The 14 Biggest Pricing Errors
|Copyright 2014 by Virgo Publishing.|
|By: Fred Gleeck|
|Posted on: 01/01/2003|
MANY SELF-STORAGE FACILITIES USE PRICING STRATEGIES THAT DON'T MAKE SENSE. RECENTLY, a self-storage owner told me he priced his services by surveying the competiton and setting his prices comparatively. To set your fees using this system alone is folly. If your goal is to maximize revenue (and it should be), a variety of factors should be considered when setting and changing price. Properly charging for units will also help prevent competition from entering your area. This article addresses the 14 biggest pricing errors self-storage owners and operators make. Avoid these mistakes and you'll make a lot more money and reduce the number of potential competitors you invite.
Pricing based on occupancy in a particular unit size.
Most operators base price increases on overall occupancy levels. Every year or so, they raise prices by a certain percentage across the board. This is a bad idea, and here's an example to illustrate. Let's say a facility's occupancy is 90 percent. Most operators come up with a percentage, like 6 percent, and increase prices on all unit sizes by that amount. But if your 5-by-10s are only 60 percent occupied, the price on those units should probably not be increased. On the other hand, if your 10-by-10s are 98 percent occupied, you should raise the price on that unit size. In fact, it should have been raised before this point. Look at your occupancy levels at least once a month and make sure you're examining them by unit size. Start raising prices when occupancy rates hit 90 percent.
Not offering ultra-low prices on some units.
If you're not offering $9.95 mini units, you're missing the boat. Offering a small, locker-style unit at less than $10 gives you a marketing edge. Advertise it in your Yellow Pages ad and the phone will ring off the hook. You will obviously only have a small number of units at this price, but the purpose of these units is to get people to call you. Once they call, get them to visit. Once they are at your facility, upsell them to bigger, more expensive units--if their needs demand it. If you don't have any of these small units, go out and find some old school lockers you can pick up dirt cheap.
Not using a variable-pricing strategy.
There is no law saying you must charge everyone the same price for the same size unit. Think of an airplane. How many people are paying the same price for their seats? Very few. There is nothing illegal about pricing units differently. The main thing is for managers to understand pricing should be flexible. If your manager is sharp and given the power to price units as he sees fit, your store's profitability can sore. Let's face it: If someone walks in the door to rent a unit and lets you know he is a pharmaceutical rep, there's no reason you shouldn't charge him your "corporate" rate, which is obviously higher than your standard.
Displaying your prices.
You should never display your prices. Pricing needs to be flexible, based on a variety of factors. Instead of posting set rates, have a sheet of paper that lists all unit sizes with blank spaces to write in prices. A lot of facilities don't do this because 1) it takes more effort and 2) it requires some thinking and flexibility. The sharper your manager, the easier it will be to make this system work.
Not using a premium-unit strategy.
When a customer walks into your facility set on a particular unit size, this is your opportunity to use the premium-unit strategy. Here's how it works: When someone comes in requesting a 10-by-10, ask him whether he wants one of your "premium" units. He will naturally ask what that is. If all you have left are units in the back of the site, tell him these are premium because they are more private. If you have units at the front of the site, these are premium because they are quicker and easier to access.
When asked how much your premium units cost, let the customer know they are only $5 or $7 more than the standard units. Even if only one in three people go for this line, your revenue will be substantially higher than that of a facility that doesn't employ this strategy.
Not increasing prices by the right increments.
Many operators make mistakes when they raise their prices in terms of the amounts. The most popular way to raise prices on all units is to increase by a set percentage across the board. But in reality, some unit prices should be raised, others lowered and others left alone. It all depends on market demand.
Not increasing prices differently for new and existing customers.
There is no reason you have to increase prices the same way for new and existing customers. When you increase prices for existing customers, make the price hike large enough to generate more cash, but not so big as to cause people to move out. Let's say that you have 100 10-by-10s and most existing customers are paying $79 a month for them. If you increase that price to $84, it will be considered by most tenants to be a nuisance raise. The increase isn't enough to make them move, but it is enough to significantly impact your bottom line. Price increases for new customers will, in most cases, be higher, based on market demand and other elements discussed above.
Not raising prices frequently enough.
It is much better for you to raise prices by a small increment two or even three times a year than to do one fat price increase annually. One owner in an affluent Chicago neighborhood sends out a letter to new tenants thanking them for renting and preparing them for price increases that may occur as often as every 90 days. That's right--he lets tenants know their prices may go up four times a year.
For most storage operators, this sounds scandalous. It's not. It's all based on market demand. Pricing should be a nonemotional decision based on numbers. If the numbers dictate you can raise prices every two months, do it. Most owners raise prices only once a year out of sheer laziness. Check your occupancy rates by unit size and make new pricing decisions monthly. You'll have a lot less move-outs and increase your profits if you raise prices by a smaller amount twice or more a year than a larger increase once a year.
Not having an automated system to raise prices.
Price hikes should happen automatically. The right software should be programmable to raise prices once occupany hits a certain level for each unit size. This frees your manager from having to think about pricing. If your software can't do this, ask your vendor when this feature will become available.
Using "hard" numbers.
Avoid using hard numbers like $90 or $65. Instead, set your prices at $77 or $93. This philosophy is based on years of research on price testing in a variety of industries. Stick with prices that end in one, three and seven. For some reason, these numbers appear "softer" to customers.
Feeling reluctant to raise prices.
I sometimes hear owners say they are scared to raise prices because they think they will upset tenants. In most cases, those fears are unwarranted. If the problem is reluctance on behalf of your managers, tell them to get over it. This business is about making money, not friends. Do you think your local gas stations only increase prices when they know customers won't be upset? The decision to raise prices should be a nonemotional one. Don't be scared to increase them if it makes sense for your business.
Not lowering prices when appropriate.
The price equation works both ways. There are some unit sizes on which prices should be increased, but other prices should be reduced. Don't be scared to fill up your slow-moving units by lowering prices. If your 5-by-5s are priced at $45 and the occupancy rate is 50 percent, you need to cut your price. You can always raise it again when occupancy changes. That's the beauty of operating on month-to-month leases--nothing is set in stone.
Not bundling ancillary products when renting.
Offer people a deal for buying boxes, locks and other items when they rent. This is the time to sell them other products you offer. Bundling gives you the chance to get a big bump in revenue at the time of rental. Use this technique to generate a big cash-flow surge.
Not running specials during certain seasons.
If you're in a college town where students are a big portion of your mix, adjust your prices to deal with this reality--offer a package price at a great rate for the summer. One owner I know gives students a better price for putting down a deposit in the spring. Those who wait until the last minute end up paying more. You can always offer a three-month deal at a great rate when you have seasonal customers. It's better to having a unit filled making some revenue than empty generating none.
Can you believe there are this many issues relating to pricing? Most operators don't give pricing a lot of thought. The intelligent operator is looking for clever and creative ways to extract every additional dollar he can out of a facility. Pricing is one way to make this happen. Improperly pricing units will lower your total revenue and invite competition. Use the above strategies and you'll make more money and virtually ensure your storage success.
Fred Gleeck is a self-storage profit- maximization consultant who helps owners/operators during all phases of the business, from feasibility studies to creating an ongoing marketing plan. Mr. Gleeck is the author of Secrets of Self Storage Marketing Success--Revealed! as well as the producer of professional training videos on self-storage marketing. To receive a copy of his Seven-Day Self-Storage Marketing Course and storage marketing tips, send an e-mail to email@example.com. For more information, call 800.FGLEECK; e-mail firstname.lastname@example.org.