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Tiered, Value-Based Self-Storage Pricing: More Options for Customers, More Rental Income for OperatorsTiered, Value-Based Self-Storage Pricing: More Options for Customers, More Rental Income for Operators
Every self-storage operator wants ways to improve revenue, and rental rates are an obvious place to start. While we often talk about increases, there’s another path to greater income: a tiered, value-based pricing model. It gives your prospects more unit options while generating bigger profit for the business. Learn how this strategy works and how to implement it.
7 Min Read
These days, self-storage operators are navigating an entirely new landscape in the face of increased supply and lowered demand. We’re all looking for new ways to grow revenue. No doubt you’re already implementing rent increases, offering tenant insurance, and selling other products and services like retail merchandise, truck rentals and boat/RV storage. What else can you do to improve income?
Tiered, value-based unit pricing is a fairly new concept in the self-storage industry. More and more facility-management software companies are rolling out this feature and making it easier to use. But how do you know if it’s the right model for your business? How do you leverage it properly and assess its performance? Let’s look at some of the benefits, best practices and caveats, so you’ll have the information you need to succeed.
The Basics of Value-Tiered Pricing
A tiered self-storage pricing model—also referred to as “good, better, best” pricing—allows you to charge for your units based on the value they bring to the customer. Not all storage spaces are the same. Some are more convenient or modern and, therefore, more desirable. Units can differ in terms of location and many other features, for example:
Location: A unit might be close to (or far away from) the entrance, management office, elevator, security cameras, etc. It might be ground level or on an upper floor.
Ease of access: The customer may be able to drive up to the space or have to park and go inside a building. The unit might have double doors, front and back, which makes it easier to organize and move contents.
Climate control: The unit might be traditional, with no heating or cooling, or it may be kept at a set level of temperature and humidity.
Electricity: Some spaces come equipped with interior lights and even power outlets.
Technology: You might offer spaces with smart locks, individual unit alarms or interior motion sensors.
The idea is that by pricing your units in tiers based on certain amenities and their appeal, some customers will choose the higher-priced options, and you can increase the average value of new rentals. Here are some additional benefits:
Create additional sales opportunities. When working with price-sensitive self-storage customers, tiered pricing allows you to offer a more economical rental option based on their individual needs and financial situation. It’s also an easy way to upsell, as the added features and benefits of the “premium” units are clearly outlined.
Reduce the need for promotions and discounts. If you’re offering multiple tiers and prices for each type of self-storage unit and giving the customer the ability to choose, it should reduce the need for aggressive promotions. It’s an opportunity to limit your discount expense and customer-acquisition cost.
Differentiate your facility from competitors. Tiered unit pricing allows you to cater to a wider range of customers. It’s also likely unique when compared to competing facilities that only offer a street or web rate.
Rent less desirable or hard-to-access units. Consider adding a discount tier for those units that are generally hard to rent, for example, those at the end of an upper-level hallway or at the back of a drive-up property. These budget-friendly options will appeal to a certain portion of your customer base and help you fill those stubborn spaces.
Simplify your offerings. Value-based pricing can allow you to reduce the number of self-storage unit options you offer on your website, which streamlines the rental process for customers. By consolidating units by type and assigning them each to a tier, visitors can quickly and easily see their options.
Is It Doable?
If you’d like to consider using a tiered, value-based pricing model for your self-storage operation, the first thing to do is to confirm whether your facility-management software and website can support it. Ask for an example of how price tiers would display on your website. You shouldn’t have to sacrifice a positive user experience. If you’re using a third-party service like a call center, check to make sure they can support this strategy as well.
Self-storage pricing can be a challenge, and a tiered-value structure can add a layer of complexity. Expanding from one or two price points per unit type to three, four or more can make things more complicated and may change the structure of your management reports. If you have staff and other resources dedicated to revenue management, they should be able to manage it.
Implement Your Strategy
Every self-storage management software seems to have a different process for setting up tiered, value-based pricing; but there are some general steps to follow. First, if you operate more than one facility, decide which site would be best for testing this new model. You might base this decision on the quality of the asset, the experience of the onsite management team, or the range of units available at the property. Next, take your full inventory list, organized by unit type, and walk the site to identify which spaces could be priced higher than others based on location, convenience, climate control and other features.
Now take your notes back to your computer and assign each unit to a price tier. If you set your street rate as your lowest tier and apply a premium to the middle and highest levels, you’re creating the best opportunity to grow your self-storage revenue.
When ranking each of your storage units based on desirability, you may find that these decisions can be somewhat arbitrary. Is the space being 10 feet closer to the front gate enough to justify charging more for it? Don’t be afraid to experiment with your pricing until you find what works. Most new customers will choose a lower-priced tier—depending on your market, of course. However, you should see as many as 25% of new rentals opting for premium options.
Measure and Evaluate
Once you have one or more of your self-storage facilities operating on a value-based pricing strategy, keep an eye on the performance. If you’re on the fence, try running a basic A/B test over a couple of months. This would mean choosing two facilities that are similar in market, size and quality with comparable monthly rental activity and lead flow. Set up tiered pricing at one and keep your existing rate strategy at the other.
Some specific metrics to watch and compare are month-over-month revenue growth, changes in lead flow and monthly conversion rates. Some self-storage software programs have a specific report that’ll tell you the percentage of new move-ins that opted for the premium spaces. If none of your new tenants are choosing them, make sure you haven’t priced them too high. Also, consider whether staff need more training on how to promote those options. If you see more than 25% of new customers selecting your higher-tier options, consider increasing prices.
When my company started its value-tiered pricing model, we were told that we could expect to see a revenue increase of 4% to 10% from new move-ins. To measure the performance of your own program, take your average new-move-in value for each unit type before launch and compare it to your new average two months after. Of course, you may need to factor in normal rate fluctuations that occur due to seasonality or any increases your company is in the process of executing.
Another option is to take the sum of all new rent rates with value-tier pricing, then the average standard or web rate you would’ve used had you not made the switch. Multiply that average by the number of new rentals and subtract that number from the sum of all new actual rent rates. This will tell you how much more rent you collected as a result of the new program.
Remember, a huge element of success in tiered pricing is the training you give your self-storage managers. They should be well-equipped to apply this new model to their daily interactions with customers.
If you’re looking for ways to grow revenue at your self-storage facility, value-based, tiered unit pricing might be a great option. Of course, it isn’t the only approach; but it can add more money to your business while improving your customer experience.
Mike Scott is the revenue operations manager for Spartan Investment Group, a real estate investment company that operates the FreeUp Storage brand. His ongoing research is being used to develop the company’s revenue-management strategy and optimize income across the portfolio with an emphasis on customer retention. Before working at Spartan, Scott worked in data-analytics roles across the real estate services and mineral-rights industries. For more information, call 866.375.4438 or email [email protected].
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