Chop, Chop--Meat-Cleaver Management

June 1, 2001

5 Min Read
Chop, Chop--Meat-Cleaver Management

The Importance of Income Management

By Harley Rolfe

Themeasure of success for any business is its income. That tells how apt theenterprise is at attracting customers. Many would say profitability is themeasure of success and, ultimately, it is. But profit begins with income. So whydon't we better manage it? Surprisingly, we seem to have the least informationon that aspect of our operations.

The typical businessman has excellent data about his expense picture. Thereare separate accounts for each important category. Known as a chart of accounts,it meets the need to have timely information available to control criticaloperating expenses. But when it comes to income, the self-storage manager maynot have a clue. Accounting programs provide little or nothing about thecomposition, hows and whys of profits.

Chop, Chop--Meat-Cleaver Management

Empirically, the owner may have an inkling about his profits, but to knowprecisely and over time what the various market areas are producing is moredifficult. He doesn't see month-to-month trends for the 20 or so categories ofuses/applications that make up the overall tenant base. Usually, the attitude isthat if the total is going up, that's a good thing. If not, then you do what youcan--chop expenses some more, chop rates. Chop, chop, chop--you can hear thecleaver.

The option of deliberately attracting the type of users you prefer andimproving revenue in an analytical and deliberate manner is generally notconsidered. Managers focus on expenses and hope for the best on income. But itdoesn't make sense to not define and detect activity that pushes the whole upperhalf of everyone's profit-and-loss statement, does it?

You need an early-warning system. You need to know which market segments aregrowing or waning, or if a rival is swiping one of your prized categories. If anexpense is out of control, it quickly triggers inquiry and evaluation. You makea remedial response. But that approach is simply not possible for changes inincome. Most operators lack the requisite market-driven information.


You are not alone. Very few commodity operators have such data. The mainmanagement emphasis for commodity operations is often cost control. Sincemanagers don't think they have control over the income side, they devote littleeffort to setting up an income-information system. The result? Little amounts ofmarket information result in little control of income.

"Management" means responding to information about the operatingparticulars of your business. That basic idea is the foundation for the designof business- information systems. If information is not generated about a vitalpart of your operation, the manager cannot control that area effectively. Youmanage what you have information about. Doesn't that make sense?

What Is Step One?

In this column, I usually extol the virtues of operating a marketing programin response to competition. Competition is usually what spurs operators to makethe jump from a commodity to a product operation. And most feel that when thecompetition bell tolls, they should start using advertising and otherpromotions. That might work, but the first step should be to install anincome-reporting system that is as useful and refined as the system they use tomonitor expenses.

Expense reporting is ingrained in all accounting programs. It's inescapable.Every time you write a check, you are required to identify the expense accountor category. The accounting profession has very precise definitions for thevarious expense categories. Much of that is for the benefit of the IRS, but itforces all of us to a degree of uniformity when analyzing and expressing ourfinancial results.

There is no such enforcer when it comes to income reporting. You can makedeposits all year and never know much about where or why that income isoccurring. You won't know that the retail- distribution segment is disappearingor that remodelers are starting to use self-storage. As your market situationheats up and some kind of action is required, you may have only a modicum ofincome information. Monitoring your income means constant frustration becauseyou must guess about so many things.

When you are troubled by a competitive challenge, guessing is risky. If youaim and miss on a remedial program, several things happen--all bad. The marketthreat you attempted to address persists. You may well have incurred mediaexpense to little avail. You lose confidence that you know how to manage thispart of your operation. So at a time when decisive action is required, youhesitate. The threat is still eroding your market position and you must dosomething. Many will resort to the obvious answer: chop something.

It's There for the Asking

An integrated marketing program spares you such an experience. You need anongoing income-source system. To start the process, send questionnaires to yourexisting tenants. Enclose a little goodie (candy, key-chain, pen, etc.) to thankthem in advance for helping you. If you are gracious when making your request,and if you have a good relationship with your tenants, they will respond.

You don't want to know much--just what happened in their lives that promptedthe need for storage and why they choose your facility. That will help youdetermine what your segments are. Once you know what prompted your previoustenants to seek you out, you can make a checklist. Then you use the checklist toregularly collect data as each new tenant signs up. Make room for the additionof new categories. That's how you expand your market.

Because there is usually high tenant turnover, in a few months, you willbegin to have a profile of what causes people to need storage. I hope yourealize how valuable this information is. It is the basis for forming asales-promotion appeal for the various segments using your facility. Mostbusinesses have to speculate on who and where their prospects are. You have ayard full of tenants who are satisfying their needs by using your facility. Theinformation you need for your income-source system is there for the asking.

So, are you fully managing your business? Yes--if you know as much about yourincome as you do about your expenses.

Harley Rolfe is a semi-retired marketing specialist whose career includesexecutive-level marketing positions with General Electric and AT&T. He alsoowned lodging and office facilities for more than 20 years. Mr. Rolfe holds abachelor's degree in economics from Wabash College and a master's degree inbusiness administration from the University of Indiana. He can be reached at hishome in Nampa, Idaho, at 208.463.9039. Further information can also be found inMr. Rolfe's book, Hard-Nosed Marketing for Self-Storage.

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