As we sit in the middle of the slower season for the self-storage industry, we have a great opportunity to analyze and tweak our pricing strategies with less risk. In our industry, there are three major categories to consider related to pricing: street rates, existing tenant rates and promotions.
In this article, well focus on street rates, which are the monthly rental rates we quote to potential new tenants. Some operators call them standard rates or asking rates. There are several factors that are important to consider before changing your street rates including current occupancy, expected occupancy, competition, and how potential customers find the rates.
Based on basic micro-economic principles, we know that when demand is high and supply is low, prices should increase. Your street-rate pricing strategies should be based on occupancy for a specific unit size and type, not on the overall occupancy at your facility. For example, if you only have 20 drive-up units and theyre always occupied, keep pushing the rates on those units!
However, if you have 200 5-by-10 units and have never had more than 100 of them rented at one time, try dropping the rates to see if you can capture a higher percent of market share. Some software systems are set up to make these simple adjustments for you automatically. They look at each unit size/type, calculate the amount of time occupancy has been at that level, and raise or lower the unit size/type rate for you.
Current occupancy is not the only important factor to consider, however. To maximize your revenue, use those automated street-rate pricing triggers in your software, but make sure youre analyzing your base rates at least monthly. Expected occupancy in the coming months should also be part of your planning decision.
Is your facility close to a large university? If so, you should increase the rates on your small units by early March when students begin calling to reserve spaces for the summer. If a tenant renting multiple large units gives you a 30-day notice that hes vacating, dont wait until he moves out to adjust rates on those large units. Review and adjust them now.
Competitive rates are also important when considering to discount your facilitys rental rates. If your street rates are already lower than those of all your competitors, dropping them even further may not help increase occupancy at all. Instead, determine why tenants are not renting with you. Perhaps its your facilitys signage, curb appeal, sales skills, customer service, products offered or Web presence.
If your current street rates are significantly higher than those of your competitors and occupancy is low, dropping your street rates will surely help you increase occupancy in the short term. But that doesnt mean you should drop the rates for your existing tenants. Youre just trying to get some rent for the empty space in which youre collecting nothing on right now. All street-rate changes should be viewed as temporary.
Change It Up
One of the beautiful things about our industry is the month-to-month lease. If you normally rent 10-by-10 units for $99 and move two people in this month at the rate of $79, you have the ability to raise the rates for those tenants any time in the future with 30 days notice. If occupancy is low, its probably better to get $79 than $0 now. When occupancy rises, you can raise their rates to $99. If they move out at that point, youre more likely to replace them with a new tenant at the full $99 rate.
Some operators price the most desirable units of a certain size/type at a premium. For example, you can probably rent the 10-by-30s inside on the first floor near the building entrance for 10 percent or 20 percent more than you can rent a 10-by-30 unit upstairs, 100 feet from the elevator.
If your occupancy is not very high and some of your competitors are priced really low, you can use a similar strategy to match their rates. Choose the least desirable units on your property of the major size/type categories and price those closely to the competitor. Leave all the other units in that category at the higher street rate. That way, you have something to offer those few tenants who only care about rates, but dont lose opportunity by pricing all of your units that low.
When you take the potential tenant on a tour of your facility and show him the cheap unit on the third floor in the back corner of the building, he may say, Do you have anything closer to the elevator? You can then show him the more convenient units, and he can choose whats most important to himconvenience or low rates. Some customers just want to feel like they have choice and made a good decision. Having two good options at your facility may prevent customers from shopping other competitor properties as well.
Beware of Your Internet Specials
Another key factor to keep in mind when making street-rate pricing decisions is where potential tenants are finding your rates. If they just drove by and stopped in the office, theres usually no need to offer a discounted rate. Theyre probably planning to rent from you already!
However, if theyre looking online, they may find your rate on a website that lists you and some of your competitors. They may also look at your website and then quickly check the websites of three other storage facilities. Its more important to have competitive rates online these days. Many storage operators are offering online specials or Web-only rates on their websites for this reason.
In many situations, dropping street rates can absolutely help you quickly increase occupancy. It may come at a cost, however, as 40 percent to 50 percent of potential self-storage tenants do not price shop and you can get an even higher rental rate.
All self-storage operators are trying to maximize their achieved revenue by balancing occupancy and rates. This delicate balance requires and deserves time analyzing the factors listed above, reviewing the results, and tweaking over and over again. Hopefully, these ideas and tips will help make this year the most profitable one so far for your storage facility!
Alyssa Quill is an owner of Storage Asset Management Inc. (SAM), a third-party management and consulting company that currently manages 30 self-storage facilities across the mid-Atlantic and Northeast regions. For more information, call 717.779.0044; visit www.storageassetmanagement.com .