Back to the Basics: Revenue Management 101
A Close Look at Revenue Management for Self-Storage
As a self-storage operator in 2019, you have a wide variety of revenue management options just waiting to be tapped into. Too often, these options are overlooked and cast aside, but in order to give you the maximum return on your investment I want to go over some actionable methods of boosting your facility’s profitability that can be implemented immediately.
Facility-Wide Rate Changes for Existing Tenants
These types of rate changes have become standard practice throughout the industry, but many factors should be taken into consideration before implementation in order to minimize tenant impact. Justin Jones, a moderator on the Self-Storage Talk forums and owner and operator of Monument Court Storage explains his rate changes practices: “Current tenants are one cycle below the newest street rate increase, they love us for it, we treat them well and my average stay is just under 5 years.” Jones provides a good point for keeping customer loyalty by explaining that you should never increase your current tenants above the street rate.
Another critical point you should take into consideration would be the timing of your rate increase. Do you have any improvements scheduled this year for your facility? If so, schedule your rate change in accordance with these improvements to have a dramatic effect on how your tenants react. Spending some time working on your facility’s landscaping or simply adding a fresh coat of paint will surely be noticed by your tenants and can help the transition to an adjusted rate.
Dynamic Rate Changes Based on Occupancy (Push Rates)
Push rates, or rate changes based on occupancy, are rates that are based on the supply and demand of your available units and intended to give you the best possible return of investment. While these changes can be quite helpful for some facilities, the considerations for these changes should not be taken lightly. Because you set these changes to take place automatically within your software, be aware of any advertising that you have put into place previously that might not reflect the rates that are currently in effect. If your self-storage software is already integrated with online rental services such as Storelocal or Clickandstor 3.0 it should already show the adjusted rates properly on their service site, but being aware of your overall exposure is the key to avoiding any possible issues with your tenants. The last thing any manager wants is to quote a price that is not consistent with an advertised rate.
However, once these rate changes are in place properly they can maximize your facility’s profitability by automatically adjusting your rates to accommodate your inventory levels at all times. The very basics of increasing your self-storage operation’s profit have always been to increase rates with a high occupancy, while also making your lower occupancy units seem more attractive and these push rates are designed to accomplish just that.
Automated Future Rate Increases for New Tenants
Using automated rate increases for each individual new move-in is a fast-growing practice among many facility operators. These increases can be used in order to ease the stress of rate management while making a huge impact on your long-term profit margin. This is done by simply creating a custom billing plan within your management software and creating an automated rate change for new customers. The rate change will automatically apply a predetermined rate change after a set amount of time and can be set to recur in later months.
A whitepaper released by SpareFoot suggests “the average rate increase for existing contracts should be in the 6 to 12% range. The key is to administer rate increases based on move-in date, with plenty of advance notification. You don’t want to give your entire population an increase at the same time.”
Based on their suggestion, a facility should safely be able to create a standard rate increase to new customers that will generate notices 30-60 days in advance and will apply a 10% increase after 9 months which reoccurs again every 9 months with minimal tenant disruption. Depending on the capabilities of your management software, implementation can take as little as three minutes to setup, giving you the next 57 minutes of your hour to spend smiling about how easy it was.
Which Revenue Management Practices Suit You Best?
In the end, each individual operation has to decide which means of revenue management is best suited for them. Not all facilities are going to benefit from these methods, but if you are an operator with a consistently high occupancy on your units or have not made a rate adjustment within a reasonable time period it might be the time to give some thought to these common practices. Find the balance that will work best for you and your tenants and while sometimes operators are hesitant to implement these changes, the outcome will help ensure your facility’s advancement within your market.
Have questions about any of these revenue management techniques or simply want help setting one up?
Leave us a comment below or contact us directly and a Storage Commander team member will help you start generating more profit today.