Imagine this: You’re in line at your local post office, waiting to send this month’s lien notices. You glance around and notice the rack of shipping boxes. Then your eye catches a new display of gift cards being sold. Then you see someone browsing a greeting-card stand. You wonder, why would the post office sell this stuff? The U.S. Postal Service has figured out how these and other products can boost income at its locations.
A profit center is any product or service that generates additional revenue at a business. In self-storage, this would be anything you offer beyond basic unit rentals.
While offering one or more profit centers can make financial sense, determining which ones to add to your operation can be overwhelming. Let’s looks at some common and niche ancillaries being used in the industry today and some factors to decision-making. I’ll also touch on how to manage and market the add-ons you choose.
Why Have Profit Centers?
The easiest answer is to add another revenue stream. Every little bit adds up and can help a facility gain year-on-year profit. For example, one property I managed made roughly $40,000 per year in profit-center revenue from vehicle storage, retail sales, truck rentals, tenant insurance and propane sales.
In addition to adding more income, a profit center helps you create a synergistic customer experience. A 2018 article in the “Harvard Business Review” stated that the No. 1 factor for a customer in choosing a product of service is not price but how effortless the buying experience is for him. Providing one or more profit centers at your facility makes things easy and convenient, which creates satisfaction.
Profit centers can also attract a brand-new customer base you may not have considered. For example, a site that rents out a conference room can build rapport with small business owners and entrepreneurs, who might in turn become new renters. Refilling propane tanks may lure in one type of customer, but when he eventually needs storage, he knows where to go without hesitating.
Common Profit Centers
There are a few profit centers that are frequently offered in the self-storage industry. These are essential to boosting and sustaining facility revenue.
Retail merchandise. This includes the sale of boxes, locks, and other packing and moving supplies customers may need. This is a benefit to the tenant because now he won’t have to leave your facility to purchase a lock, a few extra boxes or that mattress cover you just convinced him he needs. It increases revenue and the overall customer experience.
Tenant insurance or protection plans. Offering these products ensures customers’ belongings are covered if disaster strikes, and many underwriting companies offer substantial commission plans to self-storage operators. It’s becoming so customary for facilities to offer this service that it’s really becoming an industry-wide standard.
Truck rentals. There are a few different ways to offer the use of moving trucks. Your facility can become part of a dealer network of a much larger company, or you can purchase or lease a box or sprinter truck of your own. You can then use the vehicle how you see fit. Each option has advantages and drawbacks. It’ll be up to you to weigh the options.
Vehicle storage. A lot of facilities offer this, particularly for RVs and boats. Even in tertiary markets, homeowners often must store their large vehicles, as local covenants don’t allow them to be parked in the street, driveway or yard. This type of storage can also benefit business owners who use vehicles as part of their operation such as landscapers. There are many levels of vehicle storage, but at the most basic (outdoor parking), it’s an easy way to generate revenue on unused land, particularly for the owner who has room to expand but isn’t yet ready to build.
Niche Profit Centers
In addition to the above offerings, there are many other options for creating ancillary revenue. A good way to help your business stand out in an ever-saturating market is to develop an innovative niche, or specialty, profit center determined by your specific demographics.
For example, wine storage has become a viable add-on for facilities in the right market. Consider sites in California’s Napa Valley, for example, or the Willamette Valley in the Pacific Northwest, where an abundance of wine is produced and sold. Restauranteurs and collectors all over the country could need storage for their inventory and valued collections.
Another good niche is records storage. Businesses with small offices often don’t have the space to keep every document they need to save. Renting units to store these records could be a revenue-driving decision. You can even double down on profit from these customers by offering services such as records management, conference-room rentals, printing and shipping.
The key to a niche profit center is knowing your market and target audience. What could you offer that would create a one-stop-shopping experience for customers?
Making a Decision
When deciding whether to add a profit center to your self-storage business, you must consider three factors: desirability, operational viability and financial feasibility. Ask yourself:
- Do customers want it? Perhaps you’ve received requests or suggestions from current tenants to add a particular product or service, or you’ve seen a need that isn’t being met in the market.
- Can the facility accommodate it? Is there physical room at the property to offer this product or service? Do you have the staff and other resources necessary to run it? Does your team have the time to market and manage it?
- Is it affordable? Will it make money? Do you have the capital to implement? Can you afford to offer it? Can customers afford to buy it? Putting a Redbox DVD kiosk outside the office might seem like a wonderful idea, but will it be in demand in the advent of streaming video? You must consider the financial forecast for your potential profit center.
If you can say “yes” to all these questions, the profit center may be a good fit. But there are still more factors to consider.
Business owners like to calculate the potential return on investment for any new venture before proceeding, but PricewaterhouseCoopers offers up a different metric. In its 2019 Global Consumer Insight Study, the company it claims it’s more beneficial to weigh the return on experience (ROX). Again, the goal isn’t only to establish a new revenue stream but to create a synergistic customer experience. What could the ROX be if a profit center is added?
Still, you must be selective. There is such a thing as too many profit centers! While a self-storage facility needs diversification to survive, there’s a limit to what a property and its team can handle. Here are some final questions to consider in your decision-making process:
- Is the profit center in line with your business vision and mission?
- Which profit centers can generate revenue and which, though popular, operate at a loss? It might be nice to have a propane tank-exchange center, but if it only makes money during the summer, it may have to go.
- Are there enough employees to operate the profit center, and are they trained to do so? One full-time manager and one part-time assistant can only do so much multi-tasking.
- Could the main focus of the business—renting storage units—suffer as a result of the profit center? If so, reconsider.
Managing Your Center
Ivan Misner, founder and CEO of Business Networking International said, “I don’t do 1,000 things six times, I do six things 1,000 times.” It’s better to excel at one or two profit centers than to be mediocre at many. Identify a few your facility can do well and perfect them.
It’s imperative that all employees to be knowledgeable and trained on each profit center. The assistant manager, manager, regional manager and even the owner should know how many boxes a customer may need when moving out of a two-bedroom house or what size mattress fits into a 5-by-8 enclosed trailer.
Learn from others who are doing well in the profit center already. It might not even be another self-storage operator. It could be local hardware store that always has a line for its propane-exchange center or the collaborative space down the road that rents conference rooms.
Marketing Your Center
As soon as you decide on a profit center and begins to implement, get the word out! Inform current and past tenants about the new product or service, and contact the local chamber of commerce to do a photo-op for its social media pages. Talk with local insurance agents about your new conference room and how they can use it for their “lunch and learn” events. Shake hands with people staying at the nearest campground and let them know about your RV storage and propane-refill station. Have a glass a drink at the newest wine bar in town and let the aficionados know where they can store their collection. Whatever your profit center may be, use all forms of marketing at your disposal to promote it.
Remember, a profit center can be anything that generates extra revenue for your self-storage facility. Be diligent in determining its desirability, operational viability and financial feasibility. Be knowledgeable and well-trained on the profit center, and re-evaluate it on a consistent basis to ensure continued success. Find a niche or become a one-stop-shop and your revenue stream will only increase.
Steven Jeffers is a facilities asset manager for Bee Safe Storage and Wine Cellar, which operates 12 self-storage facilities in the Carolinas. His experience and knowledge includes local marketing, management optimization and leadership training. For more information, e-mail firstname.lastname@example.org; visit www.beesafe.com.