increases on current customers. Most of the self-storage management-software programs have a built-in revenue-management feature. Just turn on the function and input your increase parameters.
For example, you could install a 6 percent increase on existing customers after the first six months of occupancy and another 6 percent every 12 months after the initial increase. You can do more or less than this and adjust the timeframes, but keep it reasonable. If you need help with this, reach out to someone.
Now, let’s dispute the main reasons I typically hear from owners and managers for why raising rents isn’t a good idea:
“All of my customers will move out.” Actually, they won’t. Your customers are conditioned to receive rate increases. This happens with credit card interest rates, cable TV, mobile-phone service, Netflix and every subscription service available. Very few people will move out of a 10-by-20 in the middle of summer or winter because the rent went up $5.
“My customers will talk to each other, and they’ll be very upset.” From time to time you’ll have customers who are connected to each other as friends, business partners or family. If one gets a rent increase and the other doesn’t, you may have to make a concession. But the fact is there isn’t a meeting of the XYZ Self-Storage Club in which members discuss your rates. Once a customer chooses a facility, the odds of him researching overall market prices are very low.
“I’m 100 percent occupied, and I don’t want a drop in my occupancy.” So, you’re willing to cap your revenue, allow your expenses increase and chew up your net operating income like a school of piranha, and turn away potential customers who’ll pay higher prices for an arbitrary number that means absolutely nothing in the grand scheme of revenue and facility value? Exactly. You shouldn’t.
Street Rates
The next step is to manage your facility’s street pricing to drive the highest revenue. Most of the time, price isn’t the single determining factor in whether a customer purchases a good or service. Now, you can’t necessarily be 50 percent higher than your competitors, but being the highest-priced facility isn’t a bad thing. Your customers are looking for the “best place” to store their items. That requirement doesn’t always correlate to the most inexpensive place.
A few years ago, Stanford University conducted a study on how price affects consumer purchases. The results were:
- 13 percent of customers chose the lowest price.
- 17 percent of customers chose the highest price.
- 70 percent of customers chose a good or service on something other than price.
So why does your entire price strategy focus on just 13 percent of your market? In addition, not every customer is one you actually want. Some people are just as content storing their items at a vacant house at the end of their block vs. your wonderful, state-of-the-art, self-storage facility.
Instead of focusing on price, promote value. Price always follows value. Complete regular market studies to find trends and price points in your market, and review your vacancies to adjust pricing. Consider placing your best prices online, then offer higher prices in your office.
In addition, cut down on discounts. Specials are exactly what they are: special. Nothing is written in the “Laws of Self-Storage” that says you have to offer a discount to a customer simply because he decided to grace your door step. You can easily be the highest-priced facility, but you need to provide the value that comes with that designation.
The Mental Part
Finally, work on the mental aspect of these changes. If you don’t already have a pricing program in place, this is the hardest part. Most self-storage managers hate increases, and it’s easy to understand why. First, you’re the facility’s first line of defense. You take all calls and work with customers individually. You know that as soon as the increase letters go out, you’ll get a few calls from unhappy customers. You’re not looking forward to those conversations.
Second, you know about each of your customers. Managing a storage facility is like bartending, but without the alcohol. You know which tenants are getting divorced, having financial issues, losing a job or home, or on Social Security or disability. You have sympathy and empathy, which drives you to defend the current pricing structure.
While it’s good for managers to have those qualities, it has to be within the realm of running an efficient business. You need to understand the finances of the facility to help with the mental block against increases. Knowledge is power, and it can have a great effect on your bottom line. Your facility occupancy may be great, but what about revenue? This is the question we should all be focusing on in 2016 and beyond.
Matthew Van Horn is vice president of Cutting Edge Self Storage Management, which specializes in facility management, feasibility studies, consulting and joint ventures. He’s also president of 3 Mile Domination, a full-service self-storage marketing and strategy company. For more information, visit www.cuttingedgeselfstorage.com and www.3miledomination.com, where you can download a free e-book.
