With the self-storage industry booming, occupancies are at all-time highs. Despite this (or maybe because of it) competition is heating up in most markets. In this scenario, it can be easy for a facility operator who tries to compete solely on price to fall behind, or to drive their rates into the ground and lose revenue. So, what do you do when occupancy is high, competition is fierce, and profit is falling or stagnant? The answer may be to use value-based pricing.

Value-based pricing, sometimes referred to as tiered pricing, considers your customer and their perceived value of your product. In self-storage, there are features and amenities buyers value above others. Not all storage units are equal. While some people might be perfectly happy with an empty room that can be locked, others want more than just space. Value-based pricing allows for lower tiers of rent for shoppers who desire affordability and higher tiers for those who are looking for extras such as climate control, a better location within the facility, upgraded security and other offerings. At its simplest, it employs a “good, better, best” strategy that sets prices based on specific advantages.

Benefits for Facility Operators

With value-based pricing, self-storage operators can overcome business rivals that allow their rents to stagnate. For example, a facility down the road might be charging $150 a month for all 10-by-10 units without taking into account the value of each unit to a customer. At your facility, you might base price on whether a unit is on the first floor or the second, drive-up or climate-controlled, closer to the gate or elevator, etc. In other words, you offer a range of prices based on unit location and features.

What about those non-climate-controlled units on the second floor? You can undercut the competition by offering them for significantly less. Meanwhile, you can charge more for those first-floor units and still more if they’re near the entry door. Customers who don’t want to pay more have options, and so do those prospects who desire added benefits. Value-based pricing allows you to simultaneously charge less and more than the competition, drawing more attention from customers while maintaining—and improving—profit margins.

Benefits for Customers

On the self-storage renter’s side, the advantages of value-based pricing are more straightforward: First, it makes the buying process a whole lot easier. With tiers of prices available on the same size unit, customers can easily see how some options are more valuable than others. It creates a clear separation between units that would otherwise blend together. It also allows people to shop based on their needs and preferences.

A customer who has only light, easy-to-transport items might not mind a second-floor storage unit compared to someone with lots of heavy furniture or other bulky items. Value-based pricing allows each shopper to clearly see what the tiers offer and choose one that best suits their needs and comfort level. In the end, it creates a quicker, more transparent rental experience.

What Creates Value?

Again, tiered pricing considers the customer’s perceived value of self-storage, so before you get started, you must understand what holds value for your potential renters. What’s most important to them when choosing a facility and unit? While price is an obvious factor, there are amenities that continue to be at the forefront of shopper’s minds. Take convenience, for example. People seem to value it above almost anything else. Here are some examples:

In self-storage, a preference for convenience usually means a ground-floor unit, or a drive-up unit closest to the main entrance.

The next top concern for many self-storage renters is security. They like to be in visible, well-lit areas. Some want an individually alarmed unit. They may even like the idea of having a unit close to a surveillance camera. Beyond these things, some facility operators offer “smart units” that operate via a Bluetooth lock. If you have units with better security than others, it’s an opportunity for value-based pricing.

Implementation

If you’re already sold on value-based pricing and want to jump in, the first step is to group your self-storage units into tiers based on your facility and inventory. The simplest approach is to use that “good, better, best” tiering I mentioned earlier. These categories clearly indicate to customers that there’s some higher or lower value on offer.

The second step is to incorporate your price tiers into your online rental flow with some kind of visual display. It isn’t enough to just price your units differently. Customers need to be able to see the various tiers and quickly grasp how they’re different. If they just see that two units are the same size but different prices without knowing why, they’ll choose the less expensive one without understanding the value being lost.

With your self-storage options and prices properly grouped and displayed online, you could see as much as 40% of your customers choosing higher-priced units with greater value. The higher rents aren’t likely to impair your conversion rate, as every customer has choices, while the lower rents could actually lead to more rentals. You give yourself a clear advantage over competitors who lump all their units into a single “bucket.”

Evaluating Your Efforts

Evaluating the effectiveness of your value-based pricing model is pretty straightforward. By watching which self-storage units are being rented more often, you can easily determine if prices need to be adjusted. If the higher tier is consistently sold out, consider raising rates. On the other hand, if customers are always going for the lower-priced units, it could be that you’ve hit the limit of their price tolerance; or perhaps customers in your market really do value price over other amenities and features. You can always adjust accordingly.

Your tiered, value-based pricing should constantly change based on the wants and needs of your self-storage customer base. Properly utilized, it can drive conversions and keep your profit margins from stagnating!

Robert Priester is a content writer at StoragePug, a Knoxville, Tennessee-based software company that helps self-storage operators attract new leads, convert them to paying tenants and rent units online. He enjoys creative problem-solving and writing content that’s informative and interesting. For more information, call 865.240.0295.