Chop, Chop--Meat-Cleaver Management
|Copyright 2014 by Virgo Publishing.|
|By: Harley Rolfe|
|Posted on: 06/01/2001|
The Importance of Income Management
By Harley Rolfe
The measure of success for any business is its income. That tells how apt the enterprise is at attracting customers. Many would say profitability is the measure of success and, ultimately, it is. But profit begins with income. So why don't we better manage it? Surprisingly, we seem to have the least information on that aspect of our operations.
The typical businessman has excellent data about his expense picture. There are separate accounts for each important category. Known as a chart of accounts, it meets the need to have timely information available to control critical operating expenses. But when it comes to income, the self-storage manager may not have a clue. Accounting programs provide little or nothing about the composition, hows and whys of profits.
Chop, Chop--Meat-Cleaver Management
Empirically, the owner may have an inkling about his profits, but to know precisely and over time what the various market areas are producing is more difficult. He doesn't see month-to-month trends for the 20 or so categories of uses/applications that make up the overall tenant base. Usually, the attitude is that if the total is going up, that's a good thing. If not, then you do what you can--chop expenses some more, chop rates. Chop, chop, chop--you can hear the cleaver.
The option of deliberately attracting the type of users you prefer and improving revenue in an analytical and deliberate manner is generally not considered. Managers focus on expenses and hope for the best on income. But it doesn't make sense to not define and detect activity that pushes the whole upper half of everyone's profit-and-loss statement, does it?
You need an early-warning system. You need to know which market segments are growing or waning, or if a rival is swiping one of your prized categories. If an expense is out of control, it quickly triggers inquiry and evaluation. You make a remedial response. But that approach is simply not possible for changes in income. Most operators lack the requisite market-driven information.
You are not alone. Very few commodity operators have such data. The main management emphasis for commodity operations is often cost control. Since managers don't think they have control over the income side, they devote little effort to setting up an income-information system. The result? Little amounts of market information result in little control of income.
"Management" means responding to information about the operating particulars of your business. That basic idea is the foundation for the design of business- information systems. If information is not generated about a vital part of your operation, the manager cannot control that area effectively. You manage what you have information about. Doesn't that make sense?
What Is Step One?
In this column, I usually extol the virtues of operating a marketing program in response to competition. Competition is usually what spurs operators to make the jump from a commodity to a product operation. And most feel that when the competition bell tolls, they should start using advertising and other promotions. That might work, but the first step should be to install an income-reporting system that is as useful and refined as the system they use to monitor expenses.
Expense reporting is ingrained in all accounting programs. It's inescapable. Every time you write a check, you are required to identify the expense account or category. The accounting profession has very precise definitions for the various expense categories. Much of that is for the benefit of the IRS, but it forces all of us to a degree of uniformity when analyzing and expressing our financial results.
There is no such enforcer when it comes to income reporting. You can make deposits all year and never know much about where or why that income is occurring. You won't know that the retail- distribution segment is disappearing or that remodelers are starting to use self-storage. As your market situation heats up and some kind of action is required, you may have only a modicum of income information. Monitoring your income means constant frustration because you must guess about so many things.
When you are troubled by a competitive challenge, guessing is risky. If you aim and miss on a remedial program, several things happen--all bad. The market threat you attempted to address persists. You may well have incurred media expense to little avail. You lose confidence that you know how to manage this part of your operation. So at a time when decisive action is required, you hesitate. The threat is still eroding your market position and you must do something. Many will resort to the obvious answer: chop something.
It's There for the Asking
An integrated marketing program spares you such an experience. You need an ongoing income-source system. To start the process, send questionnaires to your existing tenants. Enclose a little goodie (candy, key-chain, pen, etc.) to thank them in advance for helping you. If you are gracious when making your request, and if you have a good relationship with your tenants, they will respond.
You don't want to know much--just what happened in their lives that prompted the need for storage and why they choose your facility. That will help you determine what your segments are. Once you know what prompted your previous tenants to seek you out, you can make a checklist. Then you use the checklist to regularly collect data as each new tenant signs up. Make room for the addition of new categories. That's how you expand your market.
Because there is usually high tenant turnover, in a few months, you will begin to have a profile of what causes people to need storage. I hope you realize how valuable this information is. It is the basis for forming a sales-promotion appeal for the various segments using your facility. Most businesses have to speculate on who and where their prospects are. You have a yard full of tenants who are satisfying their needs by using your facility. The information you need for your income-source system is there for the asking.
So, are you fully managing your business? Yes--if you know as much about your income as you do about your expenses.
Harley Rolfe is a semi-retired marketing specialist whose career includes executive-level marketing positions with General Electric and AT&T. He also owned lodging and office facilities for more than 20 years. Mr. Rolfe holds a bachelor's degree in economics from Wabash College and a master's degree in business administration from the University of Indiana. He can be reached at his home in Nampa, Idaho, at 208.463.9039. Further information can also be found in Mr. Rolfe's book, Hard-Nosed Marketing for Self-Storage.