I recently needed to rent a storage unit and visited a few of the facilities close to my house. I walked into the first place and asked the manager what she had available. All she had were a couple of 10-by-10s. When I got to another facility down the road, I got essentially the same answer. This is ridiculous!
If you’re spending any money at all on advertising and want to maximize your profits, being occupied to the point of having nothing to offer new customers is no way to run your storage business. In this article, I’d like to show you the right way to set your prices and “control” your occupancy rates. If you don’t always have units of varying sizes available, you’re throwing away the advertising dollars it took to get a prospect to call or visit you.
Fear and Numbers
Over the years, I’ve asked owners why they felt compelled to keep their facilities virtually full. Their indirect answer was: fear. It makes them comfortable to have their facilities 100 percent occupied. But this is a false sense of security.
Profit maximization—if that is your goal— is achieved by getting the maximum dollars for each unit you have to rent. It also means always having a unit to rent to someone who walks through your door. It’s a balancing act, but it is achievable.
As you run your business, you’ve got to consider current and future profit potential. Under pricing units is nonsensical from either standpoint. By underpricing your units, you make less money than you could in the present moment. You will also attract competitors, and that will have long-term negative impact on your business and profits.
It is also possible your prices have been set too high. If your occupancy rate for any particular unit size is less than 75 percent, chances are your prices are too high. Pricing your units should be a logical, not emotional decision. Ask the typical storage owner how he sets his prices and you’ll generally find it’s not based on any formula, but rather a “seat of the pants” approach. Successful businesses are not run this way. Your storage business shouldn’t be either.
Each Unit Size as a Business
To set your prices correctly, look at each of your individual unit sizes as a separate business. Also, set a range in which you want to keep your occupancy rates. I suggest between 92 percent and 95 percent.
As soon as your occupancy rate for any unit size hits 95 percent, you’ll want to raise your price. How much? That’s where this exercise becomes more of an art than a science.
If you feel demand for those units is very strong, raise the price by 10 percent. If demand is only relatively strong, raise the price by 5 percent. When you can, increase the price to the next logical price break. For example, if you are renting a unit for $50, it would logically increase to $55.
When you have less than 20 or 30 units of a specific size, your occupancy will be severely affected by losing just a couple of tenants. If you have only 10 units of a particular size, each one is “worth” 10 percentage points, so you have to be very careful how you price these units. Err on the conservative side in this case; and by conservative, I mean it’s better to have these units 100 percent occupied than have an empty unit. But make sure you increase prices to market value when one does come available.
Does it matter what other facilities in your market area are charging? No, not a bit. Your only criteria for raising or lowering your prices should be the demand for a particular unit size within your own facility.
How often should you be changing your prices? Daily, if necessary. Set up a spread sheet to determine when a particular unit size is at 95 percent occupancy. When this threshold is reached, raise the price. If your occupancy on a given size is less than 80 percent, you need to lower your price.
Occasionally, some pricing anomalies will occur. I’ve seen situations in which a 5-by-10 unit has been in such strong demand that its cost approaches the price of a larger unit. So what? Let your occupancy determine your price. If a smaller unit ends up costing more than a larger one, so be it. Again, let logic, not emotion, determine your pricing.
When you alter your prices, you have to consider new and existing tenants. How often can you raise prices for existing customers? Most operators raise them once a year. That may be enough. I know of other operators who consistently raise prices every 90 to 120 days.
When you increase prices to your existing clients, don’t immediately jack them up to your current market rates. Instead, ease them up slowly so as not to have too many people move out and push your occupancy rates below 90 percent. If a price increase is tolerable—albeit annoying—people will generally pay it.
The relevant question will always be: What are your tenants’ other options? If they still need storage, they must look for other facilities in the area. If the increase you present is minimal, chances are they won’t move. It will be too much hassle. Again, consider your occupancy rates within a particular unit size before raising prices.
You’re probably wondering how you can justify different prices to renters of the same unit size who talk to each other. Think about it— when you fly with an airline, there may be 20 or 30 different prices paid for the same type of seat. Occasionally, a tenant will complain another customer is paying less than he is. If your occupancy rate for that unit size is low, you may want to consider a price reduction. If the occupancy rate is high, stick to your ground.
I was recently put on a waiting list at one facility I visited. The manager claimed he would call me when my unit size became available. It’s been close to three weeks and I have not received a call. Maybe he still doesn’t have that size available, or maybe he forgot about me. Either way, when people want to rent storage, they want it now. Few, if any, will wait more than a week or 10 days.
You say everyone in your area has a waiting list? Then none of the operators are running their businesses sensibly. They’re all losing out on potential profits and inviting competition.
Just Getting Started
How do you set your prices if you are just opening a facility? First, visit your competition and see what they are charging. If you’ve got some unique features your competitors don’t have, charge a little bit more than they do.
Your goal is to get your facility to the low 90 percent range in overall occupancy as quickly and profitably as possible. Do this by charging a “fair” price to fill up the units. An average facility will take anywhere from 18 to 24 months to fill. Many mangers will low-ball prices when they first open to get a facility occupied. Although this may get your facility filled faster, it will hurt your profitability.
A Word on Collateral
If you buy into my concept of adjusting your rental rates based on market forces, you won’t want to keep any literature at your facility that includes printed prices. Instead, print your unit sizes and leave a blank line to fill in the pricing based on demand.
For walk-in customers, it is inexpensive and convenient to print business cards that list all of your unit sizes and provide your name and number. Include a line on the card that says pricing changes, and the price they are quoted at the time of their visit may not be the same when they actually rent a unit.
If the goal of your storage facility is the maximization of profit, you need to understand pricing as it relates to occupancy. If you run your facility at or close to 100 percent, expect to generate competitors. Although it may make you feel good to have all of your units filled, it will “kill” you. I have never seen an investor want to build where all of the facilities are less than 100 percent occupied. If you properly manage and control your occupancy rates, you’ll make more money and keep your competitors at bay.
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 more information, call 800.FGLEECK; e-mail firstname.lastname@example.org.