What is revenue management? Simply put, it means thinking about how to maximize your self-storage facility’s rental rates while maintaining high occupancy levels. Follow the advice below to build a solid revenue-management plan to keep your rental rates in line with your specific market.
How do your prices stack up against your competitors? If you don’t know, you’re leaving money on the table. Finding this out is as simple as using a spreadsheet with your competitors’ names and phone numbers, and checking their prices at least monthly. Typically, you’ll want to track competitors within three to five miles of your facility, but you’ll learn quickly that some are more active in changing their rates than others.
Also, many storage operators post their rates online. If they don’t, you’ll need to mystery-shop them over the phone or have an employee or family member do it for you.
It’s important to note that your rates don’t need to match your highest-priced competitor. If your facility isn’t as accessible or aesthetically attractive, you may need to set your rates just under your competition. However, if you have the latest technology, full amenities and your property is nicer than your competitors, you can charge a few dollars more per month. Determining your rate schedule is both an art and a science, and you need to monitor the marketplace to make informed decisions.
Are your competitors implementing rent increases to existing tenants? While this information can be difficult to obtain, it can prove extremely valuable when designing your plan. There are several ways to acquire this information. The quickest and easiest method is to mystery shop your competitors and ask, “Do you increase your rates? How often and by how much?” If that doesn’t work, the next step might be to rent a storage unit from your competitor. Go with the smallest unit size they have, and see if they raise your rent within 13 months of renting.
With all this information on hand, it’s time to decide how to manage your rates. Do you want to increase them across the entire facility or just a portion of renters every month? What percentage increase do you want to apply? If you have high occupancy, you can consider more aggressive increases. Do you want to set a cap for the maximum amount of rent to charge tenants? Some owners set it at street rates and use rental increases to bring long-term tenants up to meet them. However, it’s perfectly acceptable to increase existing tenant rates above your street rates.
Remember, you’ve shopped the competition, which means your rates will adjust frequently. New rental rates should be fluid, rising or falling based on occupancy levels. You’ll want to write a plan for managing your rental rates for today and into the future. Most management-software programs include a revenue-management option.
How will you know if you’re ready to implement your new plan? The first step to increasing rates on current tenants is to make sure your lease allows for it. If not, contact an attorney who can help you craft a new rental agreement. If it does, anticipate your tenants’ reactions. Some may ask why the rent has increased. You can inform these few customers that there’s been an increase in operating costs or improvement made to the property.
Now you’ve got a plan and a system for managing your revenue. Start tracking the results to review your efforts and increased revenue. You may need to experiment with the format, including your percentage and the time between increases. It will likely take some trial and error until you find the system that works best for you and your market.
Isaac Rothermel is a broker advisor at Investment Real Estate LLC, which has provided brokerage, construction, management and development services to self-storage owners and investors since 1998. For more information, call 717.779.0804; e-mail [email protected]; visit www.irellc.com.