Timing is critical to the success of a rent increase, especially in today’s market. Too much and too often could have your tenants racing to your competitors. On the other hand, you’re in business to make money. The key is finding the perfect balance. Before initiating your next round of increases, consider these important factors.
When considering a rate increase, your first step should be to review your street rates in relation to the customer rates you plan to raise. Make sure your increase customers aren’t paying more than the street rate. It will be difficult for you to justify to a long-term customer why he’s paying more than someone who walks in off the street and rents the same unit. Also, increase your street rates before sending any rent-increase letters to avoid an unpleasant situation.
Timing your site improvements with your rent increases is a wise move. It will help justify the increase if a customer sees upgrades made to your facility. While this will not be enough for every tenant, the majority will enjoy freshly painted hallways, resealed aisle ways, pressure-washed buildings, updated landscaping, etc. Remember the impact of curb appeal.
Frequency and Amount
There are several other aspects to consider when conducting rent increases. Depending on your software provider, you may have a program that will assist you in the review process. Some applications include a rate-management tool that will help you determine which customers require an increase based on criteria you choose.
While these types of guides are extremely helpful, they can also be overwhelming if you’re not accustomed to using them. Furthermore, your district manager or owner may limit your access to those capabilities, perhaps because increases are handled at the corporate level. Nonetheless, finding a comfortable method is the most important factor. Some managers simply print an occupied-units report, sit down with a pencil, and begin the review process.
First consider the “incident of a price increase.” If you elect to implement a rate hike for 10 customers, each at $10, potential revenue gain would be $100 a month. If one customer who pays $90 a month moves out, you still net $10. If your increase is only $3, potential revenue gain is $30 a month. If that same customer moves out, you’re minus $60. The point is, if you’re going to do an increase, consider the benefit of going larger.
Another thing to always look for in reviewing customers’ rates is how long each customer has been at the same rate. The industry standard is nine months; however, stick to 365 days and over. The frequency and amount of increase is up to you. You know your market and your customer base best. If every month works, give increases every month. On the other hand, if once a quarter and 20 customers per quarter makes you feel safe, proceed with that strategy. The key is to increase your revenue at a rate your customers will withstand.