Leveling Up Your Revenue Potential: Implementing a Tiered-Pricing Strategy in Self-Storage

Not all self-storage units are equal. Consider two 10-by-10s at a typical, climate-controlled facility. Both provide 100 square feet of space, but one is on the ground floor, near the main entrance. The other is on the third floor at the end of a long corridor. If these products are priced the same, which do you think the customer is going to pick?

It doesn’t take a degree in economics to know that the ground-floor unit is the better value. However, if it costs 10% more, the choice isn’t so obvious. Some customers will pay the premium for added convenience, while others will choose the third-floor unit to save money. Let’s explore how your self-storage operation can capitalize on tiered pricing to generate more revenue and provide customers with more choice.

Understanding the Strategy

As inflation continues to shape the business landscape and consumer behavior, revenue management has become a crucial tool for self-storage operators. A tactical, tiered approach to pricing can be a game-changer in today’s competitive market.

In the scenario above, both units will be rented eventually. However, with a flat pricing model, the upstairs unit may remain empty for longer, and the operator is leaving money on the table. By pricing units based on their perceived value to the customer, you can net additional rent every month and fill units faster. There’s an option for everyone, including the price-conscious customer who wants to minimize their expenses and the renter who’s most focused on features and amenities. Even small differences add up and maximize profitability.

Many self-storage facilities already offer a simple form of tiered pricing in the form of traditional drive-up vs. climate-controlled units. Now it’s time to take things a step further. Rather than offer a standard rate based on unit size, acknowledge that customers have diverse needs and budgets. By offering tiers, you can cater to a broader range of renters and capture the willingness to pay for various advantages.

Implementing Your New Strategy

Setting and forgetting your self-storage unit prices is a surefire way to undercut yourself and undervalue your facility. A tiered approach will boost your bottom line and asset value. While it takes extra work to implement, it’s well worth the effort. Here’s how to get started.

First, it’s important to know the market you serve inside and out. Conduct thorough research and segment your customer base according to their storage needs, preferences and budget constraints. This analysis will help you create meaningful pricing tiers that align with your audience's needs.

Next, identify your facility’s differentiating features, amenities and services. These might include factors like climate control, age of construction, 24/7 access, enhanced security, or additional conveniences such as proximity to doors and elevators. Assign prices based on the perceived value these features offer, for example:

Now, study the market and determine the average price for each unit type in your area. Use this as a reference point as you set pricing for each tier. Consider factors such as the number of units included in each tier, unit size, location, amenities and market demand.

Marketing Your Units

Now that you’ve set your tiered pricing strategy, it’s time to market your “new” products. Previously, your self-storage facility sold one or two unit types. Now, you’re selling multiple versions, with different price points, aimed at various segments of your market. Shoppers can choose the option that works best for them.

With a wide range of price points, you’ll also attract more visitors to your self-storage website. Every consumer has a different expectation and willingness to pay for storage. Some view price as an indicator of product quality. When shopping online, they may home in on a particular range. When you have more options, you cast a wider net. This gets more visitors on your page and improves your search engine optimization.

You’ll need to maintain transparency over the price differences and use the differentiators as selling points for premium units. Customers should know what they’re getting, and many will gladly pay more for a better unit. Focus on their needs and circumstances when helping them choose.

Maximizing Results

To get the most out of your tiered self-storage pricing, you’ll need to continually monitor prices, measure results and adjust. This is an ongoing process, and there are three main metrics to watch:

As time goes on, you’ll generate data you can use to make more intelligent decisions and fine-tune your approach. For example, you might identify which tiers are most sought after by customers. This’ll ensure you maintain the optimal percentage of units in each to meet evolving customer preferences.

A hands-on approach is one way to drive rentals with tiered pricing. Another is to use a revenue-management software program to automatically adjust prices based on the most up-to-date market data and your parameters. Available tools allow you to save time while maximizing revenue. Once implemented, they’re easily scalable across multiple facilities.

Whichever approach you take, remember to use promotions and special offers strategically to incentivize customers to upgrade to higher tiers or fill vacancies in lower ones. For example, offer limited-time discounts or benefits for customers willing to choose a higher-priced unit.

Embrace the Positive

Value-based pricing has a significant impact on self-storage sales-conversion rates. By offering multiple tiers, you provide renters with a sense of choice and flexibility, increasing the likelihood of securing rentals. The ability to align pricing with customer needs enhances the perceived value of your offerings, leading to improved revenue and a competitive edge in the market.

Additionally, because tiered pricing boosts revenue, it benefits net operating income, which is used by investors to calculate facility value. Even small, incremental improvements significantly increase the worth of your property when it comes time to sell.

The beauty of a tiered approach to self-storage pricing is you can start simple. As you learn from your experiences, you can add more options and experiment. You might even apply automation when you’re ready. Just remember to be flexible in your approach. Always be willing to adjust based on changing market dynamics and customer demands.

Al Harris is the editor of Storage Beat and content manager at Storable, an Austin, Texas-based supplier of cloud-based access control, management software, marketing services, payment processing, website development and other services. For more information, call 888.403.0665 or email [email protected].