By Magen Smith
Self-storage revenue management isn’t just about sending rate-increase letters when your bank account gets low. It’s the process of getting every dollar from your storage facility that the market will allow. It’s an overall strategy of effectively managing potential and actual revenue to maximize return. It encompasses competition review, facility assessment, market analysis, pricing and staff participation.
This article addresses three key components of successful revenue management: renting units for what they’re worth on each and every sale, managing prospects and their needs, and raising rental rates. By following these guidelines, you’ll increase physical as well as economic occupancy and, ultimately, overall facility revenue.
Renting Units at Their True Worth
The first step in proper revenue management is to rent your storage units for what they’re worth on each and every new rental. The price of each unit depends on availability, consumer demand, and the urgency and method of the rental.
There are three ways customers can experience your facility before they become a tenant—online, by phone and by visiting the property. Let’s look at how you can better manage your rates through each of these methods.
Online. Most people will check out your facility online before they call or stop by. If you don’t have a website, get one. If you do have a website, you need to decide whether to post your rates. This is a much-debated topic in our industry. While operators are split on this, most potential customers like to see prices online.
If all your competitors publish their rates and you’re in an aggressive market, you should probably push out your pricing. Keep in mind that failing to do so might lead people to assume you’re more expensive than the others.
If you do publish your prices, what rates should you use? If someone is searching online, you might assume he’s in the early stages of looking for storage and weighing factors such as cleanliness, convenience, price and security. Make sure your website showcases your facility in all these areas. Since you need to determine which price will convert this person to a tenant, a cut rate may not be the best idea. Knowing what your competitors display on their websites is crucial because you don’t want to be too far from the market price in either direction.
Remember that cheap units increase occupancy but not cash. Cash is king. A common practice in self-storage is to put the lowest-priced unit in each size on your website and then upsell the prospect when he visits the facility.
By phone. Having a conversation is priceless when it comes to selling your facility. If you simply quote the price and hang up, you’re losing a ton of money. If this is your current approach, you need some sales training immediately. Consider using a script that takes the prospect through a series of questions and gathers information before you ever offer a price.
The goal of every call should be to end with a closed sale. Make sure you’re tracking phone calls against rentals to determine your close rate, which is the number of closed sales divided by the total number of calls. Knowing this will help you determine what price to quote the customer and how to use the phone as an effective sales tool.
Visiting the property. If someone took the time to drive to your facility, there’s little reason he should leave without signing a lease. Just as it’s common to quote a lower price on the phone, the rental rate is usually higher when someone walks in off the street—and with good reason.
If someone is going to come to your facility to get a price, he’s primed to rent, and you’ll be saving him from driving all around town. If you have a good understanding of the competition and can close the sale while assuring the tenant he’s getting great deal, everyone will be satisfied.
Managing Prospects and Their Needs
Prospect management involves pricing the customer along with the storage unit. This takes a great deal of salesmanship and may not be easy for all facility managers. However, if you can do it correctly, you’ll add revenue to your facility’s bottom line. To begin understanding prospect management, you need to answer the following questions:
- Who is the prospect? Is he a businessperson who has a company account and can handle a higher price? Is he a college student on a budget?
- When will he begin storing items, and how long will he stay? If the prospect is starting right away, urgency is high and he may tolerate a higher price. If he won’t need a storage unit for three months, he may have some time to price shop and would be less likely to pay a premium.
- What will he be storing? Is he storing grandma’s antiques, and you have the only climate-controlled facility with great security? Talk up your amenities and quote that higher price with confidence.
- Why is he storing? Are you renting to a businessperson who needs to store items while he’s out of the country for a year?
Once you understand a little bit about the prospect, you can decide which unit is right for him. Just as all prospects can handle a different price, each unit can be priced differently. Not all 10-by-10s are equal. Here are two stories to illustrate my point.
Sally is a student on a budget. She needs to store her stuff right away because she’s headed off to college in another state. She’s planning to store her childhood items for the next few years until she finishes school and settles down. We’re going to rent Sally a 10-by-10 in the back corner of the building. She doesn’t need to access her unit very often, so she doesn’t need one near the front. If we give her a price that’s slightly lower than the street rate, she’ll be happy and so will we.
Robert is a sales representative with a corporate account. He needs storage for his inventory because he’s run out of room to keep it at home. He’s going access his unit at least weekly. We’re going to rent Robert a 10-by-10 right near the front door. He’ll happily pay higher than street rate for a premium location, and we can potentially sell him 24-hour access as well.
This type of dynamic pricing works best if you have a range of rates for each unit instead of a set price. It’s more work for the manager to price the customer instead of simply pulling a number from the computer, but it can be well worth it. Just as you can price each unit size and location, you can change your rental rates based on prospects’ needs. Those who do it well will reach a higher occupancy, have more satisfied customers and increase facility revenue.
Few things cause more stress for self-storage operators than rate increases. You worked hard to get your tenants to sign the lease, and now you’re worried that some will leave once an increase letter hits their mailbox.
Did you know most rate increases only yield a 1 percent move-out? Operators worry about a mass exodus that usually never happens. Plus, while you’re stressing out over applying the increase, you aren’t executing it, which means you’re losing money. How much can you afford to lose before you finally decide to add a rate hike across the board? Here are some tips to help you increase rates for some or all of your existing tenants:
Assess what tenants can bear. Most storage operators agree increases should be standard for all tenants, no matter who they are or how long they’ve stored with you. This removes your personal guilt over the fact that you’re raising the rate on “sweet Mrs. Jenkins,” who’s battling cancer and just lost her husband. What kind of monster would increase her rent?
If you have trouble looking at the tenant roster and making the decision to raise rates, then just apply a standard increase for everyone and get on with your busy day. Most self-storage management software includes an automatic rate-increase module that allows you to set a certain level of escalation each month and not worry about it.
However, there’s some value to raising rates based on the tenant. For example, consider making a list according to the last time each tenant experienced an increase. This may allow you to increase rates more often than you would with a “flat” setting. You may also know who can bear more and who can’t. There’s no rule that says you have to raise everyone’s rate by 6 percent. While some can handle a 10 to 15 percent increase, you may be more comfortable with a 5 percent hike for Mrs. Jenkins.
Consider your timing. You also need to decide when to apply an increase. Look at your move-in/move-out history and determine when you traditionally have a busy month of move-ins. A great time to do a rental adjustment is 30 days before a busy month. If you have more move-outs due to the rate surge, you’ll get a move-in at a higher rate the next month since your street rate is likely higher than what the former tenant was paying.
Depending on your location, climate can also help you time those move-outs. No one in the South wants to move stuff out of a storage facility in the middle of summer. Those in chilly states will avoid vacating during the winter. Read your lease agreement and see how many days’ notice you’re required to give tenants before changing the rate.
Do damage control. Learn how to respond to tenants complain about their increase. What will you say? You can offer a number of explanations. Perhaps your property taxes went up this year, you made facility improvements, or the market has changed and you’re simply keeping up with it. Be armed with information about the last time rates were changed and by how much so you can handle grievances with ease.
Also decide ahead of time if you’ll allow concessions for customers who do protest. Will you split the difference with the tenant for six months or perhaps lower his rate? Or will you stick to your guns and risk losing a customer? Again, few tenants leave a storage facility because of a nominal rate adjustment. If you present your upset tenant with valid reasons for the hike, more often than not, he’ll see the reasoning behind it and accept it for what it is. If you do have a move-out or two, you’ll be able to rent those units at the new, higher rate.
Many Moving Parts
As you can see, revenue management involves many moving parts and a lot of planning. It starts with the price at which you originally rent the unit. You also have to examine your customer’s needs rather than simply quote a rental rate based on unit size and availability. Finally, stay on top of rate increases, keeping in mind what tenants can bear, your timing and how you’ll handle any fallout.
Pricing is an art and a science. Getting valuable training on revenue management is the best way to earn top dollar for your facility. Consider using a range of prices so you have some flexibility, then follow the guidelines above to increase your closing rate.Magen Smith is a former self-storage manager turned certified public accountant (CPA). Her company, Magen Smith CPA LLC, helps storage operators understand the financial side of their business. Services include monthly financial management, simplifying bill-paying functions, revenue management and strategy. For more information, e-mail [email protected]; visit www.selfstoragecpa.com.