The Intricate Art of Self-Storage Revenue Management: Competition, Pricing and Staff Participation
|Copyright 2014 by Virgo Publishing.|
|By: Matthew Van Horn|
|Posted on: 09/06/2013|
One of the most pressing items in the day-to-day task list of a self-storage owner, operator or investor is increasing facility revenue or, more important, net operating income (NOI). The industry has recovered well from the economic downturn, and the financial situation for most facilities has improved dramatically. During the recession, we were forced to cut costs to operate. If you haven’t started already, it’s time to begin focusing on the revenue side of that equation.
What is revenue management? We often think of it as just increasing rates, but it’s more than that. Simply put, it’s an overall strategy to most effectively manage potential and actual revenue and maximize return. Competition review, pricing and staff participation are all part of this intricate art.
Knowing what your competitors are offering is a basis for revenue management. It’s hard to manage or project revenue when you’re blind to the status of your market. You can be the highest-priced facility in any area, but there’s a limit, so knowing what other facilities are charging is important. To sell your product, you need to know what makes it distinctive. This is your unique selling proposition, or USP. You also need to know who your competitors are and what they’re charging.
So who are your competitors? The standard market radius used to be about five miles. However, with new self-storage development, it’s now about three miles. This will vary between urban and rural areas, but for the most part, three miles will give you an adequate representation.
To determine who your real competitors are, use a map. You can use Google Maps, Google Earth, Microsoft Map Point or just a regular paper map. Once you’ve placed all your competitors on the map, mark a three-mile radius around your property and see which of them fall inside. Those are the properties on which you want to regularly focus. Now, grab a notebook, tablet or smartphone, a camera and GPS; it’s time for a field trip to visit these businesses. These are the questions you want to ask at each one:
Once you have the answers to these questions, you can start to develop a sales presentation and marketing plan around this information. Check the rates of your competitors on a regular basis and be proactive. It’s better to lead your market then play catch-up.
Now that you know what’s happening in your market, you can begin to adjust your strategy to most effectively manage revenue. The most common way to begin is to execute rent increases on current tenants. The most dangerous statement operators can make in regard to revenue management is, “I'm 100 percent occupied, and I don’t want to raise rates.”
First, you don’t get a Super Bowl ring for being 100 percent occupied. There's no award, and it hampers your facility’s revenue potential. I would rather be 95 percent occupied while simultaneously raising my standard rates and performing rent increases on my current customers. Second, if you’re 100 percent occupied, you’re turning away potential customers on a regular basis. Finally, the return on your marketing campaigns will be weaker than it should be.
The largest self-storage companies in America raise rates on current customers on a regular basis and so should you. Two of the most common approaches are:
Most self-storage software programs include revenue-management functions that will handle these increases for you automatically. Don't raise rates individually. Let the computer do it automatically, and then handle customers on an individual basis.
If you look hard enough, you can find a reason to hold off on rent increases for all your customers. One tenant lost his job, one lost a home, the other is on a fixed income, etc. Don't have this mental conversation. Raising rates is imperative for the success and viability of your business. Also, consider raising rates on current customers when you implement a site improvement such as security enhancements, or in the height of summer and winter. No one wants to waste a Saturday afternoon in 90-plus degree heat, moving out of a 10-by-20, over a $5 increase.
In addition to raising rates on current customers, consider using different pricing strategies to adjust rates on new ones. All units are not created equal. Yes, they were built with the same materials, but location and amenities can make a difference. For example, let’s say someone wants to rent a 10-by-20 on the second floor, and there are two units available. One is right next to the elevator and another is in the back hallway. Is the unit next to the elevator more valuable to your customer? You bet.
Do you have additional amenities? For example, for an extra $5 or $10 per month, can a customer have access to a conference room, snacks, a discount on packing supplies, etc.? This additional revenue can add up quickly.
Do you offer different prices online vs. in the office? People who are shopping online typically have more of a price focus. If a customer walks into your office, he typically needs a storage unit right now. A self-storage facility is not a sports bar; no one walks into one to “hang out.” If a potential customer wants to rent a unit, then consider upselling. If your typical 10-by-10 is $100 and you offer a one-month-free special, consider starting the pricing at $110 without a special. “Sell” your facility!
Remember, there’s nothing unethical or wrong in adjusting your pricing. This is part of the self-storage business model. We must maximize our revenue to battle rising expenses and keep our properties competitive.
One of the most common reasons facility managers don’t want to raise rates is they believe there will be a huge backlash from customers. This doesn’t typically happen. Yes, you’ll have a couple of customers who’ll be vocal, and you can handle them on a case-by-case basis. Most of our customers don’t know each other, nor do they have any idea how units are priced. There isn’t a secret meeting of the XYZ Self-Storage Club. It just doesn’t happen. Consider how often you purchase something that can vary in price—hotel rooms, airline tickets, sporting events, concerts and rental cars. This happens every day; it’s just a part of business.
The benefits of revenue management are easy to see and calculate. If you implement just some of these strategies, you’ll see a direct impact on your revenue almost immediately, and most of it will flow right to your NOI. Our continued success is based on managing our revenue as well as we manage our expenses.
Matthew Van Horn is vice president of Cutting Edge Self-Storage Management , a full-service management company specializing in management, feasibility studies, consulting and joint ventures within the self-storage industry. 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 the company’s free e-book.