Return on Marketing Dollars (ROMD)

By Fred Gleeck

No matter how much you invest in marketing your storagebusiness, you need to spend intelligently. But before you expend a dime, its important to understandthe value of your customers. In other words, you should know what youregetting for your marketing dollars.

Here is a way to compute how much each customer is worth toyou. Take your average length of stay in months (the national average isapproximately seven months for residential customers). Multiply that number bythe rental rate for the average unit rented (the national average is $80). Inthis example, you get a total of $560 (your gross revenue). If you are in anarea with higher rental rates, substitute your own numbers. Dont be overlyconcerned with the precision of your figuresits more important tounderstand the principle.

Next, subtract your hard costs of doing business. Tomake things easy, lets say they comprise 50 percent of your gross revenue, or$280. If youre fairly regular about generating referrals, every fifthcustomer will win you another rental, so you can re-add $56 (20 percent, orone-fifth, of $280) to your total, leaving you $336. This is the number you willwork with for the sake of the exercise. In reality, it may be slightly higher orlower.

Choosing Your Marketing Method

Now its easy to determine whether a certain method ofmarketing makes sense. If the cost of acquiring a customer is more than $336,look to another approach. If the cost is lower, consider it. In an optimalenvironment, you want to put all of your marketing dollars in the area thatprovides the greatest return for your effort.

There is only one wrench in the works. Some groups can only be attracted through specific marketingmethods. For example, some will only look through the Yellow Pages; others will only respond to direct mail. Still others only dobusiness with you if they are referred by someone they know. For this reason,you must employ a variety of marketing techniques. Different target marketsrequire various approaches, which come with varying costs. Use those methodsthat are the most cost-effective, but realize some customers cannot be capturedusing inexpensive marketing. You may need to spend more to attract selectgroups.

Understanding this, you cannot fall back on lazy marketing aspracticed by the vast majority of self-storage operators. Many owners simply place a Yellow Pages ad and wait for thephone to ring. Anyone who does this and complains about how tough thebusiness has become is deluding himself. I dont know of any other businessesin which owners feel they dont have to work to be successful.nIf you got into the self-storage business thinking you wouldnot have to work at marketing, think again. Lack of attention to promotions willmake your long-term survival very questionable.

ROMD

Every marketing-related activity you do should be based onthis key premise: Spend the least amount possible to get the greatest in return.You should always be looking for a return on investment. The trick withmarketing is to spend very little and have the net payback in terms of rentalsbe substantial. This is your ROMD (return on marketing dollars). I coined thisphrase because few people in the industry had thought about it before. Theold-guard, elite operators had been operating on a dumb and happyphilosophy.

What do I mean by this? For years, the storage industry wasbursting at the seams. Owners threw up a building, tossed a so-so ad in the YellowPages and watched their bank accounts grow with little or no marketing effort.Dont get me wrongI applaud the pioneers in this industry for theirforesight. They built early and deserve credit for seeing an excellent opportunity. However, the rules of the game havechanged. They are now competing in a completely different marketplace. So are you!

It is getting considerably more difficult to make a bundle ofcash in this business. Competition is increasing daily. The big REITS are building intowns we thought they would never touch. I recently visited a facility in theSan Diego area where there were 13 storage facilities within 1 mile of eachother. You think you have it bad! And it will get worse. Investors nowknow what a great business self-storage is. This can only mean one thing:decreased profits and more competition.

There are lots of different ways to market your storagefacility; but the top seven ways in terms of ROMD are:

I havetouched on each of these methods in past columns. Advertising in the Yellowpages is not even in the top five in terms of ROMD. Does this mean you shouldnot use them? Absolutely not. All it means is there are other methods with muchhigher leverage ratios. Your marketing efforts should be a balanced mix ofdifferent techniques. Concentrate on those which give you the best bang for yourbuck!

Look at every method of marketing you use and assess its costvs. its benefits. Understand that certain techniques will have much higherreturn rates than others. Use them allas long as they are profitabletomaximize your chances for success in this ever more competitive storage marketplace.

Fred Gleeck is a profit-maximization consultant who helpsself-storage owners/operators during all phases of the business, from thefeasibility study to the creation of an ongoing marketing plan. He is the authorof Secrets of Self Storage Marketing SuccessRevealed!,available for purchase at www.selfstoragesuccess.com, as well as the producer of professional training videoson self-storage marketing. To receive a copy of his Seven-Day Self- Storage MarketingCourse and storage marketing tips, send an e-mail to [email protected]. For more information, call 800.FGLEECK; e-mail[email protected].