Preserving Self-Storage Revenue Through Cost Tightening and Occupancy Stashing

Over the past couple of years, it seemed as though the self-storage industry could do no wrong. Occupancies soared and rate increases were met with little resistance. Customer complaints could be overlooked, as any move-outs were quickly replaced at higher rents. Inefficiencies were also ignored in the light of record-breaking revenue. Many operators were able to pause their marketing, reduce their staff and defer capital improvements. Things were indeed good, which naturally attracted many new developers and investors.

Fast forward to today, with our ramped-up, glistening self-storage supply and competition on seemingly every block. Add in an inflationary economy, and we have an environment in which it’s crucial to maintain agility in every self-storage asset.

It’s time for facility operators to shift their focus to some tried-and-true measures that’ll help them prosper in a softening market. When’s the last time you delved into your profit-and-loss statements to examine the key factors driving income and expenses? Where can you cut costs without sacrificing income? Let’s explore a couple of failsafe strategies to help you preserve facility revenue.

Operational Savings

To generate cost savings within your self-storage operation, you must track which of your spending is and isn’t working. This is crucial to staying competitive in today’s marketplace. The primary controllable expense categories in this industry are:

Payroll. While this is generally a fixed expense, the rising cost of labor has greatly impacted our market. It’s still one of our largest expenses. For this reason, it’s wise to button up any inefficiencies. Today, technology is revolutionizing our facility-staffing practices.

The shift to remote management is here, but is it here to stay? Naysayers point to a lack of personalized customer service and daily hands-on attention to the property as issues to be addressed. The risks and rewards vary by market, but an automated model has been proven to work in many types of environments, urban to rural. Of course, optimizing staff schedules and keeping employee turnover low will help reduce wasted payroll.

Marketing. To tighten spending in this area, it’s important to track the customer engagement associated with each ad campaign. Data-visualization software tools like Datarails, PowerBI and Tableau can help you spend efficiently across multiple channels. Even smaller self-storage operators can use them to make smart marketing decisions.

Repairs and maintenance. It’s important to conduct regular walk-throughs to understand the condition of your self-storage property and where upgrades are needed. You can’t develop a capital-improvements budget without this information. Planning repairs and maintenance will also help you eliminate unpleasant surprises or cash-flow crunches.

Roofs, security cameras, paving and paint are common culprits that can be addressed with a more efficient replacement or repair schedule. Preventive maintenance is another key factor, especially in regions with heavy rain or snow. Performing these routine checks will lead to significant savings throughout the year.

Occupancy Stashing

Occupancy stashing is a new model in the self-storage revenue-management ecosystem. It was born from an exhausted customer base frustrated with frequent rent increases. Many tenants moved in at a low promotional rate, which quickly jumped one or multiple times. Now they’re price-sensitive and weighing their options. What if they simply stop using storage?

Customer-acquisition costs are higher than ever due to more expensive advertising. The new trend in revenue management is to “stash” (i.e., retain) existing customers by maintaining a high-quality product and taking tenants’ feelings and behaviors into consideration when contemplating a rate increase.

Wall Street is preaching to the large self-storage operators to keep occupancy high by boosting their marketing spend, slashing street rates and implementing aggressive promotions. However, this is where smaller, independent operators have room to flourish. They aren’t reliant on complex algorithms but rather on feedback from their store managers and customers.

This is the first time in several market cycles that self-storage operators have seriously had to consider buying occupancy, but it’s the reality we’re now in, even during peak-demand season. Are you able to shift your expenses to do so, or are you nimble enough to rotate out of discounts and advertising spend? The good news is, if you can boost occupancy during peak seasons and maintain it afterward, it naturally improves facility income for the rest of the year. This reduces the number of variables in the year-end budgeting process and simplifies your overall approach to revenue management.

A New Focus

Over the past few years, as occupancy and rental rates peaked and tenants were considered easily replaceable, many self-storage operators were focused only on revenue. Now, things are changing and the emphasis is on revenue preservation.

Tenant satisfaction should take precedence and remain a top priority for self-storage operators of all sizes. After all, renters have the power to fuel our income machine or walk away completely. Revenue preservation hinges on your ability to enhance the customer experience, particularly in relation to rental-rate management. Remember, a loyal customer not only pays more but becomes an advocate for your business, influencing the buying decisions of future renters.

This isn’t a groundbreaking concept, but it enables self-storage to continue flourishing. Instead of focusing on revenue from any customer at the highest price, concentrate on quality and top-notch service to keep the revenue you’re already earning from a reliable, long-term tenant base.

Taylor Nevares is the director of asset management for Walnut Creek, California-based StoragePRO Management Inc., which provides third-party management, digital marketing, technology and operational systems for 130 self-storage properties in the Western United States. Taylor has more than 15 years of experience in acquisitions, asset management, development and valuation. He’s directed more than $2 billion in real estate transactions across diverse asset classes. For more information, call 925.938.6300, ext. 139, or email [email protected].