On a recent business trip, I accidentally left my razors at home and made a necessary stop at a convenience store. The same razors that would have cost $2.88 for a bag of 10 at Wal-Mart were $3.89 for three. What does this have to do with self-storage? It's a prime example of how price is driven by demand.
Self-storage is a demand-driven business. When customers need self-storage, they typically need it in a hurry. Sure, some are price shoppers, but mostly, consumers are looking for ease and availability. Is there not some way to learn a lesson from the convenience-store example? I am not suggesting we rent our spaces for three times market value. I am contending that if we are bold enough to be aggressive in pricing, we'll make better odds. It's a win-win situation for tenant and owner.
Calculating the Odds
In a true market economy, the function of pricing is driven by supply and demand. Your understanding of these two economic forces is the difference between expecting to roll "box cars" (sixes) with two or three dice. Most of us would not bet we could roll three sixes, but we have probably all, at some point, rolled a pair. If you set your prices in accordance with an outdated business plan or budget, you just added a third die to your game. If you annually raise your prices by X percent, you have just added a fourth. Your odds of coming up a winner are exponentially reduced.
To even the odds, start with some basic research. You should conduct annual competition studies, visiting each of your competitors and verifying square footage, occupancy and rental rates. You should also perform a critical evaluation of their managers and the condition of the properties. Maybe even go one step further and mystery shop three or four primary competitors.
I can only imagine there are a number of you out there who do all this by the seat of your pants. Perhaps you are the same folks who gamble at the airport in Las Vegas or expect to knock over the milk bottles at the carnival. Even up the odds and apply a careful analysis of market forces as you structure rent increases. Use this information to calculate the rewards of winning the pricing game.
Develop a Poker Face
Never, ever offer a discount until a prospect has raised a specific objection to your price. You will never know if he would have paid full price once you offer a discount. If you are an owner, you should carefully measure your on-site staff's closing percentages for standard and discount rentals. If your staff is giving away the store, you are adding another impediment to winning the pricing game.
By the same token, if your prices are the highest in the market and you have an employee who is consistently closing sales at full price, you should be prepared to share your winnings with him. Your employees should never indicate--by facial expression, posture or tone of voice--they have any lack of confidence in the price. I would even consider giving a special bonus to staff who can secure prices higher than the "board rate." I assure you the convenience-store owner made no apology for the price of his razors. He looked me right in the eye and said, "That will be $4.21 with tax." There was no talk of discounting, only a few words about whether I needed a bag for my purchase.
Selecting the Right Game
If you think Roulette, Black Jack and the slot machines all have the same level of risk, beware your naivetÈ--they are, in fact, very different. The mark-up on different size units should also vary, being driven by demand. I recently visited a self-storage property where an extremely wide aisle of 10-by-20s was called "Prestige Row." It was closest to the gate and office, and had the widest drive and most light. I was told there was a waiting list in the winter for these spaces. Imagine my shock to find these units were priced the same as the narrow-drive units in the back of the property! The savvy owner would have realized how great those odds were and adjusted prices accordingly.
What have we learned? Convenience stores base their success on convenience, read demand. The same applies to self-storage. For example, consider that climate-controlled spaces are in higher demand during some times of the year than at others and adjust your prices as a result. Manage your inventory, and sell it. Consider "bundle" pricing to achieve the highest level of convenience and price. Be bold.
I recently mystery shopped a self-storage property. When I asked about price on the phone, I was told the facility's prices may be higher than others in the market, but I needed to visit the store to understand why. When I took the property tour, I was told I could be put on a waiting list for the size I wanted, as the facility had a "full house." If I wanted to save money or store somewhere else, the nearest competitor had vacancies in the size I needed. I was then asked if I wanted to secure my reservation with a credit card or cash deposit. This owner obviously knew the odds. Rolling with a pair of dice, he was likely to roll those double sixes.
RK Kliebenstein is the president of Coast-To-Coast Storage and was a long-time resident of Las Vegas, where he made it a personal practice not to gamble. He urges self-storage owners to even up the odds and seek the assistance of a consultant in gathering market data and setting prices. He can be reached at 877.622.5508; e-mail firstname.lastname@example.org.