Timing is critical to the success of a rent increase, especially in todays market. Too much and too often could have your tenants racing to your competitors. On the other hand, youre 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 arent paying more than the street rate. It will be difficult for you to justify to a long-term customer why hes 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 youre 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, youre minus $60. The point is, if youre 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.
Once every customer who has rented with you for 270 to 365 days has received an increase, your next target group should be those customers with large variance rates. Approach this the same way: Keep increases within your comfort level. If at any time you see significant fallout from your increases, stop, assess the situation, and proceed with what is in your stores best interest.
Some software packages contain a default rent-increase letter. However, it may not be the right message to send your customer. Instead, use it as a foundation on which to build your own personalized message. The letter should unite you and the customer in the same boat. For example, let customers you know youre facing increases in fees, taxes or other licensing. Tell them youve tried to absorb as many of the costs as possible, but you now have no choice but to pass along some of the expense.
Additionally, edit your letter to only show the amount of the rent increase and not the monthly rental rate. Sometimes customers forget their gate codes and unit numbers, and they also forget how much theyre paying every month. Dont remind them. Just tell them the dollar amount of the increase.
Another common concern is how to approach customers who have multiple units. With these tenants, be sure to raise the rate on all of their units at the same time. A customer who receives a rent increase on just one unit will know the others are soon to follow. Also consider a less drastic increase. Rather than add $10 to each unit and risk losing all of them, give the customer an increase of $15 across the board, or $5 on each unit.
Raising rents is often a managers least favorite task, but a necessity to stay competitive and profitable. When considering increases, be fair, be consistent and stay within your comfort level. Find the right balance for your operation and customers to guarantee a smoother process and increased success.
To talk about rent increases with other facility managers, visit www.selfstoragetalk.com, the industrys largest online forum and community.
March Chase is vice president of Southeast Management Co. and the director of operations for Plantation Storage in South Carolina. His background includes experience as a self-storage manager and district manager for a large management company. To reach him, call 804.435.1605; e-mail [email protected]; visit www.southeastmanagementcompany.com .
Good ole rent increases [Self-Storage Talk]