Rent the Space! Why Empty Self-Storage Units Are an Expensive Proposition
|Copyright 2014 by Virgo Publishing.|
|By: Bob Copper|
|Posted on: 04/30/2013|
I don’t have a lot of hard and fast rules about the self-storage business, but I do have a few rules of thumb that I’ve found useful when it comes to successful facility operation. One of the most effective is for managers to have a higher sense of urgency about renting space.
Years ago I worked as a district manager for one of the real estate investment trusts and was assigned a territory of underperforming facilities. The locations were beautiful, multi-story sites with large retail offices and professional signage but lower-than-expected occupancy. After about three months of working with the managers, one of them said to me, "You’re the first person who has ever told us our main job is to rent space." My response was, "Really? What else do you do here?"
It turned out the managers in this territory had been given an ever-changing list of priorities communicated by their supervisor: Keep the facility clean! Sell more boxes! Increase your insurance percentages! Lower your past-dues! Rent more trucks! While all of these are important, none have anything to do with renting space.
To reverse course, we refocused their efforts on occupancy. I told them, “You have to rent space or we don’t need you to be here.” We had to create a sense of urgency about the critical importance of renting units. Several months later, those facilities were experiencing healthy occupancy gains, and I received a bonus check for a billion or gazillion dollars, or maybe it was an Applebee’s gift card.
The point? If you want to increase occupancy, you have to rent more units. To rent more units, you have to create a sense of urgency about renting space. You have to develop a “drop everything” mentality as it relates to potential customers and realize that every lead matters. If managers get only one or two chances each day to rent a space, then how they handle those opportunities is critical.
Lost Opportunity Has a Price
You must also communicate to your managers the high cost of not renting space. I find very few have any idea about the expenses involved in creating rental leads and the revenue lost when they fail to convert those leads into rentals. Not renting space is expensive!
First, consider the costs of generating the leads. Have you ever calculated what each phone call, walk-in or Web lead costs in marketing expenses? Do you know which of your marketing efforts are the most effective? Which have the highest return on investment? If you haven’t, you should, and you need to share this information with your managers.
Self-storage staff should understand that when the phone rings, money was spent to make that happen. Marketing dollars are spent to generate walk-in traffic, and each month, money is invested in various forms to gather more Internet leads. Those things don’t happen by accident! The money spent to generate storage leads is lost forever if a potential customer isn’t converted to a paying tenant. And, by the way, if you’re not investing in quality sales training for your managers, the cost of lost opportunity is even higher.
When a storage unit goes unrented, another substantial sum is lost forever—the potential revenue generated by the paying tenant. Amazingly, most self-storage managers have no idea what the average rental is worth. How can marketing investments and other decisions be confidently made without first knowing the value of your product? Whether it's $750 or $2,500, understanding the average value of every rental helps to instill a higher sense of urgency when it comes to working every lead and renting more space. Failing to rent space is just too expensive because you lose out on the income.
Other Lost Income
Another revenue stream that's lost when a unit goes rented is ancillary income. A person who doesn't rent a storage space also will not buy tenant insurance or boxes, or pay late fees, and probably will not rent a truck. Most self-storage owners factor ancillary income into their budgets, but it won't materialize if units aren't rented. Again, failing to rent storage space is an expensive proposition because the lost income is lost forever.
A referral program is also a great source of rentals. Who better to generate more business than existing tenants? Of course, if you don’t rent the space, then you probably won’t get the referral.
Another expensive side effect that results from unrented units is the loss of asset value. Self-storage facility value is based on net income, and the loss of even $1 can be a costly mistake. Every dollar collected can equal approximately $12 in asset value, so empty space can represent a significant loss. A manager’s lack of urgency toward renting units will have long-term, negative consequences for the facility he’s managing.
Since we all now clearly understand how expensive it is to not rent a storage unit, what can owners and managers do to increase their closing percentages on potential leads?
Vacant storage space has no value to a self-storage operation. Keeping an empty facility spotlessly clean won’t ever pay the bills. Fill the space, and you’ll be much more likely to be successful in this business.
Bob Copper is the partner in charge at Self Storage 101, an industry consulting firm that assists facility owner/operators and managers in developing more effective and profitable operational systems. It also aids in conducting performance reviews and providing the necessary tools to perform at higher levels in a competitive industry. To reach him, call 866.269.1311; e-mail firstname.lastname@example.org; visit www.selfstorage101.com .