Cut Costs

Regulating and Trimming Self-Storage Operating Costs to Boost NOI

The most important thing to remember about expense control for a self-storage business is no cost is too small to cut. Here are some simple ways to regulate your fixed expenses and cost-cutting measures to boost net operating income.

By March Chase

The most important thing to remember about expense control for your self-storage business is no cost is too small to cut. With every dollar you slice, you gain in net operating income (NOI). Why is this important? Because NOI is a leading indicator of facility value. You want to add every dollar possible. Here are some simple ways to control expenses, cut costs and boost your bottom line.

Fixed Expenses

Fixed expenses are set by factors outside of your control. These external forces might include your local assessor’s office, insurance vendors, banks, etc. Though we use the term “fixed,” there’s often a little wiggle room for reducing some of these costs. For example:

  • You have the right to appeal your property-tax assessment. The process can be arduous and expensive, however, so before doing so, research your chances of success with a property-tax attorney.
  • When your property insurance comes up for renewal, it never hurts to shop rates. You might find a better policy and premium by consulting with an agent who specializes in the self-storage industry.

For the most part, we operators have resigned ourselves to the fact that fixed expenses are just a cost of doing business and can usually be offset by reducing outlays in other categories. It’s important to understand, however, that you can’t just “trim” your way to profitability. Costs are only part of the equation. Revenue growth will always be the driving force behind financial success. It’s when income is maximized and syncs with expense control that a facility reaches optimal performance.

Controllable Expenses and the Annual Budget

Controllable expenses are your everyday operational costs, which are easily managed by diligent oversight from facility management. Common examples include office supplies, facility maintenance, printing, postage and marketing.

The first step in limiting these expenses is to create a well-planned annual budget. If you don’t have a budget, you undoubtedly have a significant opportunity to not only cut costs in the upcoming year but to push revenue performance. Without a budget, you deprive yourself the ability to measure your success and identify your weaknesses.

That said, no one has a crystal ball when it comes to creating a budget. While we draw on historical data to assist with forecasting, we can’t predict everything. Unforeseen circumstances can and will arise. Depending on the situation, the cost to replace or repair an item might come from a reserve fund; but more often, it’ll run through the monthly operational expenses. These unexpected costs will cause a setback, but that’s the nature of our business. A commitment to keeping all other expense categories in line and out performing revenue projections will help you get a handle on the budgeted annual costs and, more important, meet or exceed your projected NOI.

Once you’ve created your annual budget, stick to it. Adapt and apply the “need vs. want” philosophy. Too often, owners think they must purchase X for the benefit of the facility when they should be asking themselves, “Do we really need this?” Exercising discipline is critical for a successful operation.

However, this philosophy shouldn’t be taken to extremes. You don’t want to create and work from a shoestring budget that will negatively impact the appearance, performance and reputation of your business. Run a tight ship, but within reason. Remember, the asset value is the overarching goal. Reinvesting in your facility helps to create that value.

Diligence Pays

To control expenses, you must remain diligent and proactive when it comes to facility maintenance and repairs. Some of the biggest operational costs in our industry stem from deferred maintenance. While general upkeep is an expense, they’re anticipated as part of your budget (or should be), as opposed to negligence that creates a larger, more expensive problems. Here are some specific items to keep in mind:

  • Don’t fall behind on servicing your HVAC units.
  • Schedule routine inspections of your gate operator.
  • Monitor the battery strength and functionality of the golf cart.
  • Inspect all interior and exterior lighting quarterly or even monthly, including exit and emergency lighting. Failure to stay on top of this can result in a hefty bill to replace bulbs and batteries.
  • Work diligently to preserve the life of your doors. Protect the hasps/latches, keep the doors clean inside and out, and spray the springs with a white lithium grease to prevent dust build-up. We all know the cost and headaches involved with replacing and repairing damaged doors.

Failure to focus on these items not only creates expenses that could have been avoided, they can cost your business in lost revenue.

Your Biggest Expense: Employee Turnover

Finally, keep an open dialogue with employees and conduct annual reviews that allow every manager to know how he’s performing. Store-level staff turnover is a costly and timely issue that dramatically affects the store’s performance and bottom line. If there’s one area where you need to be proactive and communicative, it’s personnel. This is one place where spending more money and time will save you in the long run and provide your best return on investment.

March Chase is vice president and director of operations for Southeast Management Co., which provides self-storage management and consulting services. He’s worked in all aspects of the industry, from facility management to district management to director of operations. He’s served as vice president for the South Carolina Self Storage Association as well as vice president and president for the North Carolina Self Storage Association. He’s also a self-storage owner and investor. For more information, call 804.436.2596; visit http://southeastmanagementcompany.com.

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