Knowing when and to whom rental-rate increases should be given, as well as how much they should be, is one of the most important aspects in operating a profitable self-storage facility. With the industry currently experiencing its highest occupancy in 17 years, most of us are aggressive with rent increases. This has resulted in double-digit growth to our same-store sales and year-over-year improvements.
Large operators have developed processes for defining their revenue-management programs. Some are using complex algorithms to determine which demographic groups get more of an increase and how often. ZIP codes, length of stay, household income, unit type and location, amount of current discount, and competitor-pricing comparisons are just a few of the influencers being used to dictate new rental rates for customers.
More common, though, are rules-based methods for monthly evaluations of the common two-rate structure of standard rates (often called street rates) and existing tenant rates. Analyzing these rates enables owners to maximize income. It’s sort of an if/then system: When A occurs, action B takes place. While these two rate structures are completely separate, one certainly does influence the other. Let’s take a look at how each can be examined to bring in more profit.
Standard (street) rates are reviewed by unit type or size, particularly ones that are full or about to be, which can spur a rate increase. You never want to be 100 percent occupied because then you have nothing to sell.
To make this easy, I suggest owners use a few simple operating-system reports to identify triggers for raising rents, and then review them at least once per month. Most management-software programs today offer some type of rental-activity report. After you pull this report, look for unit sizes that have 90 percent or higher occupancy or inventory of three or fewer. These are the sizes on which you should raise rates.
Next, look to the occupied percentage column. When you have a size with a lot of vacancy, your natural tendency would be to reduce the price. However, this is the opposite of the action needed to improve revenue. Instead, increase the rent on the smaller and larger sizes around this vacant size to create a perceived discount.
For example, you may have several 10-by-10s priced at $100 per month. Your 5-by-10s are $70 and your 10-by-15s are $140. Leave the 10-by-10 price where it is, but raise pricing for the 5-by-10s to $95 and the 10-by-15s to $175. Now the rental rates are $95, $100 and $175. The 10-by-10s are now only $5 more than the next smaller size and $75 less than the next larger size, so most customers will view those units as a bargain, and you’ll fill them faster.
Also check your occupied-history report, which will show you the strength of occupancy by unit type over the past year. If you see a size that rarely has any availability, you can be more aggressive on standard rates as well as those for existing tenants. Remember, when you raise standard rates, it only affects your new customers, not current ones.
Existing Customer Rates
When assessing rates for existing customers, you’ll want to pull an occupied-units report. The software should be able to sort the report to show you all customers by the number of days the rent has remained unchanged. You’re going to find customers who meet your criteria for increases by length of stay.
I suggest using 210 days as the trigger, which makes the actual rate increase effective at nine months. At day 210, start the increase process. It will take time to decide on the new rates and send out the rent-increase e-mail or letter. You’ll also need to give customers 30 days notice before the new rate becomes effective. Hence, if you start at 210 days, the rates should go into effect at 270 days. By determining your standard rates prior to executing increases for existing tenants, you can see the variance between current rent and the new higher rate for new customers.
Finally, to catch all customers who are getting discounts on sizes that are full, you’ll use the same occupied-units report. However, this time you’ll sort the report by percent discount or variance to your standard rate. Go through the report and find those getting discounts of more than 15 percent.
The next step is to send these tenants a discount-reduction letter. Here’s an example: “Dear Mr. Jones, you have been getting a 48 percent discount that has been in effect since X date. In X days (which should be at least 30 days from the date of your letter), your discount will be 19 percent." This way the customer knows he’s still getting a discount compared to new customers. Also, it’s a less harsh way to say, “Your rent is going up by $30 a month.”
Now that you’ve maximized your potential rents with new, existing and discounted customers, you need to repeat this process at least monthly. Circumstances will dictate the need for more frequent reviews and actions. For example, if you continue to hit 95 percent occupancy after raising rates, you’ll need to review your street rates more frequently. I have a store in Florida that has to review street rates almost weekly since demand is so high. Its managers do an incredible amount of marketing and hold onsite events to keep it that way. These activities have produced outstanding income improvements.
Because almost all Web-based software programs for self-storage include rate-management tools, you can easily program when and how much you want increases to be, and they’ll show up in your pending-rate-increases folder for approval. This is likely the easiest method for many facility owners, but it doesn’t allow for as much consideration and improvement as the process outlined above. A motivated owner can outperform the computer by taking advantage of all opportunities. This isn’t to say that the rate-management tools aren’t effective; using them is certainly more profitable than doing nothing or leaving it to chance.
Consistent, well-defined actions are the key for successful rate improvements. You can’t wait three years and then raise all existing tenant rates to match your standard rates. This will just create stress and a lot of work. Instead, stay on top of your rental rates for existing and new tenants and look for areas in which you can improve.
M. Anne Ballard is president of training, marketing and developmental services for Universal Storage Group and the founder of Universal Management Co. She’s president of the Georgia Self Storage Association and has served on the national Self Storage Association’s board of directors. She’s also participated in the planning, design and operation of numerous self-storage facilities. For more information, call 770.801.1888; visit www.universalstoragegroup.com.