There’s a constant debate among self-storage operators about using concessions to gain rentals. Some apply promotions liberally, while others argue the industry shouldn’t rely on them. As with most things in life, the right answer is usually somewhere in the middle.
While there are many ways to entice new self-storage customers to your facility, there are three common types of “specials”: free rent, discounted rates and waived fees. Let’s examine the strengths and pitfalls of each as well as whether you should use them and when.
One sales tool self-storage operators sometimes use is an offer of free rent. It’s effective because everyone loves free stuff. We’ve all driven by a facility with a “First Month Free” banner strung across the front, but what does that really mean? Is there really no cost? Not exactly.
Smart operators never allow a tenant to move in without paying anything. Instead, “first month free” usually means the tenant receives a credit for the second or third month, or a rent prepayment is required. One reason operators feel they can afford to do this is because self-storage is pretty sticky. Once someone moves in, they really don’t want to go through the hassle and expense of moving out. If you can get them into the unit, there’s a good chance they’ll stay for more than a year, if not longer.
However, collecting some form of payment at the time of rental is necessary to keep the deadbeats at bay. Some customers will use your facility to dump unwanted items and put the burden and expense of removal on you. If you allow someone to move in for free, word will inevitability get around and an unscrupulous person will move their trash into your space. Then they’ll disappear and leave you with the responsibility of cleaning it up. Free rent without strings equals lost revenue and time as well as increased expenses.
When to use: If you’re going to offer free rent, it’s best to do so when leasing up a new self-storage facility or expansion. This gets customers in the door, and we all know folks would rather go to prison than move.
Instead of free rent, another strategy self-storage operators use is to offer a discounted rental rate. Though not as snazzy or alluring as “free,” it can still be enticing. There are a number of ways to manage discounts. For example, you can make a limited-time offer, meaning the discount only applies for a set number of months; or you can tie your discounts to a referral program.
A limited-time offer typically provides a discount off the street rate for a couple of months before reverting to the standard rate. The good news here is your cash flow is less impacted than with a free-rent offer; however, once the discount ends and the price increases, you risk triggering a negative reaction from the customer, especially if you’ve also raised the street rates since they moved in. A good approach is to apply a one-time, 25% discount off the second or third month. This is a good middle ground between the free-rent and lengthy discounts.
A successful referral occurs when an existing tenant or strategic business partner refers your facility to a new customer and that individual signs a lease. Under this promotion, the referring party receives some kind of bonus or credit issued to their account. This is a great tool because you gain a tenant who arrives with a warmer feeling of trust than non-referral customers.
When to use: Reduced rent can be an effective tool to lure back previous customers or keep existing ones who’ve had a bad experience. Nothing gets a customer to stay or come back after a bad experience like a heartfelt apology and a nice discount.
Fee waivers should be used the least and only under the right circumstances. There are typically three fees you can waive in self-storage:
- Administrative fee: This is usually charged up front to compensate for the work it takes to get the customer set up in the software system and on their lease. This is a pretty easy fee to waive, and the second-order effects aren’t disastrous. Remember, though, you charge admin fees for a reason, so exercise restraint.
- Security deposit: The reason you collect this is to hold collateral. The tenant gets it back at the end of the rental if they provide sufficient move-out notice per the lease agreement and leave the unit clean. If you waive it, you remove that incentive to follow the rules.
- Late fee (late-payment penalty): This should only be waived if there’s a legitimate reason. Far too many managers use this as a crutch to pacify angry customers. Don’t do it! It’ll only cause tenants to feel entitled and condition them that paying late is OK, which it isn’t. Don’t get spooked when a tenant threatens to move out if the late fee isn’t waived. This is a bluff you want to call 100% of the time. First, it’s unlikely they’ll follow through. Second, they probably aren’t a tenant you want to keep anyway, so let them to leave and replace them with one who pays!
When to use: Admin fees and security deposits should never really be waived. Late-fee waivers should be tied to your customer-experience program and used only to alleviate a legitimate, difficult situation with a current tenant. If a customer has paid rent on time for a year and then suddenly misses a payment because they were on vacation, waiving the late fee can be a great way to show appreciation for their loyalty and value.
While self-storage promotions can help you increase occupancy and retain tenants, use them sparingly. Luring customers through discounts is the easy way out. Anyone who says they can only get new rentals through discounting may need additional sales training or to be replaced.
Keep rate promotions simple and temporary; don’t race to the bottom as far as price goes. Discounts can be a drain you circle, so assess their advantages and disadvantages before putting them into practice at your self-storage facility.
Danika Anderson is senior corporate property manager and Scott Lewis is co-founder and CEO of Spartan Investment Group LLC (SIG). Anderson implements the policies, procedures and practices in her assigned portfolio that enable each facility to meet and exceed budgeted financial goals and achieve operational excellence. Lewis is responsible for developing business strategies and overseeing all operations and business activities. SIG has completed $9 million in self-storage development projects, with $70 million underway. For more information, call 866.375.4438; email [email protected].