The Billion-Dollar Marketing Mindset in Self-Storage
Copyright 2014 by Virgo Publishing.
By: Derek M. Naylor
Posted on: 10/11/2008



 

We all know of people who enjoy the finer things life has to offer. They drive whatever exotic vehicles they want and couldn’t care less that gas is approaching $4 per gallon. They travel on plush private jets to business meetings and long Caribbean vacations. They wear silk, cashmere, linen and organic-cotton clothes while dining on exotic food prepared by world-class chefs.

Not all of these folks are celebrities, captains of industry or public officials. They live in peace with their families and do what they want, when they want. If I listed some names, you wouldn’t recognize a single one. Yet, they live a dream lifestyle that few can even imagine.

How do they do it? They have built multiple businesses using a certain marketing mindset that I’m going to teach you in this article. You’ll have a new view on marketing that will drastically increase the profitability of your self-storage business and any other business venture you might embark on in the future.

The Gift That Keeps on Giving

As a self-storage operator, you have a rare gift that most industries don’t get to enjoy without significant effort, planning and execution: You earn repeat sales automatically when a new tenant rents from you. Most industries must work diligently to create advertising that creates one sale. After that sale, they hope the customer’s experience was good enough to earn a second sale sometime in the future.

But that’s not true for you. If you rent someone a unit, you get the first month’s rent, profit from packing supplies and maybe an extra few dollars from a pay-with-rent tenant insurance sale. And then, one short month later, you get another chunk of revenue from that person. This happens again and again until they move out. Some folks will only stay for a few months, but others will stay for years, paying you rent each month.

It’s a marketer’s dream come true to acquire a customer and automatically earn sales for months or years on end. Most operators take this valuable gift for granted. Imagine if you had to re-sell each customer every month. It wouldn’t be much fun or very profitable.

Once you understand the power of this, you can easily begin to focus your energy toward your most important objective, which is acquiring customers.

Acquiring Customers

Savvy marketers understand that it’s perfectly fine to lose money on the first sale. And if the economics work out, it’s OK to lose money on the first few sales. In other words, if your average tenant brings a net profit of $700, it’s worth it to pay $350 or even more to acquire that renter through a marketing channel.

Smart operators gladly pay $350 for a new tenant rather than hold an excessive inventory of vacant units. They don’t look at a tenant as being worth only $70 because the total value is $700. Further, they understand the importance of building the value of their asset by about $2,450 each time a new customer rents, even if they pay $350 for a new tenant!

Most operators have a flaw in their thinking when it comes to marketing. They believe they need to recover their marketing investment after the first month’s rent is paid by the new tenants generated. In reality, as long as cash flow allows, you can wait for several months to begin profiting from your marketing investment.

To help illustrate this important concept, I’d like to walk you through a few scenarios. In the first, tenants are worth $515 and your cost to acquire each is $350, leaving you with $165 net operating income/cash flow. In the big picture, you’ve added approximately $21,994 to the value of your asset using a cap rate of 7.5 percent. Before looking at the math this new way, most operators would consider such a campaign a dismal failure. Ask yourself how you would’ve reacted before reading this article if you spent $3,500 on a marketing campaign and only saw 10 tenants as a result.

Now, let’s look at another scenario. In this case, tenants are worth $735 and your cost to acquire each of them is only $150. This leaves you with $585 of net operating income/cash flow with a big-picture gain of $77,980! Most operators can relate well with this scenario as $150 is a common cost per acquisition (CPA) and the other contributing numbers are not far off.

Are you starting to understand the power of this kind of thinking? Let’s walk through one more scenario just to be certain. This time, tenants are worth $1,010 and your cost to acquire each is a whopping $750, leaving you with $260 of net operating income/cash flow with a big-picture gain of $6,931!

You might think these numbers are unrealistic. If so, speak with a good broker about this as they deal with these numbers every day.

Obviously, operating expenses need to be considered when determining your net operating income. But, even after considering those expenses, you’ll be wise to think in terms of acquiring customers, CPA, lifetime value and cap rates.

I also realize that cash flow is a huge issue with this type of thinking. In the third scenario, you had to wait 7.5 months to get your initial cash back. In a lease-up situation, dealing with this can be difficult, but it’s absolutely the smartest way to think about increasing the value of your asset, which is why proper financing is crucial because you need the cash to sustain aggressive marketing like this.

Wait and See

Your only other option is to wait and see. If you’re in a fantastic market, you’ll reach stabilization eventually without spending much on marketing. As I see it, two problems exist with this type of thinking. I’ve never been a fan of unpredictable, passive growth strategies. You have no idea when you’ll stabilize and are gambling with fate.

Empty units are worth absolutely no cash flow to you. They’re only worth the land they sit on and the dismal value of used-building materials. During stabilization it’s much better to have a paying tenant in a unit—even if you don’t see a penny of profit for 7.5 months—than it is to have an empty unit. After you reach stabilization, having 5 percent to 10 percent of each unit size empty is essential. But until then, get tenants in those units.

Ideally, you’d profit from new tenants from day one and wouldn’t have to spend a penny on marketing to acquire them. I completely agree with that. However, that’s simply not a reality in competitive markets.

The bottom line is this: Marketing is an extremely lucrative investment. The wealthiest people in the world realize marketing and innovation are usually the only two things that make you money.

If you don’t have the cash to invest like you should in marketing, beg or borrow to get it; it will be well worth it. After all, this billion-dollar marketing lesson has been working since the beginning of free enterprise and will continue long into the future.

Derek M. Naylor is president of Storage Marketing Solutions, a full-service, results-oriented marketing and advertising agency dedicated to the self-storage industry. For a free subscription to his e-newsletter, call 800.941.4805; e-mail dnaylor@storagemarketingsolutions.com; visit www.storagemarketingsolutions.com.

Factbox

“Be passionate about getting more referrals and repeats from existing and former customers. These are the lowest-costs rentals you can get. On the other end of the spectrum are the highest-cost per lease tenants—those garnered through Yellow Pages, newspaper and radio/TV ads.”

—M. Anne Ballard, Universal Management Co., Inside Self-Storage Factbook 2008

“Our best bet for marketing has always been referrals from previous or current customers. We offer a $25 credit or gift card to the tenant passing on the referral and $25 credit to the new renter. We still have referrals coming in from tenants who rented years ago! We love that!”

–Submitted on www.selfstoragetalk.com, the online forum for the self-storage industry