GIVEN THIS IS THE ANNUAL FINANCE ISSUE, I FELT IT WOULD BE valuable to give you some ideas to increase your bottom line. There are only two ways to increase profits: One is to increase sales, the other is to reduce expenses. For most self-storage operators, the majority of expenses are relatively fixed; therefore, your options on the expense side of the equation are fewer. This means the area with the greatest opportunity is sales.
Making a few small changes in the eight areas listed below will have a multiplier effect on your profitability and bottom line. Make a 5 percent improvement in each of the areas, and your results will be much greater than 40 percent due to the synergy involved.
Offer Other Products
The most neglected area in terms of increasing self-storage profits is retail sales. The average facility does 2 percent of its gross sales in add-on products. These include things like locks and boxes that almost everyone sells at their facilities. I know one owner who does more than 15 percent in this area. Put some effort in, and you'll find your bottom line growing rapidly.
You should be selling any and everything people will buy. This includes items that may not related to storage. One owner, for example, rents carpet cleaners. Why? People were coming into his office and asking where they could rent them. After he bought a few of them and tested the idea, he ended up having four of them around at all times for tenants to lease.
Premium Unit Pricing
There is no reason every unit of the same size must be rented at the same price. When a tenant wants to rent a unit and knows exactly what size he wants, you'll need to get clever and creative. Ask him whether he wants a "premium" unit. This isn't any special kind of unit--it's one you ascribe premium status based on some arbitrary criteria.
Let's say you've got four 10-by-10 units available. Two are toward the front of your facility and two are in the middle. When your potential renter asks what a premium unit is, let him know you have two units near the front of the facility and he can rent one for just $5 more. Then explain the benefits; for example, emphasize the unit's accessibility.
Some people object to this system of pricing, feeling it is somehow unfair. I don't know where anyone got the notion everyone must pay the same price for the same unit. Have you been on an airplane lately? People are all sitting on the same plane with the same seats, but virtually everyone is paying a different price. There is nothing wrong with finding clever and creative ways to get more for a unit when you can.
Signage on Property
One of the more underused items to stimulate sales and increase profitability is on-site signage. If you're selling anything at all at your storage office, you need to promote it with signage. Where do you post it? Directly on the buildings, anywhere people will see them. Will they look tacky? Not if they're done well. Will they stimulate sales? Absolutely.
The signs should entice people to the office. It is then the manager's responsibility to get those people to buy something. Many renters haven't been to the office other than the time they signed their rental agreement. Should all the signs promote the same product or service? No, they should promote several different services.
Your database of renters is the single most valuable and least used asset you have. Few storage operators exploit it. When renters first sign a contract, make every effort you can to capture their e-mail addresses. Doing this will allow you to communicate with them for free. Once you have gained renters' confidence, they will buy other products you offer or recommend. It is all about building good business relationships.
After you build your e-mail database, ask tenants what products or services they might want in the form of a survey, and give them an incentive for answering your questions. Once you find out what they want, offer it to them. I've seen storage operators who have created substantial revenue sources through the e-mail databases they created from current renters. The most successful example I've seen was a joint venture with a real estate agent. The operator reaped substantial compensation as a result of a referral that turned into the sale of a house.
Increasing Length of Stay
The average length of stay at a storage facility is about seven months for residential tenants and 20-plus months for commercial tenants. Once you have a tenant renting from you, it increases your profitability by leaps and bounds if you get him to stay longer. You've already expended your marketing dollars to get him in the door; now each additional month he stays goes directly to your bottom line.
There are two points in time when you can increase length of stay. One is when you first rent the unit. Here you would be well served to offer discounts for extended stays. Offering an extra month if a tentant pays for a year in advance is only giving him a small discount. This is well worth doing and you'll have locked him into a full year.
The other point when you can extend the length of stay is when someone is considering moving out. Tenants move out either because they no longer need storage or because they've found an alternate location to store. There is really nothing you can do about the first. When the need for storage is over, you can't get people to stay any longer. The second scenario is different. If someone is moving because they've found a better deal, you can do something to entice them to stay, either in the form of a discount or other special benefit.
Operating at 100 Percent
There are two primary reasons operating at 100 percent occupany is a poor practice. First, you may not be maximizing revenue. Operating in the low- to mid-90 percent range proves more profitable than being completely full. Also, if you're full when someone calls to rent a unit, you'll have nothing to sell them. You've expended money on marketing but have nothing to rent. This is foolish.
Consider occupancy based on individual unit sizes rather than occupancy of the facility as a whole. Many owners raise rates based on the entire facility's occupancy when the best course of action might be to increase the rates on some sizes, leave some the same and possibly even decrease others. You should not move rental rates up and down across the board. Look at each size's occupancy and adjust accordingly.
The other downside to operating at 100 percent occupany is you invite competition. During a feasibility analysis, one of the ultimate determinants of whether or not a potential owner should build is whether all of his competitors are full. If you operate this way, expect competition to come in and set up shop.
Increase Conversion Rates
There are two primary areas where you can increase conversion rates. One is phone calls. Turning a higher percentage of callers into visitors will increase your profits dramatically. The other is in converting a higher number of visitors to renters.
You can increase your conversion rates on phone calls by making people an offer they can't refuse. Since research shows more than 90 percent of people who visit your facility will rent a unit, it's worth spending some time and money to make this happen. When speaking to people over the phone, tell them about your unique selling point (USP). You've got to have a USP. If you don't have one, create one.
In addition to your USP, you may also want to offer people some incentives to visit. I've heard of operators who gave away $20 cash to visitors. With someone who is lukewarm about visiting, it is worthwhile to bribe him and convert him to a renter when he does.
Most facilities have pretty good closing ratios on visitors, but what if you could close virtually everyone who walked through the door? To do this, you've got to have what customers want at a price they can live with. If you've made the mistake of being 100 percent occupied in a given unit size, you're in trouble. If you've got something to rent, it's all about negotiating a price. Have enough leeway to offer a price break if you think you're going to lose a sale.
Although this is not the primary area where you can increase profitability, it is worth looking at. You should review your financials monthly. Question every item to see where you can save. Don't assume you're getting the best rates on anything you buy. Get at least three quotes for any product or service you use.
A manager should have incentives on the revenue and expense side of the ledger. He should receive a portion of all the money he saves the facility each month. Manager compensation is another area to consider and should be tied to results. Giving someone a flat rate isn't nearly as effective as compensation predicated on certain outcomes. When a manager understands his owner is as concerned about expenses as revenues, you'll be surprised at what they find to save costs.
Profitability is improved by increasing sales and reducing expenses. In the storage industry, the majority of efforts will have to be in the former. Expenses, for the most part, remain relatively fixed. To increase profitability, take each one of the items listed above and make some small changes.
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 moreinformation, call 800.FGLEECK; e-mail firstname.lastname@example.org.