Self-storage operators across the nation face increased competition as real estate investment trusts move into their markets and Wall Street pays closer attention to historically strong profit margins. Technology has helped smaller operators level the playing field to some extent, but setting proper street rates and creating a program to raise rates on existing customers is still a mystery to many owners.
Mystery shopping your competition once a year is no longer enough to stay agile in pricing. While larger operators are getting more sophisticated about adjusting rates daily or even hourly, those with smaller portfolios or sites can no longer avoid creating their own competitive plan. The best revenue-management strategy is a mix of art and science.
Know Your Market
Pricing shouldn’t be a one-size-fits-all approach. A storage facility in New York City needs a different plan than one in Lake City, Fla. Smaller operations have the advantage of being able to customize a program that works their own employees and customers. Tackling pricing from different angles (art and science) will yield the best results, giving you and your team deep insight to your market.
We all tell ourselves stories about why we can or can’t do certain things. If you’re telling yourself that your customers will move out if you increase their rates, you’re failing before you start. Challenge your internal narrative and be mentally prepared to raise rates and make more money.
Taking a customized approach to rental rates means there are no rules. Art isn’t limited by guidelines and structure. It’s trusting your gut and learning from your experience. You must be comfortable with taking risks and tracking the results. The beauty is you can set the limit for how much risk you’re willing to take; then mix in science with your approach so you can verify your instincts with data.
To create a custom revenue-management program, you need to know your competitors as well as you know your own business. You should be familiar with their facilities, websites, social media presence, training, management, rates and anything else the self-storage prospect will see. You have to walk in the customer’s shoes every day and look at your market with fresh eyes. Don’t be fooled—this isn’t easy. Gathering this information involves identifying your target zone, understanding the market, verifying your data and tracking demand.
Understand Your Numbers
Before you make any pricing decisions, ensure your management data is correct. If your reports are erroneous, you’re going to take a wrong turn.
The biggest mistake I see is incorrectly handling street/standard rates and tenant rates. The street rate is what a unit would be rented for if today if someone “walked in off the street,” with no discounts. The tenant rate is what a customer is acutally paying. Make sure you understand how to use these two rates in your software; any difference is called a “variance.” The total amount of revenue you can make from your facility in any given month is calculated from your standard rate, so if this number is incorrect, most of your other reports will be wrong as well.
To create your custom revenue-management program, you need to know your customer conversion rate. Track how many leads you receive each day and mark the ones that turn into tenants. If 50 people call or walk into your facility and 10 of them become tenants, you have a 20 percent conversion rate. Tracking conversion is an excellent way to test many parts of your business, such as your phone script, manager performance, unit and tenant pricing, and much more.
Set Your Rates
Once all your data is gathered and organized, you can make decisions on setting unit prices. I like to group my competition by similar quality and rank our price vs. quality on a graph.
Here’s where the fun begins and we’re able to make decisions based on the data. You have many options when it comes to raising rates. You can charge more on sizes that have high occupancy or raise prices on all sizes. Don’t be afraid to try new strategies and see what works. Next, monitor your conversion rate to determine results. If your conversion stays at 20 percent or higher after you increase street rates, you can boost them again.
Once you’ve determined your street rates, focus on tenant rates. Raising rent on current customers is typically a little more delicate, not because of their feelings but because of yours and those of your staff. Many storage operators believe that if they raise rates, they’ll have an empty facility the next day. I have yet to see this happen!
Before you raise prices, prepare your staff so they understand your expectations in case of customer complaints. Decide how you’ll handle situations before they arise to ensure the process goes as smoothly as possible.
Test and monitor the results of all your hard work. Did your conversion rate change based on street rates? Did any tenant move out due to price increases? How much more money are you making now than before you started?
If you don’t have a revenue-management plan in place, you could be losing money every day. Take a closer look at the rental pricing in your market as well as your own data to craft a rental-rate program that will work for your self-storage business.
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, bill-pay functions, revenue management and strategy. She also offers a curb-appeal checklist available for download and has created an an online revenue-management course complete with checklists, cheatsheets and guides. For more information, e-mail [email protected]; visit www.selfstoragecpa.com.