Using 'Moneyball' Methods in Self-Storage to Beat the REITs

By Cary Coleman

The movie “Moneyball” tells the story of Billy Beane, general manager of the Oakland Athletics, who in 2002 attempted to assemble a competitive baseball team on a shoestring budget, one that had the potential to beat even the wealthiest teams with their deep benches full of expensive talent. Beane built a group of undervalued players by employing a computer-generated statistical approach to analyze each competitor’s ability. Thus, “Moneyball” metrics were born, and the baseball business was forever changed.

A similar approach has transformed the self-storage industry, particularly in the area of online marketing. Many smaller operators and management companies experience challenges when faced with the pay-per-click (PPC) purchasing power of the industry’s real estate investment trusts (REITs). It’s important to understand that the goal is to buy rentals, not advertising. To do this, you need to buy calls and advertising conversions.

Many storage owners think they can’t afford Internet advertising and rely instead on free, generic search engine optimization (SEO). However, failing to purchase market impressions, calls and actual rentals puts them at the back of the line behind the wealthy REITs’ PPC searches. They don’t understand what’s happening in the search engines, and as a result, they misjudge their staff and mismanage their advertising.

The REITs dominate in online searches. Generic SEO results are simply too far down the page, and Web users dislike scrolling. They click less on the lower results, and so smaller self-storage operations see lower call volume. Every potential renter is worth $1,500 to $6,000 over their average length of stay. By not using PPC advertising to compete against the REITs, small operators lose tens of thousands of dollars every month in potential income and millions of dollars in asset value.

Moneyball Technique 1: PPC Advertising

Let’s look at a case study. In this scenario, a seasoned, stabilized self-storage facility that struggled with historic low occupancy and heavy competition realized an increase of more than 260 rentals and $393,000 in annual income by using Moneyball techniques. These results were obtained in an area of heavy REIT competition. Coupling PPC advertising with phone-sales training for its staff, this facility now dominates the Internet and the local storage rental game.

Many storage owners have dabbled with PPC, using traditional marketing companies that build websites to conduct search engine marketing (SEM) execution. Few have received the return on investment (ROI) outlined above. Instead, they’re usually beaten by the REITs for strategic Google positioning, and then their customers get closed on the phone by the REIT call centers. But that doesn’t mean the REITs can’t be beat.

In this case, the REITs were pushed down in strategic positioning and valuable market share. Using Moneyball techniques, the subject site dominated with 91 percent impression share vs. the REITs’ 33 percent, as quantified in the Google Auction Detail Report. Market share is valuable because it’s the means by which phone calls and rental conversions are purchased. Traditional marketing companies don’t typically share this information because they’re out-positioned by the industry giants and would rather talk about clicks and Google website analytics.

Many self-storage owners think these types of results are just a matter of buying your way to the top. In reality, Google placings are closely monitored and determined by performance. The facility described above outperforms the REITs at their own game, enjoying more leads, calls and rentals.

Moneyball Technique 2: Phone Sales

Moneyball isn’t about clicks or reservations. It’s about getting calls and outperforming your competition on the phone. Clicks are only a means to an end. While it’s important to play the PPC game, it’s equally important to generate more conversions as a result of increased market share. Conversion to rentals is the true benchmark.

You can actually compete with the REITs on a modest marketing budget that yields tremendous ROI. The average monthly Google clicks spend at a self-storage site using Moneyball techniques is $1,500 to $4,000. Compare that to the revenue and asset value of 10, 20 or even 90-plus net rentals per month, at $1,500 each. The results are staggering!

The truth is even the REITs don’t fully understand what’s happening in the world of Internet shoppers. The biggest misconception in the storage industry today is that a reservation or invitation to visit the property is a win. Nothing could be further from the truth. Time is the enemy. As hours and days go by after the initial contact, conversion rates dramatically decrease, and many reservations and promises are never fulfilled.

Call centers aim for reservations. Moneyball strategies aim for commitments and same-day rentals. Generally, facility staff are still locked into the traditional phone-sales technique of outlining features and the benefits, and ending the presentation with an invite to the facility. Moneyball trains employees on new sales methods that lead to closing the rental commitment the same day.

Relying on marketing companies for leads but having no clue how to close is a waste of advertising dollars. Further, you should never depend on a click or Google analytics report at the end of the month. Performance is based on two numbers only: net rentals and net income. Moneyball out produces traditional storage marketing in both.

For example, site in Rancho Santa Margarita, Calif., with high stabilized occupancy started to apply Moneyball techniques. Each month, it pushed the envelope of income and asset value. After six months, the average monthly increase was $23,205. Using a 5.5 percent capitalization rate, that’s an increase of $5,062,909 in asset value.

Moneyball Technique 3: Aggressive Pricing

There are self-storage owners applying Moneyball techniques every day and putting up huge numbers. Some quickly run out of space to rent, but can still generate more revenue. Moneyball users consistently churn 3 percent to 5 percent of their unit inventory, with aggressive rent increases and PPC quickly refilling the space with higher paying tenants.

The standard industry approach is to modestly increase market rates—typically $2 to $10 per month—to avoid move-outs. Using Moneyball techniques, you raise rates based on unit size, averaging $10 to $40 per month. If several renters move-out, your PPC advertising helps you quickly refill those spaces. It’s net income that matters, not occupancy. REITs never stop their PPC advertising. They’re constantly churning the top 10 percent of their inventory in conjunction with aggressive rent increases. You should do the same.

To defeat the REITs, your must re-evaluate how you look at your advertising and phone techniques. You need to ask yourself: Can my current advertising systems and staff training produce these types of results? Can I go from $1 to $2 per square foot? Most owners using traditional marketing platforms can’t.

Billy Beane and his Oakland A’s taught us a lot about winning. In 2002, they broke the American League record for most consecutive wins. Though they lost the last game of the season to a team stacked with All Stars, they forever changed the way we look at competition. Using the same strategy and statistical approach, smaller self-storage operators and management companies can take a strong swing at the REITs.

Cary Coleman, nicknamed “The Sultan of Swat” for hitting “homeruns” against the real estate investment trusts, is CEO of iLead, a pioneer in Storage Moneyball. His professional motto is “calls, not clicks.” To reach him, call 949.370.3007; e-mail [email protected]; visit www.ileadppc.com.