Leveraging Customer Fees to Generate More Incremental Income for Your Self-Storage Business

If you’ve ever looked closely at a business profit-and-loss (P&L) statement, you’re probably aware that most of the line items are expenses. This is why creating additional income streams for your self-storage operation beyond monthly rent can often be the difference between a good and great year. For new businesses, this also helps you break into profitability more quickly.

One strategy that works extremely well in accruing incremental revenue is charging fees for various services or penalties. However, it’s important that all charges comply with local and state laws. Each area is different, so in addition to conducting your own research, consider consulting with your regional self-storage association and/or an industry attorney. With that said, here are a few simple and actionable ways to add fees to your facility’s revenue stream.

Fees to Consider

Late fees. If a self-storage tenant misses their monthly due date or pays after your facility’s grace period, they should incur a late fee. This may seem obvious, but I’m surprised how often operators charge less than what their state allows. In my observation, having worked across most of North America, no state allows excessive fees; so, always charge the allowable maximum!

At my company, we don’t push customers into autopay at move-in, but we do explain that if they don’t set up automatic payments and wind up past-due, they’ll incur a late fee, and it won’t be refunded. Tenants who don’t opt into autopay often miss their due date. It can sometimes be preferable to simply collect fees from these habitually late payers.

Administration/setup fee. Many states allow this, but make sure you clearly state to customers what it covers. At some facilities, it includes a unit lock for the tenant. In our operation, we’ve charged anywhere from $30 to $45. The amount is typically determined by whatever commission we pay to the salesperson, and the fee for the lock, if one is given. We set aside $10 to $15 to clean out the unit upon move-out. (We don’t like to charge security deposits because tenants will fight you for it.)

Overlock/lockout fee. This is applicable for those delinquent tenants, but check to ensure this is allowed in your jurisdiction. At most of our self-storage facilities, we issue a small charge to overlock the space as well as for the overlock itself. Once the tenant pays, they’re given a code to remove the overlock. If they don’t return it to us, we keep the fee; if they do, we simply credit their account.

Auction-related fees. If you aren’t auctioning every self-storage unit that goes into lien status, you really should, and not just because your state law may require it. I’ve seen many instances in which a manager hired someone to clean out the unit instead, thinking no one in their right mind would pay for the stuff inside. This is poor practice for a couple of reasons. First, it adds an expense to your P&L. Second, it’s extremely rare that someone doesn’t bid at least a pittance at auction.

Even if the winning bid is only $5, you can still charge a cleaning deposit of $50 to $100. If the buyer doesn’t clean out the unit, you keep that money. If they do, the worst-case scenario is you made a little something for the contents and didn’t have to pay someone to clean the space.

In addition, most municipalities stipulate that you can charge a reasonable fee to auction a unit. While it isn’t likely that a tenant will square their bill if they’ve reached this point of delinquency, if they do, this can create a small income stream. More importantly, it’ll discourage them from falling behind to the point where they must pay another auction fee in the future.

Communicating With Customers

It’s important that your self-storage customers are aware of any fees you charge before they occur. There’s nothing worse than being blindsided with a charge you weren’t expecting. Though many tenants don’t read their rental agreement in-depth, we recommend disclosing fees in writing as part of the lease or in an appendix to the rental agreement.

Managers and other sales employees should be proactive in addressing fees and prepared for pushback. Keep a sheet of objections and applicable answers, and add to it as new questions or incidents occur. This’ll help streamline situations for customer-facing staff.

Consistency is key, whether you use a call center or have multiple team members dealing directly with tenants. Responses can be personalized, but no one should try to handle objections without proper training. Those who do can make matters worse.

Here are two examples of potential objections and preprogrammed responses we might use:

Explore More

These are just a few of the various fees you can charge in the self-storage industry. Consider other areas of your operation where including a fee structure may be appropriate. Remember, the goal is to create income to offset expenses. This includes ancillary profit centers like rental trucks, moving and packing supplies, package-delivery or postal services, and many others. Analyze each as a potential revenue contributor that can also increase the value of your business and property.

Charlie Kao is the principal of Twin Oaks Capital, a Michigan-based commercial real estate company specializing in self-storage and multi-family assets. Services include real estate brokerage, asset management, feasibility studies, consulting and building-construction management. The company and its affiliates have owned, operated or planned more than 1 million square feet of self-storage. Charlie also owns House of Kaos Real Estate School, which provides continuing education credits for licensed realtors. He can be reached at [email protected].