Decoding Third-Party Reservation Directories for Self-Storage: Choosing the Best Model for Your Business
|Copyright 2014 by Virgo Publishing.|
|Posted on: 11/11/2010|
By Chuck Gordon
As a self-storage operator, there’s no question you should be marketing your facilities online. If you aren’t, you should start soon because your competitors most certainly are. There are many components to a successful online marketing campaign including your website, search-engine optimization (SEO), pay-per-click advertising, display advertising and third-party reservation services. Each of these elements is critical, but this article will focus on third-party reservation services.
You’ve probably heard companies in this category called a few different things: self-storage search engines, self-storage directory websites, self-storage aggregators. All of these names refer to a category of companies that provide third-party reservation services. What these companies essentially do is generate new tenants for you through their own websites and marketing efforts. The method and model for each vendor is unique, but at a high level, the purpose of these companies is to rent your vacant units.
There are a few vendors offering this service including SpareFoot, SelfStorage.com, Self Storage Finders, USstoragesearch and StorageFront. Every storage operator should sign up for as many third-party websites as they can find, so long as each one delivers a positive return on investment (ROI).
Calculate Tenant Value
Before we look at specific models, let’s determine how to calculate the dollar amount you should spend per rental. This number will help you decide which third-party websites are delivering a positive ROI. The figure will be unique for every storage facility, so I’m going to give you a formula.
First, you’ll need to find the average length of stay for tenants at your property and the average monthly rent across all your units. You’ll likely find this information in your management software. Once you have these numbers, multiply them to determine the average lifetime value of each tenant. For example, if your average monthly rent is $100 and your average length of stay is 10 months, each tenant who signs a lease at your facility is worth an average of $1,000. Of course, there are some customers who stay two months, but there are also some who stay five years, which is why you should work off the average.
Once you’ve calculated your average lifetime value, you can determine how much you’re willing to pay for each new rental based on the assumption that the customer will be worth that much. Since tenants sourced from third parties are incremental business you wouldn’t otherwise have, some would argue you could pay as much as 50 percent of the lifetime value, since you’ll still be profitable on that tenant. But let’s be conservative and say you’re willing to pay 10 percent. In the example above, this means you should be willing to pay a vendor $100 for each new tenant it sources.
Choosing a Third-Party Program
Third-party reservation services come in a few models. The first we’ll look at is based on a monthly fee. The vendor charges the operator a flat fee per facility per month. This model works if you’re extremely diligent about tracking the source of every new rental. At the end of each month, calculate how many rentals were generated by the vendor—not calls, quotes or clicks, but actual new rentals. Then divide that number into the total amount you’re paying. This will tell you how much you’re paying per rental to be listed on that particular website.
For example, if you list five properties and the vendor charges $69 per month per facility, you’re paying $345 a month. If two rentals are generated in a given month, you’ve paid $172.50 per rental, which is high in many markets. However, if 10 rentals were generated, your cost per rental would be only $34.50, which is a fantastic deal. My point is you have to track results from any vendor that charges you a monthly fee with vigilance because blindly paying every month could cost you thousands of dollars.
Another model in the reservation-services category is pay-per-rental, which allows you to pay only when a rental is generated. These providers generally charge at least $75 per rental, but charge you nothing if no rentals are generated. You don’t need to watch these services quite so carefully because if they’re not performing, you don’t pay anything.
There are a few other benefits to this model including aligned incentives. This means you benefit from any initiatives the vendor invests in to grow its own revenue, and the vendor doesn’t make any money unless you do. A good example is a company that invests significant time and money to convert more of its reservations to rentals. Storage operators benefit from the investment since more rentals means more money.
Ultimately, the savvy storage operator should advertise with every single website that generates tenants at a cost per rental with positive ROI. If you don’t get yourself in front of those tenants, your competition will!
Chuck Gordon is founder and CEO of SpareFoot.com, a pay-for-performance reservation-services provider for the self-storage industry, with thousands of new tenants generated for its clients each month. For more information, call 512.561.0946; e-mail email@example.com .